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Filed Pursuant to Rule 424(b)(4)
Registration File No.: 333-78459
[NEXTEL PARTNERS INC LOGO OMITTED]
EXCHANGE OFFER FOR
14% SENIOR DISCOUNT NOTES DUE 2009
- --------------------------------------------------------------------------------
This is an offer to exchange the outstanding, unregistered Nextel Partners
14% Senior Discount Notes you now hold for new, substantially identical 14%
Senior Discount Notes that will be free of the transfer restrictions that apply
to the old notes. This offer will expire at 5:00 p.m., New York City time, on
September 1, 1999, unless we extend it.
The new notes will not trade on any established exchange.
YOU SHOULD CAREFULLY REVIEW THE RISK FACTORS BEGINNING ON PAGE 10.
Neither the SEC nor any state securities commission has approved or
disapproved of these securities or passed upon the adequacy or accuracy of
this prospectus. Any representation to the contrary is a criminal offense.
JULY 30, 1999
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TABLE OF CONTENTS
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PAGE
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Nextel Partners ......................... 1
Risk Factors ............................ 10
Use of Proceeds ......................... 19
Capitalization .......................... 20
Management's Discussion and
Analysis of Financial Condition
and Results of Operations ............ 21
Where You Can Find More
Information .......................... 32
Delivery of Prospectus .................. 32
Business ................................ 33
Regulation .............................. 54
Management .............................. 58
Certain Relationships and Related
Transactions ......................... 63
</TABLE>
<TABLE>
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PAGE
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Ownership of Capital Stock and
Principal Stockholders ............... 72
The Exchange Offer ...................... 77
Description of the Notes ................ 87
Book-Entry; Delivery and Form ........... 124
Description of Credit Facility .......... 126
Material United States Federal
Income Tax Consequences .............. 129
Plan of Distribution .................... 132
Legal Matters ........................... 133
Experts ................................. 133
Index to Consolidated Financial
Statements ........................... F-1
Index to Pro Forma Unaudited
Consolidated Financial Statement...... P-1
</TABLE>
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NEXTEL PARTNERS
Nextel Partners provides, or is preparing to provide, digital wireless
communications services in mid-sized and smaller markets throughout the United
States. We are the only wireless service provider licensed to use the Nextel
(Registered Trademark) brand name in these markets, and offer the same package
of digital wireless communications services that Nextel Communications uses in
its own markets.
We are building our systems to be operationally seamless with those of
Nextel, so that customers of each company are able to roam within and between
the two companies' systems with equal ease and at no additional charge.
Together, our facilities and those of Nextel will operate as a single,
nationwide wireless communications system that we call the Digital Mobile
Network.
We currently offer three services accessible through a single device:
o cellular telephone service;
o the Nextel Direct ConnectSM feature that allows users to contact
co-workers instantly, one-to-one or on a conference call; and
o the ability to receive pages and short text messages.
We have rights to use the Nextel brand name and radio frequencies in our
territory which includes markets where 33 million people live or work and will
use the same Motorola iDENTM technology Nextel uses in our network. We also
have operating agreements with Nextel that give us access to facilities which
monitor the network, including the switches that direct calls to their
destinations, customer activation, billing, customer care and other back-office
support services, technology improvements and employee training.
We currently operate in five markets in Hawaii and upstate New York, where
4.5 million people live or work. We expect to launch service in four additional
markets by the end of 1999, and expect to serve a total of 39 markets where
22.4 million people live or work by the end of 2001.
On January 29, 1999, we raised, or had irrevocable commitments for, $989.4
million in debt and equity capital, which we believe will be sufficient to fund
our initial network build-out and anticipated operating losses through 2003.
Our principal executive offices are located at 4500 Carillon Point,
Kirkland, Washington 98033. Our telephone number is (425) 828-1713.
BUSINESS STRATEGY
Our current strategy for success in the competitive market for wireless
communications services includes the following key elements:
o concentrating our sales efforts on mobile workers, including personnel in
the transportation, delivery, real property and facilities management,
construction and building trades, and landscaping and other service
sectors;
o adopting pricing strategies that we believe will prove both profitable and
attractive to customers;
o developing efficient, uniform operations to support our customer
activation, billing and customer care activities; and
o developing relationships with vendors and distributors similar to those
agreed to with Nextel.
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THE EXCHANGE OFFER
The Exchange Offer.......... We are offering to exchange $1,000 principal
amount at maturity of our 14% Senior Discount
Notes due 2009 which have been registered under
the Securities Act for each $1,000 principal
amount at maturity of our outstanding 14% Senior
Discount Notes due 2009 which were issued on
January 29, 1999 in a private offering. In order
to be exchanged, an old note must be properly
tendered and accepted. We will exchange all notes
validly tendered and not validly withdrawn. There
is $800.0 million aggregate principal amount at
maturity of old notes outstanding.
Expiration and
Exchange Dates.............. This offer will expire at 5:00 p.m., New York
City time, on September 1, 1999 unless we extend
it, and we will consummate the exchange on the
next business day.
Registration Rights......... You have the right to exchange the old notes
that you now hold for new notes with
substantially identical terms. This exchange
offer is intended to satisfy these rights. After
the exchange offer is complete, you will no
longer be entitled to any exchange or
registration rights with respect to your notes.
Conditions.................. This offer is subject to various conditions. We
reserve the right to terminate or amend the offer
at any time before the expiration date if
specified events occur.
Withdrawal Rights........... You may withdraw your tender of old notes at
any time before the offer expires.
Material Federal Income Tax
Consequences of
the Exchange................. Willkie Farr & Gallagher has acted as our
counsel in rendering an opinion as to all
material federal income tax consequences of the
exchange. It is their opinion that the exchange
will not be a taxable event for United States
federal income tax purposes and thus, you will
not recognize any taxable gain or loss or any
interest income as a result of such exchange.
Resale Without Further
Registration............... We believe that the new notes may be offered
for resale, resold and otherwise transferred by
you without compliance with the registration and
prospectus delivery provisions of the Securities
Act so long as the following statements are true:
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o you acquire the new notes issued in the
exchange offer in the ordinary course of your
business;
o you are not one of our "affiliates," as
defined in Rule 405 of the Securities Act of
1933, as amended; and
o you are not participating, and do not intend
to participate, and have no arrangement or
understanding with any person to participate,
in the distribution of the new notes issued
to you in the exchange offer.
By tendering your notes as described below, you
will be making representations to this effect.
Transfer Restrictions on
New Notes.................. You may incur liability under the Securities
Act if:
(1) any of the representations listed above
are not true; and
(2) you transfer any new note issued to you in
the exchange offer without:
o delivering a prospectus meeting the
requirements of the Securities Act, or
o qualifying for an exemption under the
Securities Act's requirements to
register your new notes.
We do not assume or indemnify you against any
such liability. Each broker-dealer that is
issued new notes for its own account in exchange
for old notes that were acquired as a result of
market-making 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 the new notes.
A broker-dealer may use this prospectus for an
offer to resell, a resale or other transfer of
the new notes issued to it in the exchange
offer.
Procedures for Tendering
Old Notes.................. Each holder of old notes who wishes to accept
the exchange offer must:
o complete, sign and date the accompanying
letter of transmittal, or a facsimile
thereof, or
o arrange for The Depository Trust Company to
transmit certain required information to the
exchange agent in connection with a
book-entry transfer.
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You must mail or otherwise deliver such
documentation and your old notes to The Bank of
New York, the exchange agent, at the address set
forth under "The Exchange Offer-- Exchange
Agent."
Failure to Exchange Will Affect
You Adversely.............. If you are eligible to participate in the
exchange offer and you do not tender your old
notes, you will not have any further registration
or exchange rights and your old notes will
continue to be subject to some restrictions on
transfer. Accordingly, the liquidity of the old
notes could be adversely affected.
Special Procedures for Beneficial
Owners..................... If you beneficially own old notes registered in
the name of a broker, dealer, commercial bank,
trust company or other nominee and you wish to
tender your old notes in the exchange offer, you
should contact the registered holder promptly and
instruct it to tender on your behalf. If you wish
to tender on your own behalf, you must, before
completing and executing the letter of
transmittal for the exchange offer and delivering
your old notes, either arrange to have your old
notes registered in your name or obtain a
properly completed bond power from the registered
holder. The transfer of registered ownership may
take considerable time.
Guaranteed Delivery
Procedures.................. You may comply with the procedures described in
this prospectus under the heading "The Exchange
Offer-- Guaranteed Delivery Procedures" if you
wish to tender your old notes and:
o time will not permit your required documents
to reach the exchange agent by the expiration
date of the exchange offer,
o you cannot complete the procedure for
book-entry transfer on time, or
o your old notes are not immediately
available.
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THE NEW NOTES
The new notes have the same financial terms and covenants as the old
notes, which are as follows:
Issuer...................... Nextel Partners, Inc.
Maturity.................... February 1, 2009.
Accreted Value
and Interest................ The aggregate accreted value of the notes will
increase from $406.4 million at issuance on
January 29, 1999 at a rate of 14% per year,
compounded semi-annually, to their aggregate
principal amount at maturity of $800 million at
February 1, 2004.
Beginning on and after February 1, 2004, cash
interest will accrue at the rate of 14% per
year, payable semi-annually in arrears on
February 1 and August 1 of each year, beginning
on August 1, 2004.
Ranking..................... The new notes are:
(1) senior unsecured indebtedness of Nextel
Partners, ranking equally in right of
payment with all existing and future senior
unsecured obligations of Nextel Partners;
(2) senior in right of payment to all existing
and future subordinated obligations of
Nextel Partners; and
(3) effectively subordinated to all secured
obligations of Nextel Partners to the
extent of the value of the assets securing
those obligations.
Our operations are conducted through our
subsidiaries, effectively subordinating the new
notes to all existing and future obligations of
our subsidiaries, including the borrowings under
the credit facility and trade payables of our
subsidiaries. At March 31, 1999, our
subsidiaries had $193.8 million in outstanding
liabilities, including trade payables, of which
$175 million were secured obligations.
Optional Redemption......... On or after February 1, 2004, we will have the
right to redeem any or all of the new notes at
their principal amount at maturity plus accrued
interest and a premium initially equal to 7.0%
and declining annually after that date.
In addition, before February 1, 2002, we have
the right to use the net cash proceeds of
qualifying offerings of stock to redeem up to
35% of the sum of the issue price of the old
notes plus any principal or interest that shall
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have accrued from the issue date of the old
notes at a redemption price equal to 114% of
their accreted value. For more information, see
"Description of the Notes--Optional Redemption."
Material Federal Income Tax
Consequences of Holding
the Notes................. Willkie Farr & Gallagher has acted as our
counsel in rendering an opinion as to all
material federal income tax consequences of
holding the notes. It is their opinion that
the accretion of the notes from their
original issue price to their principal
amount at maturity will produce taxable
ordinary interest income in the amount of
the accretion for holders of the notes
during the accretion period. The Internal
Revenue Code calls this original issue
discount. For more information, see
"Material United States Federal Income Tax
Consequences."
Change of Control........... If an event treated as our change of control
occurs, we must make an offer to purchase any and
all of the new notes then outstanding from you at
a cash purchase price equal to 101% of the
accreted value of the new notes to the date of
purchase prior to February 1, 2004 or 101% of the
aggregate principal amount of the new notes, plus
accrued and unpaid interest, if any, to the date
of purchase thereafter. For a summary of what
constitutes a change of control, see "Description
of the Notes--Covenants--Change of Control."
Covenants................... The indenture under which the old notes have
been and the new notes are being issued contains
covenants for your benefit which, among other
things and subject to certain exceptions,
restrict our ability and the ability of our
subsidiaries to:
o incur indebtedness;
o make certain payments;
o enter into certain transactions, including
transactions with affiliates;
o engage in any business other than
telecommunications;
o create liens;
o pay dividends or make other distributions;
o issue or sell shares of capital stock of
certain subsidiaries; and
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o consolidate, merge or sell all or
substantially all of our assets or the assets
of our subsidiaries.
The indenture allows modification and amendment
of these and other covenants by a vote of
holders of a majority in aggregate principal
amount at maturity of the notes, subject to
exceptions described in the indenture. Also,
holders of a majority in aggregate principal
amount at maturity of the notes may waive our
compliance with certain other restrictive
covenants in the indenture.
For additional information regarding the notes, see "Description of the
Notes" and "Material United States Federal Income Tax Consequences."
RISK FACTORS
See "Risk Factors" immediately following this summary for a discussion of
risks relating to the new notes, all of which apply to the old notes as well.
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SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION AND OPERATING DATA
(DOLLARS IN THOUSANDS)
We have summarized below our historical consolidated financial data as of
March 31, 1999 and December 31, 1998 and for the three month periods ended
March 31, 1999 and 1998 and for the year ended December 31, 1998 and the
unaudited pro forma financial and other data for the three month period ended
March 31, 1999 and the year ended December 31, 1998. The pro forma unaudited
consolidated statement of operations and cash flows for the three month period
ended March 31, 1999 and for the year ended December 31, 1998 gives effect to
the issuance of the old notes and the application of $130.9 million of the net
proceeds therefrom representing the return of capital dividend payment made to
Nextel on January 29, 1999 as if they had occurred on the first day of such
period. We raised approximately $633.5 million in gross cash proceeds on
January 29, 1999 through cash equity investments of $52.1 million, borrowings
under the credit facility of $175.0 million and the issuance of the old notes
with gross proceeds of approximately $406.4 million. We have made the
conservative assumption that the dividend to Nextel was paid using the proceeds
of the old notes since it currently carries the highest interest rate. We
believe the unaudited historical interim consolidated financial statements have
been prepared on the same basis as the audited financial statements and include
all adjustments, which consist only of normal recurring adjustments necessary
for the fair presentation of our financial position and results of operations.
The pro forma operating results shown below are not necessarily indicative of
what actual results would have been for the three month period ended March 31,
1999 and for the full year ended December 31, 1998. The historical operating
data presented below are derived from our records.
Please read this table together with Management's Discussion and Analysis
of Financial Condition and Results of Operations, our audited consolidated
financial statements and the notes thereto and the pro forma unaudited
consolidated financial statement and accompanying discussion and notes thereto
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE AS OF AND FOR THE YEAR
MONTH PERIODS ENDED MARCH 31, ENDED DECEMBER 31, 1998
--------------------------------------------- ---------------------------------
1999
1999 AS ADJUSTED FOR 1998 AS ADJUSTED FOR THE
ACTUAL THE OFFERING ACTUAL ACTUAL OFFERING
------------- ----------------- ------------- ------------ --------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Operating revenues:
Service revenues ............................ $ 3,493 $ 3,493 $ 153 $ 3,745 $ 3,745
Equipment revenues .......................... 811 811 -- 1,564 1,564
--------- --------- -------- --------- ---------
Total revenues ............................... 4,304 4,304 153 5,309 5,309
--------- --------- -------- --------- ---------
Operating expenses:
Cost of service revenues .................... 3,106 3,106 301 6,108 6,108
Cost of equipment revenues .................. 1,718 1,718 -- 2,935 2,935
Selling, general and administrative ......... 5,231 5,231 713 13,531 13,531
Deferred compensation ....................... 641 641 -- 447 447
Depreciation and amortization ............... 2,515 2,515 229 4,586 4,586
--------- --------- -------- --------- ---------
Total operating expenses ..................... 13,211 13,211 1,243 27,607 27,607
--------- --------- -------- --------- ---------
Loss from operations ......................... (8,907) (8,907) (1,090) (22,298) (22,298)
Interest expense ............................. 12,529 14,114 -- -- 20,020
Interest income .............................. 4,013 4,013 -- -- --
--------- --------- -------- --------- ---------
Loss before income tax provision ............. (17,423) (19,008) (1,090) (22,298) (42,318)
Income tax provision ......................... -- -- -- -- --
--------- --------- -------- --------- ---------
Net loss ..................................... $ (17,423) $ (19,008) $ (1,090) $ (22,298) $ (42,318)
========= ========= ======== ========= =========
</TABLE>
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<TABLE>
<CAPTION>
AS OF AND FOR THE THREE
MONTH PERIODS ENDED MARCH 31,
---------------------------------------------
1999
1999 AS ADJUSTED FOR 1998
ACTUAL THE OFFERING ACTUAL
------------- ----------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OTHER DATA:
Ratio of earnings to fixed charges (1) ................. $ - - $ --
Working capital (2) .................................... $463,446
EBITDA as adjusted (3) ................................. $ (5,751) $ (5,751) $ (861)
Capital expenditures (4) ............................... $ 7,385 $ 7,385 $ 45,476
Cash flows provided by (used in) operating activities .. $ 5,727 $ 5,727 $ 473
Cash flows used in investing activities ................ $ (9,585) $ (9,585) $ (45,476)
Cash flows provided by financing activities ............ $304,654 $304,654 $ 45,003
<CAPTION>
AS OF AND FOR THE YEAR
ENDED DECEMBER 31, 1998
-----------------------------------
AS ADJUSTED FOR THE
ACTUAL OFFERING
-------------- --------------------
(UNAUDITED)
<S> <C> <C>
OTHER DATA:
Ratio of earnings to fixed charges (1) ................. $ -- $ --
Working capital (2) .................................... $ (5,755)
EBITDA as adjusted (3) ................................. $ (17,265) $ (17,265)
Capital expenditures (4) ............................... $ 104,334 $ 104,334
Cash flows provided by (used in) operating activities .. $ (14,791) $ (14,791)
Cash flows used in investing activities ................ $ (104,334) $ (104,334)
Cash flows provided by financing activities ............ $ 119,141 $ 119,141
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, 1999 DECEMBER 31, 1998
ACTUAL ACTUAL
---------------- ------------------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents and restricted cash (5) ......... $475,812 $ 16
Current assets ............................................ $482,207 $ 3,240
Plant, property and equipment, net ........................ $112,950 $107,948
FCC operating licenses, net ............................... $133,048 $133,180
Non current assets ........................................ $155,391 $136,478
Total assets .............................................. $750,548 $247,666
Current liabilities ....................................... $ 18,761 $ 8,995
Long term debt ............................................ $591,178 $ --
Total shareholders' equity ................................ $140,609 $238,671
</TABLE>
- ----------
(1) "Earnings" is defined as earnings before extraordinary items and
accounting changes, interest expense, amortization of deferred financing
costs, and taxes. Fixed charges consist of interest expense, amortization
of deferred financing costs and a portion of rent expense under operating
leases representative of interest. For the year ended December 31, 1998,
earnings were insufficient to cover fixed charges by $28.6 million. On a
pro forma basis for the same period, earnings would have been
insufficient to cover fixed charges by $48.6 million. For the three month
period ended March 31, 1999, earnings were insufficient to cover fixed
charges by $18.2 million. On a pro forma basis for the three month period
ended March 31, 1999, earnings would have been insufficient to cover
fixed charges by $19.8 million. The difference between all amounts
disclosed above and net loss represents interest capitalized by us.
(2) Working capital is defined as the excess (deficiency) of current assets
over current liabilities.
(3) EBITDA as adjusted represents net loss before interest expense, interest
income, depreciation, amortization and deferred compensation expense.
EBITDA is commonly used to analyze companies on the basis of operating
performance, leverage and liquidity. While EBITDA as adjusted should not
be construed as a substitute for operating income or a better measure of
liquidity than cash flow from operating activities, which are determined
in accordance with generally accepted accounting principles, we have
presented EBITDA as adjusted to provide additional information with
respect to our ability to meet future debt service, capital expenditure
and working capital requirements. EBITDA as adjusted is not a measure
determined under generally accepted accounting principles. Also, EBITDA
as adjusted as calculated above may not be comparable to similarly titled
measures reported by other companies.
(4) Capital expenditures are cash outlays during the period related to
depreciable property, plant and equipment. Capital expenditures are
required to purchase network equipment, such as switching and radio
transmission equipment. Capital expenditures also include purchases of
other equipment used for administrative purposes, such as office
equipment and computer and telephone systems.
(5) Restricted cash reflects the cash collateral account maintained under the
credit facility equal to borrowings outstanding, until the FCC has
approved the transfer applications.
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RISK FACTORS
Before tendering the old notes in the exchange offer, you should carefully
consider the following risk factors. The new notes, like the old notes, entail
the following risks:
WE NEED TO BUILD SUBSTANTIAL NETWORK FACILITIES AND DEVELOP A CUSTOMER BASE
BEFORE WE CAN GENERATE EARNINGS TO SERVICE OUR DEBT
Nextel Partners had no operating history until January 29, 1999, and the
networks we acquired on that date only had a few months of operating history.
We expect to spend significant amounts for site acquisition, construction,
testing and deployment before our commencement of full-scale commercial
operations. If we fail to complete the commercial launch of our portion of the
Digital Mobile Network on schedule or if we fail to achieve significant and
sustained growth in our revenues and earnings from operations, we will not have
sufficient cash from operations to repay or refinance the notes and our other
debt.
OUR SUBSIDIARIES MAY NOT BE IN A POSITION TO PAY US THE CASH WE NEED TO MAKE
PAYMENTS ON THE NOTES
We are a holding company and conduct our business principally through
operating subsidiaries. Accordingly, we depend on payments from our
subsidiaries to provide the cash necessary to make the payments on the notes.
Our subsidiaries may not generate earnings sufficient to enable us to meet our
payment obligations.
Our principal operating subsidiary is the primary obligor on a $275.0
million credit facility that is structurally senior to the notes, secured by
the operating assets and a pledge of the stock of our subsidiaries, and
contains covenants that restrict dividends and other payments to us by our
subsidiaries. Future debt agreements of our subsidiaries likely will also
impose significant restrictions on the ability of our subsidiaries to pay
dividends or make other payments to us that would be necessary to make interest
payments on the notes or to repay the notes at maturity.
BECAUSE THE NOTES ARE STRUCTURALLY SUBORDINATED TO THE OBLIGATIONS OF OUR
SUBSIDIARIES, YOU MAY NOT BE FULLY REPAID IF WE BECOME INSOLVENT
All of our operating assets are held directly by our subsidiaries. As a
result, the notes are structurally subordinated to the debts and other
obligations of our subsidiaries. This means that creditors of our subsidiaries,
including trade creditors, have and will have direct claims against our
subsidiaries and would receive payments from the assets of our subsidiaries or
assets pledged as security before you would receive any payments if we become
insolvent. The indenture relating to the notes permits our subsidiaries to
incur additional debt that would be structurally senior to the notes.
BECAUSE THE NOTES THAT YOU HOLD ARE UNSECURED, YOU MAY NOT BE FULLY REPAID IF
WE BECOME INSOLVENT
The notes are not secured by any of our assets or those of our
subsidiaries. Therefore, you may not be fully repaid if we become insolvent. In
addition, the indenture relating to the notes permits us to incur additional
secured debt. If we incur secured debt, and we become insolvent, the holders of
the secured debt would receive payments from the assets used as security before
you receive payments.
WE HAVE SUBSTANTIAL EXISTING DEBT AND WILL INCUR SUBSTANTIAL ADDITIONAL DEBT,
SO WE MAY BE UNABLE TO MAKE PAYMENTS ON THE NOTES THAT YOU HOLD
As of March 31, 1999, we had approximately $609.9 million of indebtedness,
of which $591.2 million were secured obligations. The indenture relating to the
notes permits us to
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incur additional indebtedness, and if we expand the scope of our business plan,
we would expect to borrow substantial additional funds, which may include
secured borrowings. A higher level of debt may make it more difficult for us to
repay you.
OUR EXISTING DEBT INCLUDE RESTRICTIVE AND FINANCIAL COVENANTS WHICH WE MAY NOT
BE ABLE TO MEET IN THE FUTURE AND THEREBY AFFECT OUR ABILITY TO MAKE PAYMENTS
ON THE NOTES YOU HOLD
The indenture relating to the notes and the credit facility contain
certain covenants that, among other things, restrict our or our subsidiaries'
ability to:
o incur additional debt;
o pay dividends or distributions on, or redeem or repurchase, capital
stock;
o create liens on assets;
o make investments, loans or advances;
o issue or sell capital stock of certain of our subsidiaries;
o enter into transactions with affiliates;
o enter into sale and leaseback transactions;
o enter into a merger, consolidation or sale of assets; or
o engage in any other business other than telecommunications.
In addition, the credit facility imposes financial covenants which require
our principal subsidiary to comply with specified financial ratios and tests,
including minimum interest coverage ratios, maximum leverage ratios, minimum
service revenues, minimum subscriber units and covered populations, minimum
EBITDA as adjusted requirements and minimum fixed charge coverage ratios. If
the financial covenants are not met, the lenders under the credit facility will
be entitled to declare such indebtedness immediately due and payable.
We cannot assure you that we or our subsidiaries will be able to meet
these requirements or satisfy these covenants in the future which may affect
our ability to repay you.
WE MIGHT NOT HAVE CASH FROM OPERATIONS FROM WHICH TO MAKE PAYMENTS ON THE NOTES
YOU HOLD
For the period ended March 31, 1999, we had a deficiency in our ratio of
earnings to fixed charges of approximately $18.2 million. We expect to incur
substantial operating losses and negative cash flows during our first several
years of operation and, according to our business plan, we do not contemplate a
positive cash flow from operations until 2003. We cannot assure you that we
will become profitable or sustain profitability in the future. Accordingly, we
may not have sufficient funds to make payments on the notes that you hold when
cash interest payments begin in 2004.
WE MAY BE UNABLE TO REFINANCE OUR DEBT WHEN PAYMENTS ON THE NOTES BEGIN
To prevent a default under the notes, we might need additional financing
or refinancing. Our failure to pay cash interest on the notes as required would
result in defaults under our other debt agreements, including our principal
operating subsidiary's credit facility. We cannot assure you that we will be
able to effect such a financing transaction on acceptable terms, if at all.
IF AN EVENT CONSTITUTING A CHANGE IN CONTROL OF NEXTEL PARTNERS OCCURS, WE MAY
BE UNABLE TO FULFILL OUR OBLIGATION TO PURCHASE YOUR NOTES
The credit facility prohibits us from purchasing any of the notes before
their stated maturity. In the event we become subject to a change of control at
a time when we are
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prohibited from purchasing the notes, we intend to seek the consent of our
lenders to purchase the notes or attempt to refinance the borrowings that
contain such prohibition. If we do not obtain a consent or repay the
borrowings, our failure to purchase the tendered notes would constitute an
event of default under the indenture, which would in turn result in a default
under the credit facility. Even if we obtain the consent, we cannot assure you
that we will have sufficient resources to repurchase the notes following the
change of control.
THERE IS NO PUBLIC MARKET FOR THE NEW NOTES, SO YOU MAY BE UNABLE TO SELL THE
NEW NOTES
The new notes are new securities for which there is currently no public
market. We do not intend to apply for listing of the new notes on any national
securities exchange or for the inclusion of the new notes in any automated
quotation system. Accordingly, we cannot assure you that an active market for
the new notes will develop. Consequently, the new notes will be relatively
illiquid, and you may be unable to sell your new notes, even though they will
not be subject to the transfer restrictions that apply to the old notes.
ORIGINAL ISSUE DISCOUNT WILL BE INCLUDED IN YOUR GROSS INCOME FOR U.S. FEDERAL
TAX PURPOSES BEFORE YOU RECEIVE ANY CASH PAYMENTS ON THE NOTES
Cash interest on the notes generally will not be payable prior to
August 1, 2004. However, because the old notes were issued at a substantial
discount from their stated principal amount at maturity, original issue discount
will be includible in the gross income of a holder of the notes for U.S. federal
income tax purposes in advance of the receipt of cash payments on the notes.
IF BANKRUPTCY PETITION WERE FILED BY OR AGAINST US, YOU MAY RECEIVE A LESSER
AMOUNT FOR YOUR CLAIM THAN YOU WOULD BE ENTITLED TO UNDER THE INDENTURE, AND
YOU MAY REALIZE TAXABLE GAIN OR LOSS UPON PAYMENT OF YOUR CLAIM
If a bankruptcy petition were filed by or against us under the U.S.
Bankruptcy Code after issuance of the notes, the claim of a holder of notes
with respect to the accreted value of the notes may be limited to an amount
equal to the sum of:
(1) the initial offering price for the notes and
(2) that portion of the original issue discount that is not deemed to
constitute "unmatured interest" within the meaning of the U.S.
Bankruptcy Code.
Any original issue discount that was not amortized as of the date of the
bankruptcy filing would constitute unmatured interest. Accordingly, holders of
the notes under these circumstances may receive a lesser amount than they would
be entitled to under the terms of the indenture, even if sufficient funds are
available. In addition, to the extent that the U.S. Bankruptcy Code differs
from the Internal Revenue Code in determining the method of amortization of
original issue discount, a holder of notes may realize taxable gain or loss
upon payment of the holder's claim in bankruptcy.
DIFFICULTIES IN CONSTRUCTING AND OPERATING OUR PORTION OF THE DIGITAL MOBILE
NETWORK COULD INCREASE ITS ESTIMATED COSTS AND DELAY ITS SCHEDULED COMPLETION,
THEREBY ADVERSELY AFFECTING OUR ABILITY TO GENERATE REVENUE
The development and operation of our portion of the Digital Mobile Network
involves a high degree of risk. Before we are in a position to commence
operations in our unbuilt markets, we will need to:
o select and acquire appropriate sites for our transmission equipment,
commonly called cell sites;
12
<PAGE>
o purchase and install low-power transmitters, receivers and control
equipment, which are collectively referred to as the base radio;
o build out the physical infrastructure; and
o test the network.
Our ability to successfully perform these necessary steps may be hindered
by, among other things, any failure:
o to lease or obtain rights to sites for the location of our base radio
equipment;
o to obtain necessary zoning and other local approvals with respect to
the placement, construction and modification of our facilities;
o to acquire additional necessary radio frequencies from third parties or
to exchange radio frequency licenses with Nextel;
o to commence and complete the construction of sites for our equipment in
a timely and satisfactory manner; and
o to obtain necessary approvals, licenses and permits from federal, state
and local agencies, including land use regulatory approvals and approvals
from the Federal Aviation Administration with respect to the transmission
towers that we will be using.
In addition, we may experience cost overruns and delays not within our
control caused by acts of governmental entities, design changes, material and
equipment shortages, delays in delivery and catastrophic occurrences. Any
failure to construct our portion of the Digital Mobile Network on a timely
basis may affect our ability to provide services in our markets on a schedule
consistent with our current business plan, and any significant delays could
have a material adverse effect on our business.
WE COULD NEED ADDITIONAL FINANCING IN ORDER TO COMPLETE OUR PORTION OF THE
DIGITAL MOBILE NETWORK, WHICH MIGHT BE EXPENSIVE OR IMPOSSIBLE TO OBTAIN
If we encounter unanticipated construction cost overruns or incur
additional costs beyond those currently reflected in our business plan, we
would require additional financing that may not be permitted by the financial
covenants in our debt agreements. If that financing is unavailable, we could
have inadequate cash flow to service our debt.
Such failure could also result in the delay or abandonment of some or all
of our acquisition, development and expansion plans and expenditures and
thereby adversely affect our business.
OUR NETWORK MUST HAVE SUFFICIENT CAPACITY TO SUPPORT OUR ANTICIPATED CUSTOMER
GROWTH
Our business plan depends on the proper and timely construction of our
portion of the Digital Mobile Network with adequate capacity to accommodate
anticipated new customers and the related increase in usage of our network.
This plan relies on:
o the availability of a sufficient quantity of sites for our
transmission equipment;
o the availability and quality of the infrastructure equipment necessary
to operate our network;
o the availability of subscriber units used by our customers to receive
our services; and
o the ability to add capacity to serve additional customers as they are
added to the network.
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<PAGE>
We cannot assure you that we will not experience delays in the
availability of, or unanticipated difficulties in obtaining, these items, which
may adversely affect our ability to attract customers.
WE MUST DEVELOP EFFECTIVE BUSINESS PRACTICES AND PROCEDURES TO MAINTAIN
CUSTOMER SATISFACTION
Critical to our business plan is our success in attracting and retaining
large numbers of customers to our portion of the Digital Mobile Network to
generate revenue.
In order to do so, we must develop effective procedures for customer
activation, customer service, billing and other support services. Even if our
system is functional on a technical level, we could lose customers if they are
displeased with the quality of our customer service operations.
OUR BUSINESS STRATEGY DEPENDS ON THE SUCCESSFUL AND CONTINUED INTEGRATION OF
OUR PORTION OF THE DIGITAL MOBILE NETWORK WITH NEXTEL'S PORTION
Pursuant to operating agreements, Nextel provides us with important
services and assistance, including a license to use the Nextel brand name and
the sharing of switches, devices that direct calls to their destinations. These
services are critical to the successful integration of our network with
Nextel's as well as to the overall success of our business.
Our business plan depends on our ability to implement an integrated
customer service, network management and billing system with Nextel's systems
that allows our network to operate with Nextel's network to provide our and
Nextel's customers with "seamless" service. Integration requires that numerous
and diverse computer hardware and software systems work together. Any failure
to integrate these information systems on schedule may have an adverse effect
on our ability to achieve the revenues contemplated by the plan.
WE MUST COMPLETE OUR PORTION OF THE DIGITAL MOBILE NETWORK BY SET DEADLINES OR
OTHERWISE RISK LOSING NEXTEL'S SUPPORT
Our agreements with Nextel require us to construct our portion of the
Digital Mobile Network to specific standards and by set deadlines. Our failure
to do so may constitute a material default under the operating agreements that
would give Nextel the right to terminate these agreements. The non-renewal or
termination of the operating agreements would adversely affect our financial
condition and eliminate our ability to carry out our current business plan and
strategy.
WE MAY BE REQUIRED TO IMPLEMENT MATERIAL CHANGES ADOPTED BY NEXTEL WHICH MAY
NOT BE BENEFICIAL TO OUR BUSINESS
If Nextel adopts material changes to its operations, including the
adoption of new technologies, the operating agreements give Nextel the right to
require similar changes to our operations. Even if the change is beneficial to
Nextel, the effect on our business may differ due to differences in markets and
customers. We cannot assure you that such changes would not adversely affect
our business.
NEXTEL MAY EXPERIENCE BUSINESS PROBLEMS WHICH COULD ADVERSELY AFFECT OUR
BUSINESS
Our business plan depends on Nextel completing its portion of the Digital
Mobile Network on schedule. If Nextel encounters financial problems or
operating difficulties relating to its portion of the Digital Mobile Network,
our affiliation and dependence on Nextel may adversely affect our business,
including the quality of our services and the ability of our customers to roam
in the entire network.
14
<PAGE>
WE ARE ENTIRELY DEPENDENT ON MOTOROLA FOR TELECOMMUNICATIONS EQUIPMENT
NECESSARY FOR THE OPERATION OF OUR BUSINESS
Motorola, Inc. is our sole-source supplier of transmitters used in our
network and handset equipment used by our customers and we rely on Motorola to
manufacture a substantial portion of the equipment necessary to construct our
portion of the Digital Mobile Network. We expect that for the foreseeable
future, Motorola and competing manufacturers who are licensed by Motorola will
be the only manufacturers of this equipment. If Motorola becomes unable to
deliver such equipment, or refuses to do so on reasonable terms, our business
would be adversely affected.
THE TRANSMISSION TECHNOLOGY USED IN THE DIGITAL MOBILE NETWORK IS DIFFERENT
FROM THAT USED BY MOST OTHER WIRELESS CARRIERS, AND, AS A RESULT, WE MIGHT NOT
BE ABLE TO KEEP PACE WITH INDUSTRY STANDARDS IF MORE WIDELY-USED TECHNOLOGIES
ADVANCE
The Digital Mobile Network uses scattered, non-contiguous radio spectrum
near the frequencies used by cellular carriers. Because of their fragmented
character, these frequencies traditionally were only usable for two-way radio
calls, such as those used to dispatch taxis and delivery vehicles. Nextel
became able to use these frequencies to provide a wireless telephone service
competitive with cellular only when Motorola developed a proprietary technology
it calls "iDEN (Trade Mark) ". We and Nextel are currently the only major
wireless service providers utilizing iDEN technology in the United States, and
iDEN phones are not currently designed to roam onto other wireless networks.
Future technological advancements may enable other wireless technologies
to equal or exceed our current levels of service, and render iDEN technology
obsolete. If Motorola is unable to upgrade or improve iDEN technology or
develop other technology to meet future advances in competing technologies on a
timely basis, or at an acceptable cost, we will be less able to compete
effectively and could lose customers to our competitors.
OUR ABILITY TO CHANGE TECHNOLOGY IS LIMITED BY THE TECHNOLOGICAL REQUIREMENTS
OF OUR FRAGMENTED RADIO SPECTRUM AND OUR AGREEMENTS WITH NEXTEL
The iDEN technology is currently the only wireless industry technology in
general use on the spectrum we control. Our agreements with Nextel require us
to use the iDEN technology in the deployment of our system and prevent us from
adopting any new communications technology without Nextel's consent. Therefore,
even if we wished to change our technology for competitive reasons, our options
to do so might be limited by the unavailability of alternative technologies, or
by Nextel's decision not to consent.
CERTAIN SIGNIFICANT SHAREHOLDERS REPRESENTED ON OUR BOARD OF DIRECTORS MAY HAVE
INTERESTS THAT CONFLICT WITH OURS AND YOURS
Nextel, DLJ Merchant Banking Partners II and Eagle River Investments have
the right to designate members to our board of directors. We cannot be certain
that any conflicts that arise between our interests and those of these
shareholders will always be resolved in our favor.
Pursuant to a shareholders' agreement and the joint venture agreement, the
approval of the director selected by Nextel is required in order for us to:
o dispose of all or substantially all of our assets,
o broaden the scope of our business, or
o make a material change in our technology.
The approval of a director selected by DLJ Merchant Banking is currently
required for significant matters, including:
15
<PAGE>
o the determination of compensation and benefits of senior management,
o modifications of our long-term business strategy or scope of business,
or
o material modifications of any material customer relationships.
These approvals relate to significant transactions and such decisions by
the director could involve a conflict between our interests and those of the
shareholder appointing the director, which may not be resolved in our favor.
In addition, Nextel has preemptive rights relating to any public offering
of our capital stock by us or DLJ Merchant Banking. Moreover, under certain
circumstances, Nextel has the ability, and our shareholders have the ability to
cause Nextel, to purchase all of our outstanding capital stock.
Eagle River, which is owned and controlled by Craig O. McCaw, has
interests in a number of other telecommunications companies and ventures,
including significant investments in Nextel, NEXTLINK Communications, which
provides telephone and other telecommunications services to businesses, and
Teledesic Corporation, which is building a satellite constellation to provide
data services worldwide. NEXTLINK and Teledesic are not currently our
competitors but could be in the future. We do not have a noncompetition
agreement with Eagle River, and thus these investments and future investments
by Eagle River may create a conflict of interest.
WE FACE COMPETITION FROM OTHER WIRELESS SERVICE PROVIDERS AND OTHER
COMMUNICATIONS TECHNOLOGIES, PUTTING DOWNWARD PRESSURE ON PRICES
We compete for market share and customers with current or potential
cellular and digital wireless communications service providers, including AT&T
Wireless Services, Sprint PCS, Bell Atlantic, BellSouth, Southwestern Bell,
PrimeCo Personal Communications and Airtouch. Many of our competitors have
financial resources, subscriber bases and name recognition greater than ours.
Our competitors may offer prospective customers equipment subsidies or
discounts that are substantially greater than those, if any, that we could
offer and may offer services to customers at prices that are below prices that
we are able or willing to offer. Such competition may cause downward pressures
on prices, which may adversely affect our profits.
In the future, wireless services may also compete more directly with
traditional telephone service providers who offer services over wirelines and
with cable operators who may expand their services by offering traditional
telecommunications services over their cable systems. In addition, we expect to
compete with other communications technologies, such as paging and global
satellite networks. Moreover, we may face competition from technologies that
may be introduced in the future. All such competition is expected to be
intense. We cannot assure you that we will be able to attract enough customers
either to compete successfully or implement our business plan in this
environment.
REGULATORY AUTHORITIES EXERCISE CONSIDERABLE POWER OVER OUR OPERATIONS, WHICH
COULD BE EXERCISED AGAINST OUR INTERESTS AND IMPOSE ADDITIONAL UNANTICIPATED
COSTS
The FCC and relevant state telecommunications authorities regulate our
business to a substantial degree. The regulation of the wireless
telecommunications industry is subject to constant change. New rules and
regulations may be adopted pursuant to the Communications Act of 1934, as
amended by Telecommunications Act of 1996. The Telecommunications Act provided
for significant deregulation of the U.S. telecommunications industry and such
legislation remains subject to judicial review and additional FCC rulemaking.
As a result, we cannot predict the effect that the legislation and any FCC
rulemaking may have on our future operations. We must comply with all
applicable
16
<PAGE>
regulations to conduct our business. Modifications of our business plans or
operations to comply with changing regulations or certain action taken by
regulatory authorities might increase our costs of providing service and
adversely affect our financial condition.
The FCC has the right to revoke licenses at any time for cause, including
failure to comply with the terms of the licenses, failure to continue to
qualify for the licenses, malfeasance or other misconduct. In addition, at the
end of a ten-year term, we will have to apply to the FCC for renewal of some of
our licenses to provide our core services which combine wireless telephone
service with dispatch and paging features. We cannot assure you that these
licenses will be renewed.
THE COMPLETION OF OUR PORTION OF THE DIGITAL MOBILE NETWORK DEPENDS ON APPROVAL
BY THE FCC OF THE TRANSFER OF LICENSES TO US FROM NEXTEL
As an equity contribution to us, Nextel has contributed certain licenses
for use in the operation of our markets to a wholly owned subsidiary, whose
shares will be transferred to us following approval by the FCC. Pending FCC
approval, we have the right to use the frequencies covered by these licenses
under a management agreement. However, failure to obtain FCC approval by
January 29, 2000 constitutes an event of default under the credit facility and
any indebtedness outstanding under the credit facility may be accelerated. We
cannot assure you that the FCC will grant approval of the transfer of control
of these licenses.
WE MAY FACE ADDITIONAL COST AND OTHER ADVERSE EFFECTS DUE TO YEAR 2000 ISSUES
Many computer systems and software programs may not function properly in
the year 2000 and beyond because of a once common programming standard which
used two digits instead of four digits to signify a year. These computer
systems and software programs read the year "1999" as "99" and not "1999."
Because of this, the year 2000 may appear as the year 1900, which could result
in system failures or disruptions. This problem is often referred to as the
"Year 2000" issue.
If we are unable to fix a material Year 2000 problem, we could experience
an interruption or failure of our business operations. Likewise, if parties
upon which we depend for products or service, especially Motorola, Nextel or
the operators of public telephone networks in markets where we operate, are
unable to fix a material Year 2000 problem, a resulting interruption or failure
of their ability to provide products or services could hurt us.
THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS
Some statements and information contained in this prospectus are not
historical facts, but are forward-looking statements. They can be identified by
the use of forward-looking words such as "believes", "expects", "plans", "may",
"will", "would", "could", "should" or "anticipates" or the negative or other
variations of these words or other comparable words, or by discussions of
strategy that involve risks and uncertainties. Such forward-looking statements
include, but are not limited to:
o our business plan, its advantages and our strategy for implementing our
plan and meeting our scheduled build-out for commercial launch of our
portion of the Digital Mobile Network;
o general economic conditions in the geographic areas and occupational
markets that represent our portion of the Digital Mobile Network;
o our expectation regarding the continued successful performance and
market acceptance of the technology we use;
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<PAGE>
o our ability to attract and retain sufficient customers; and
o our anticipated capital expenditures, funding and levels of debt and
our expectations regarding additional debt, including our ability to
access to sufficient debt or equity capital to meet our operating and
financing needs.
We warn you that these forward-looking statements are only predictions,
subject to risks and uncertainties, including financial, regulatory
environment, industry growth and trend predictions. Actual events or results
can differ materially from those expressed or implied, including those set
forth under "Risk Factors."
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<PAGE>
USE OF PROCEEDS
Nextel Partners will not receive any cash proceeds from the issuance of
the new notes as described in this prospectus. Nextel Partners will receive in
exchange for the new notes, old notes in like principal amount. The old notes
surrendered in exchange for the new notes will be retired and canceled and
cannot be reissued. Accordingly, the issuance of the new notes will not result
in any change in the indebtedness of Nextel Partners.
The net proceeds from the offering of the old notes, the cash equity
contributions, the capital contributions by Nextel and Motorola and the
borrowings under the credit facility which we received on January 29, 1999, the
closing date of these capitalization transactions, are being used to complete
our portion of the Digital Mobile Network and to fund operating losses and
working capital through 2003, when we expect to achieve positive operating cash
flow for the full fiscal year.
The following table shows the sources and anticipated uses of the proceeds
from the capitalization transactions through 2003:
SOURCES AND ANTICIPATED USES OF FUNDS AND ASSETS
(IN MILLIONS)
<TABLE>
<CAPTION>
SOURCES:
<S> <C>
Gross proceeds of the offering of
old notes ..................... $ 406.4
Revolving borrowings under credit
facility(1) ................... 100.0
Term borrowings under credit
facility(1) ................... 175.0
Cash equity contributed .......... 52.1
Committed cash equity(2) ......... 104.3
Motorola contribution ............ 18.4
Nextel contribution .............. 133.2
--------
Total sources .................... $ 989.4
========
</TABLE>
<TABLE>
<CAPTION>
USES:
<S> <C>
Nextel capital expenditure
reimbursement ........................ $ 115.8
Nextel and Eagle River operating
loss reimbursement ................... 17.6
Capital expenditures .................... 486.5
Operating losses ........................ 71.9
Transaction expenses, net cash
interest and working capital ......... 97.8
FCC licenses ............................ 133.2
Excess cash ............................. 66.6
--------
Total uses .............................. $ 989.4
========
</TABLE>
- ----------
(1) Nextel Partners' principal operating subsidiary entered into a $275.0
million credit facility of which $100.0 million is a reducing revolving
credit facility and $175.0 million is a term loan facility. The term loan
was drawn down on January 29, 1999. See "Description of Credit Facility."
(2) Of the $104.3 million of committed cash equity, the subscription and
contribution agreement provides that $52.1 million will be funded no
later than December 31, 1999 and the remainder will be funded no later
than December 31, 2000. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Certain Relationships and Related Transactions--The
Subscription and Contribution Agreement."
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<PAGE>
CAPITALIZATION
(Dollars in thousands)
The following table sets forth as of March 31, 1999, the capitalization of
Nextel Partners. This table should be read in conjunction with the unaudited
Summary Historical and Pro Forma Consolidated Financial Information and
Operating Data and the audited and pro forma unaudited consolidated financial
statements and notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
ACTUAL
AS OF
MARCH 31, 1999
---------------
(UNAUDITED)
<S> <C>
Cash and cash equivalents and restricted cash(1) ......................... $ 475,812
==========
Debt:
Credit facility(2) ..................................................... $ 175,000
14% senior discount notes due 2009(3) .................................. 416,178
----------
Total long-term debt ................................................... 591,178
----------
Shareholders' equity:
Series B redeemable or convertible preferred stock due 2010(4) ......... 2
Convertible preferred stock ............................................ 28
Class A common stock and additional paid-in capital .................... 6,733
Warrants outstanding ................................................... 3,847
Other paid-in capital .................................................. 298,259
Subscription receivable ................................................ (122,655)
Deferred compensation .................................................. (5,629)
Accumulated deficit .................................................... (39,976)
----------
Total shareholders' equity ............................................ 140,609
----------
Total capitalization .................................................. $ 731,787
==========
</TABLE>
- ----------
(1) Restricted cash reflects the cash collateral account maintained under the
credit facility equal to the $175.0 million borrowings outstanding at
March 31, 1999. These funds will not be available until the FCC has
approved the transfer of control of the licenses held by Nextel WIP
License Corp. from Nextel to Nextel Partners.
(2) Nextel Partners Operating Corp. entered into a $275.0 million credit
facility, and on January 29, 1999, it drew down the $175.0 million term
loan facility. See "Description of Credit Facility."
(3) Represents the accreted value of the notes as of March 31, 1999.
(4) Relates to redeemable or convertible preferred stock held by a subsidiary
of Nextel. The stock is subject to mandatory redemption by Nextel
Partners 375 days after the stated maturity of the notes. Nextel Partners
may elect under certain circumstances to pay the redemption price by
issuing Series C convertible preferred stock for each share of Series B
redeemable or convertible preferred stock so redeemed as long as an IPO
has not occurred.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain of the statements contained in the following discussion of our
financial condition and results of operations are forward-looking statements.
For a discussion of important factors, including but not limited to, the
build-out of our portion of the Digital Mobile Network, actions of regulatory
authorities and competitors, and other factors that could cause results to
differ materially from the forward-looking statements, see "Risk Factors."
Please read this discussion together with the unaudited Summary Historical
and Pro Forma Consolidated Financial Information and Operating Data, the
audited consolidated financial statements and the notes thereto and the pro
forma unaudited consolidated financial statement and accompanying discussion
and notes thereto included elsewhere in this prospectus.
Our historical results discussed in this section and throughout this
prospectus include the Nextel operations we assumed as part of our initial
capitalization which occurred on January 29, 1999. See Note 1 of our audited
consolidated financial statements for a discussion of the basis of
presentation.
GENERAL
We currently operate in five markets in Hawaii and upstate New York where
4.5 million people live or work. We expect to launch service in four additional
markets by the end of 1999, and expect to serve a total of 39 markets where
22.4 million people live or work by the end of 2001. Our upstate New York and
Hawaii markets launched commercial service in July and September of 1998,
respectively.
At March 31, 1998, we had no subscribers. Our revenue for the three month
period then ended consisted of fees we received for Nextel's customers roaming
on our portion of the Digital Mobile Network. At December 31, 1998, we had
11,000 subscribers, and at March 31, 1999, we had 16,200 subscribers, all in
our Hawaii and upstate New York markets.
We expect to continue to experience negative operating margins while we
are developing, building out, enhancing and expanding our Digital Mobile
Network and implementing related commercialization activities. As additional
markets are added to our Digital Mobile Network we expect to incur increased
costs such as site rentals, telecommunications expenses, system and other
capital expenses. Sales and marketing expenses and general and administrative
costs are also expected to increase with the commercialization of service in
additional markets.
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs arise principally from the capital
requirements to complete the initial build-out of our portion of the Digital
Mobile Network. Currently, we estimate that capital requirements to build our
initial systems in our portion of the Digital Mobile Network, including
operating losses and working capital for the period from inception through the
end of 2003, when we expect to achieve positive EBITDA as adjusted for a full
fiscal year, will total approximately $989.4 million, including the in-kind
contributions by Nextel and Motorola in exchange for equity interests in Nextel
Partners. We expect capital expenditures to include, among other things,
switches, base radios, transmission towers, antennae, radio frequency
engineering and cell site construction. We estimate capital expenditures will
total approximately $602.1 million from inception through 2003, including
approximately $115.8 million of reimbursements paid to Nextel, $201.6 million
of capital expenditures in 1999 and $151.5 million of capital expenditures in
2000.
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The capital expenditure reimbursement paid to Nextel in January 1999 was
for purchases of existing network equipment and capitalized expenses incurred
by Nextel on our behalf in certain markets including upstate New York and
Hawaii. Actual amounts of capital required to complete our portion of the
initial build-out may vary materially from these estimates. For the year ended
December 31, 1998, our capital expenditures were approximately $104.3 million
spent primarily in the upstate New York and Hawaii markets to build out the
Digital Mobile Network and make these markets operational. Capital expenditures
were approximately $45.5 million and $7.4 million for the three month periods
ended March 31, 1998 and 1999, respectively. This decrease was due to the
construction for the initial launch of the upstate New York and Hawaii markets
which took place primarily during 1998.
Build-out Schedule
For purposes of our build-out, we have divided our territory into 39
markets. Our agreements with Nextel require us to build out and provide service
in all of these markets by June 2001. We currently plan to complete the
build-out of each market on a staggered basis over the next three years. The
table below identifies our currently planned build-out schedule for the
markets.
<TABLE>
<CAPTION>
NEXTEL PARTNERS BUILD-OUT SCHEDULE
- ------------------------------------------------------------------------------------------------------------------
YEAR INCREMENTAL COVERED POPULATION CUMULATIVE COVERED POPULATION NUMBER OF MARKETS TO BE LAUNCHED
- --------- -------------------------------- ------------------------------- ---------------------------------
<S> <C> <C> <C>
1999 1.4 million 6.0 million 4
2000 12.5 million 18.5 million 21
2001 3.6 million 22.1 million 9
</TABLE>
Build-out Criteria
Our agreements with Nextel require us to build out our markets in
compliance with the site acquisition, frequency design, launch criteria and
construction standards that are in effect from time to time and generally
applicable to Nextel and its operating subsidiaries. These standards evolve
with changes in technology and are subject to modification or adjustments to
comply with local rules and laws.
In general, the site acquisition and construction standards include the
use of standard lease or license agreements, appropriate environmental testing
of sites for our transmission equipment, compliance with local zoning and
building permit requirements and compliance with applicable FAA and FCC
registration and other requirements applicable to site construction and
operation.
Frequency design requirements relate to required signal strength and
performance levels in a given area.
Similarly, the launch criteria include the ability to provide service in
the designated market at specified performance levels to both new customers and
existing Nextel customers who roam into our market and the ability to support
additional features such as voice mail.
Delays in the build-out and launch of our markets will result in a delay
in our ability to acquire customers and generate revenue. Depending on the
length of the delay and the particular market involved, a delay could impede
our ability to attract customers and generate revenue in accordance with our
business plan. In addition, if we fail to launch two or more markets in any
year within 180 days of the scheduled launch date, or if we fail to complete
the build-out of two or more markets in any year within 180 days of the
scheduled
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<PAGE>
build-out date, we could be in default of our agreements with Nextel. Nextel
may then have the right to terminate our agreements and acquire all of our
outstanding shares of capital stock.
Option Territories
Under our agreements with Nextel, we have the right, but not the
obligation, to elect to build out certain additional markets within the United
States. These additional markets are referred to as "option territories." There
are two types of option territories: special option territories and option
territories. With respect to the special option territories, we have the right
to elect to build out these territories at any time so long as we make this
election before August 29, 2000. With respect to the remainder of the option
territories, we have the right to elect to build out these territories as long
as we make that election before August 29, 1999 and we have completed the
build-out of our non-option markets scheduled for launch in our first year.
If we elect to build out any option territory, special or otherwise, we
must comply with the same launch criteria applicable to our non-option markets.
In addition, we have the right to purchase from Nextel all related fixed
network equipment and operational contracts existing in such territories.
Moreover, subject to Nextel's ability to obtain appropriate waivers from its
financing entities, Nextel will transfer to us Nextel's licenses to operate
certain frequencies in the option territories.
In order to exercise our rights to build out any option territory we will
have to raise additional capital. We currently anticipate exercising our rights
to build out a portion of the option territories where 7.5 million people live
or work. These option territories include markets in Arkansas, Georgia, Indiana
and south Texas. Our exercise of this option will require us to incur
additional indebtedness of approximately $280 million. This financing will
require, among other things, that we obtain consents from our current financing
entities and may require amendments to our operating agreements with Nextel to
allow us to exercise this option earlier than is currently permitted under
these agreements.
Equipment and Operating Agreements
In connection with our build-out, we have entered into agreements with
Motorola to purchase necessary infrastructure equipment and other related
software and services to implement the Motorola technology we use as well as
subscriber handset units and other accessories. In addition, in connection with
the capitalization transactions, Motorola contributed to us an $18.4 million
credit against future purchases in exchange for shares of our preferred stock.
See "Certain Relationships and Related Transactions--The Subscription and
Contribution Agreement, --Motorola Purchase Agreements."
Currently, our agreements with Nextel allow us access to Nextel's switches
and switching facilities. Nextel has agreed to cooperate with us to establish a
switch facility for our network and to deploy switches in our territory in a
manner which best meets the following criteria:
o integration of our cell sites into Nextel's national switching
infrastructure;
o shared coverage of Nextel Direct Connect service to communities of
interest;
o minimized costs to us and to Nextel; and
o maximized quality of service to our customers and to Nextel's customers.
These criteria provide for a flexible construction schedule of switches in
our territory, depending on the existing switches in Nextel's territory and the
amount of customer traffic
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handled by any one switch so that the call switching on our network is
completed through those switches and facilities. We have the option of
installing our own switching facilities within our territory. However, our
deployment of any switching facility requires coordination with Nextel and may
require Nextel's approval. Our agreements with Nextel require us to implement
and install appropriate switch elements as the number of our subscribers and
cell site levels increases. For example, we will need to install a mobile
switching office for every 120,000 subscriber units or a base site controller
for every 50 operational cell sites. To the extent contemplated by our original
business plan, we have sufficient funds on hand for these installations.
In addition, as we implement our business strategy, our operating
agreements with Nextel provide us with certain services, such as access to
billing, customer care, information systems and other back-office support
services, and with access to Nextel's vendor relationships. We have entered
into agreements for back-office support systems, such as customer activation,
billing and day-to-day operational support, with some vendors who provide these
services to Nextel.
Sources of Funds
Our primary sources of funding are the proceeds from the cash equity
contributions and commitments, the offering of the old notes and the credit
facility which we received on January 29, 1999. See "Business--The
Capitalization Transactions." Concurrently, we also received:
(1) the contribution by Nextel of FCC licenses to Nextel WIP License
Corp., and the grant of the right to use these licenses and Nextel's
agreement to transfer the stock of Nextel WIP License Corp. to us, all
in exchange for our redeemable preferred stock and convertible
preferred stock, and
(2) the contribution by Motorola of an $18.4 million credit to us against
our future purchases of Motorola-manufactured infrastructure equipment
in exchange for our convertible preferred stock.
The cash equity contributions consist of irrevocable commitments of an
aggregate of $156.4 million of cash in exchange for equity in the form of
convertible preferred stock. Our cash equity investors contributed $52.1
million on January 29, 1999, with an additional $52.1 million to be funded no
later than December 31, 1999 and the remaining $52.1 million to be funded no
later than December 31, 2000.
The following table reflects the issuance of preferred stock to major
shareholders after these capitalization transactions.
<TABLE>
<CAPTION>
MAJOR SHAREHOLDER NEXTEL PARTNERS' PREFERRED STOCK
- ---------------------------------- -----------------------------------------------------------------------
<S> <C>
Nextel 2,185,000 shares of Series B redeemable or convertible preferred stock
8,740,000 shares of Series C convertible preferred stock
2,185,000 shares of Series D convertible preferred stock
DLJ Merchant Banking 3,800,000 shares of Series A convertible preferred stock
Partners II, L.P. and affiliates
Madison Dearborn Capital 3,624,972 shares of Series A convertible preferred stock
Partners II, L.P.
Eagle River Investments, LLC 2,622,000 shares of Series A convertible preferred stock
Motorola 1,836,649 shares of Series A convertible preferred stock
</TABLE>
See also "Ownership of Capital Stock and Principal Stockholders."
24
<PAGE>
Nextel Partners Operating Corp., our wholly owned subsidiary, has entered
into a $275.0 million credit facility which provides for a $100.0 million,
eight-year revolving credit facility and a $175.0 million, nine-year term loan
facility. On January 29, 1999, it borrowed the $175.0 million term loan under
the credit facility. We are exposed to changes in interest rates under the term
loan facility. For every 1/8% change in the underlying interest rate associated
with the term loan, annual interest expense changes by approximately $220,000.
Borrowings under the credit facility are secured by a first priority pledge of
all assets of our subsidiaries and a pledge of their capital stock, including
the stock of Nextel WIP License Corp. following approval by the FCC. The credit
facility contains customary financial and other covenants for the wireless
industry. Our subsidiary established a cash collateral account in which it
maintains a balance equal to the amount of any borrowings until we receive FCC
approval. Failure to obtain such approval by January 29, 2000 constitutes an
event of default under the credit facility. In addition, the credit facility
contains covenants requiring us to maintain certain defined financial ratios
and meet operational targets including service revenues, subscriber units and
network coverage. As of March 31, 1999, we were in compliance with all
covenants associated with our credit facility. See "Business--The
Capitalization Transactions" and "Description of Credit Facility."
We believe the net proceeds from the offering of the old notes, together
with the equity investments and borrowings under the credit facility, provide
us with funds sufficient to complete our build-out and for working capital
necessary to cover our debt service requirements and operating losses, through
2003, which is when we anticipate achieving positive operating cash flow for
the full fiscal year. See "Use of Proceeds." Although we estimate that we will
have sufficient funds through 2003, we cannot assure you that additional
funding will not be necessary. We could need additional financing in order to
complete our portion of the Digital Mobile Network or if we elect to build out
optional territories, which might be expensive or impossible to obtain.
OPERATIONS
Revenues. Our primary source of revenues consist of service, roaming and
equipment sales revenues. Our service revenues consist of charges for airtime
usage and monthly network access fees from providing integrated wireless
services within our territory, particularly mobile telephone and two-way radio
dispatch services. The service revenues are the product of the number of
customers that subscribe to our service and our monthly average revenue per
unit. Average revenue per unit is an industry measure of total service revenue
from subscribers divided by the average number of digital subscriber units in
service.
Over the past few years the wireless industry has experienced a decline in
prices generally as a result of competition from other wireless providers,
including new entrants into the market. In contrast, as reported in its
quarterly reports, Nextel's monthly average revenue per unit has increased over
the past few years and remains above the industry average. We cannot assure you
that our results will duplicate Nextel's since we set our prices independently
and our markets are distinct from Nextel's.
Recently, service plans containing large blocks of included minutes of
airtime have been introduced by wireless service providers as a means to gain
market share from established cellular carriers with relative coverage
advantages. This has dramatically increased subscriber usage in the industry.
These service plans have had the effect of dramatically increasing subscriber
usage while slowing the rate of decline in average revenue per unit during
1998. We believe that the decline in effective rates per minute and the
corresponding increase in subscriber usage relative to historical levels will
not materially affect our ability to meet our revenue projections under our
business plan.
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We also believe that data services and other future service enhancements
will improve wireless communications overall value proposition and help prevent
further erosion of average revenue per unit. Nextel recently announced an
agreement with Microsoft Corp. to deploy Nextel Online(SM), a wireless internet
service offering which enables Nextel subscribers to access a customized set of
internet services offered through a version of Microsoft's MSN(TM) portal
anytime, anywhere on Nextel's network. We will have the ability to send and
retrieve data over a handheld unit as it becomes available. However, we have
not yet determined when and how to offer this service to our customers. We
intend to observe Nextel's deployment of these services and then decide whether
to make it available to our customers.
Currently, roaming revenues make up a significant portion of our total
revenues. As we construct and launch all our markets, we anticipate that
roaming revenue will become a less significant portion of our total revenues.
By 2002 we expect roaming revenues to be less than 5% of our total revenues.
During 1999, we collect 95% of the service revenue generated by a Nextel
customer roaming in one of our markets. This percentage decreases to 90% in the
year 2000, 85% in the year 2001 and 80% in the year 2002 and afterwards. When
our customers roam onto Nextel's portion of the Digital Mobile Network, we pay
80% of the aggregate service revenue per minute generated by such customer to
Nextel.
During any year, the percentage we are allowed to collect and the
percentage that we pay can be adjusted up or down depending on the results of
customer satisfaction surveys. Customer satisfaction survey results are
expressed as percentages. Our customer satisfaction survey results will be
compared to the customer satisfaction survey results for Nextel. For every five
full percentage points by which our customer satisfaction survey results exceed
Nextel's customer satisfaction survey results, our roaming percentage is
increased by 1%. On the other hand, for every five full percentage points by
which Nextel's customer satisfaction survey exceeds our customer satisfaction
survey results, our roaming percentage is decreased by 1%. However, our roaming
percentage can never be greater than 100% and can never be less than our cost
to provide roaming service to a Nextel customer. The same limits apply to our
payments to Nextel.
In recent years cellular providers have increased the use of discounts on
phone equipment as competition between service providers has intensified. As a
result we have incurred, and expect to continue to incur, losses on equipment
sales, which result in increased marketing and selling costs per gross
additional subscriber. We expect to continue these discounts and promotions,
because we believe that the use of such promotions will result in increased
revenue from increases in the number of our subscribers. Revenues for the year
ended December 31, 1998 were $5.3 million of which $3.7 million was related to
service and roaming revenues and $1.6 million was related to equipment
revenues. These revenues were generated primarily from our upstate New York and
Hawaii markets which became operational during 1998. For the year ending
December 31, 1998, we had a loss on equipment sales of $(1.4) million which
resulted from our subsidies of sales of subscriber handsets and accessories.
Revenues for the three month period ended March 31, 1999 were $4.3
million, of which $3.5 million related to service and roaming revenues and $0.8
million related to equipment revenues. For the three month period ended March
31, 1999, we had a loss on equipment sales of $(0.9) million in connection with
our sales of subscriber handsets and accessories. Revenues for the three month
period ended March 31, 1998 were $0.2 million and related only to roaming by
Nextel's customers on our portion of the Digital Mobile Network.
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For the three month period ended March 31, 1999, service, roaming, and
equipment sales revenues represented 56.5%, 24.6% and 18.9%, respectively, of
total revenues. For the year ended December 31, 1998, service, roaming, and
equipment sales revenues represented 35.4%, 35.2% and 29.4%, respectively, of
total revenues. As we continue to launch additional markets, cell sites brought
into service will immediately be available for use by Nextel's subscriber base
while we begin to acquire customers within our service area. Therefore, in the
short term, roaming revenues on a consolidated basis will comprise a greater
percentage of total revenues. However, we anticipate that once all of our
markets are launched and our covered penetration increases, roaming revenues as
a percentage of total revenues will decline to approximately 5% by 2002.
Equipment revenues are expected to be immaterial to total revenues in the
future as our markets become fully operational.
Our agreements with Nextel permit us to establish our own local pricing in
our markets. However, we must provide national customers who have a national
rate with Nextel the same rates as they receive in Nextel's markets. For
example, if a national company has an agreement with Nextel for a certain rate,
and that company has a branch office in one of our markets, we must offer the
branch office the same national rate plan. In addition, our pricing must
conform with guidelines that ensure that our pricing structure is consistent
with Nextel's national marketing strategy. For example, according to the
guidelines:
o We offer per second billing. This means that we do not round up
partial minutes of use to the next full minute except in the first
minute of use.
o We do not charge an additional amount for roaming. Customers receive
their same home market rate anywhere in the United States where there
is coverage.
o Domestic long distance is charged at a flat rate.
o All Direct Connect minutes generated by multiple customers within the
same account are pooled for billing purposes.
We believe these guidelines will positively affect our business as they
serve to differentiate our service from our competitors.
Operating Expenses. Our primary operating expenses include network
operations, switching, marketing and sales, management information systems,
customer billing and care, and general and administrative expenses. We believe
that we are in the process of establishing a more efficient cost structure than
we would otherwise have been able to set up due to our relationship with Nextel
and our ability to take advantage of services and other benefits, such as:
o Switch sharing--We have the ability to use Nextel's switching
facilities at costs based on Nextel's cost until the time that our
growth in subscribers requires us to construct our own switch
facility.
o National advertising--We are able to benefit from Nextel's national
advertising campaigns which are developed and paid for by Nextel. We
also have the ability to use any creative advertising work that is
developed by Nextel at no additional cost to us.
o Equipment pricing--We are able to purchase subscriber handsets and
infrastructure equipment from Motorola and other Nextel vendors at
pricing tied to Nextel's pricing volumes.
Network expenses include site rent, utilities and maintenance, engineering
personnel and interconnect charges. Network expenses depend primarily on the
number of cell sites, total minutes of use and mix of minutes of use between
interconnect and Nextel Direct Connect services.
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<PAGE>
Switching costs include the cost of operating switches to direct calls to
their destinations and network elements we own as well as rent, utilities and
maintenance and payments to Nextel for sharing its switches. We currently
utilize Nextel's switches in all of our operational markets, except for Hawaii.
In exchange for switch sharing services, we pay switching fees at a rate per
minute reflecting Nextel's estimated costs as of January 2001. This rate is
used through January 1, 2001 at which time the rate will be adjusted based on
Nextel's cost thereafter. At any time (subject to certain operational
comparability and performance requirements), we may develop and utilize our own
switch infrastructure. Accordingly, as the number of customers in any
particular area grows and based on other economic factors, we intend to buy and
operate our own switches. Nextel also provides network signaling and
twenty-four hour per day monitoring for switches we own for a per-switch
monitoring fee based on Nextel's cost. For the three month period ended March
31, 1999 and for the year ended December 31, 1998, our cost of service revenues
from network expenses and switching costs were $3.1 million and $6.1 million,
respectively, incurred primarily from our upstate New York and Hawaii markets.
For the three month period ended March 31, 1998, our cost of service revenues
was $0.3 million and related only to roaming by Nextel's customers on our
portion of the Digital Mobile Network.
Selling, general and administrative expenses consist of sales and
marketing expenses, and general and administrative costs. Sales and marketing
expenses relate to sales representatives, sales support personnel, indirect
distribution channels, marketing and advertising programs and equipment
subsidies. We expect our cost per gross additional customer to be relatively
high in our first several years of operation and to decline as sales
representatives become more efficient, as we expand our indirect distribution
channels and as the cost of our sales infrastructure is distributed over a
greater base of customer additions. We will benefit from the use of the Nextel
brand, national advertising and other marketing programs. We will not pay
Nextel a marketing service fee until the later of January 2002 or the first
month of the quarter beginning after we achieve two consecutive quarters of
positive EBITDA as adjusted, at which time the marketing service fee will be
0.5% of gross monthly service revenues for the next three years and 1.0% of
gross monthly service revenues thereafter.
General and administrative costs relate to corporate overhead personnel
including tax, legal, planning, human resources, treasury and accounting
functions. While we have directly hired key personnel in such areas, during a
defined transition period, Nextel has made certain accounting, payroll,
customer care, purchasing, human resources and billing functions available to
us. In return for these services during the transition period, we pay monthly
fees based on Nextel's cost of providing them. See "Certain Relationships and
Related Transactions--Nextel Operating Agreements."
We have entered into agreements for back-office systems services to
support customer activation, billing and customer care with vendors who have
experience providing these services to Nextel, and we are currently negotiating
agreements with vendors for other services.
For the three month period ended March 31, 1999 and for the year ended
December 31, 1998, our selling, general and administrative expenses were $5.2
million and $13.5 million, respectively, incurred primarily from the upstate
New York and Hawaii markets which launched commercial service during 1998.
Selling, general and administrative expense for the three month period ended
March 31, 1998 was $0.7 million, relating only to roaming by Nextel's customers
on our portion of the Digital Mobile Network.
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We recorded deferred compensation expense associated with our restricted
stock purchase plan of $0.6 million and $0.4 million, for the three month
period ended March 31, 1999 and the year ended December 31, 1998, respectively.
The plan is considered compensatory and we account for its deferred
compensation expenses on a basis similar to that used for stock appreciation
rights.
Depreciation and amortization expense for the year ended December 31, 1998
was approximately $4.6 million. Amortization expense related to amortization of
our FCC-licensed radio spectrum in Hawaii and upstate New York, which became
operational in the second half of 1998. The majority of the depreciation
expense for the period related to the portion of our wireless fixed asset
network placed into service in Hawaii and upstate New York.
Depreciation and amortization expense for the three month period ended
March 31, 1999 was approximately $2.5 million, an increase of $2.3 million from
the same period in 1998. The increase was primarily a result of amortization of
our FCC-licensed radio spectrum and depreciation recorded on our wireless fixed
asset network placed in service in the Hawaii and upstate New York markets.
We have not recorded income tax expense for the year ended December 31,
1998 or for the three month periods ended March 31, 1999 and 1998. We have
recorded a full valuation allowance against our deferred tax assets as required
by Statement of Financial Accounting Standards No. 109 as we believe that it is
more likely than not that we will not be able to realize these assets. As of
December 31, 1999, we had recorded a deferred tax asset of approximately $1.5
million related to start-up operational costs that were capitalized for tax
purposes, which will be amortized over 60 months for income tax purposes. We
have established a valuation allowance against our net deferred tax assets of
approximately $1.1 million. Beginning with fiscal year 1999, we are expecting
to generate significant operating losses, which may be carried forward for 20
years for income tax purposes to offset taxable income in future periods. We
expect to record a full valuation allowance against our net deferred tax
assets, including net operating losses, for the foreseeable future.
For the year ended December 31, 1998, we reported a net loss of
approximately $22.3 million. The loss generated was primarily associated with
the roll-out of operations in Hawaii and upstate New York, including
depreciation and amortization expense, as well as other start-up operational,
sales and marketing, general and administrative expenses and deferred
compensation expense associated with our restricted stock purchase plan.
We reported a net loss of approximately $17.4 million for the three month
period ended March 31, 1999, an increase of approximately $16.3 million from
the approximately $1.1 million reported in the same period one year ago.
Increased expenses in all categories of expense occurred as we began ramping up
our operations in anticipation of additional markets becoming operational, as
well as the increase in costs associated with the Hawaii and upstate New York
markets which became operational in the second half of 1998. We anticipate
reporting net losses for the foreseeable future.
YEAR 2000 DATE CONVERSION
As is the case with most other businesses using computers in their
operations, we are in the process of evaluating and addressing Year 2000
compliance of our computer systems. Such Year 2000 compliance efforts are
designed to identify, address and resolve issues that may be created by
computer programs being written using two digits rather than four to define the
applicable year. Any of our computer programs that have time-sensitive software
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may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
To the extent we implement our own computer systems and software, we will
endeavor to ensure that such systems and software are Year 2000 compliant by
the end of the third quarter of 1999. This process will involve assessing
overall Year 2000 risk and modifying or replacing certain hardware and software
maintained by us, as well as communicating with external service providers to
ensure that they are taking the appropriate action to remedy certain Year 2000
compliance issues of their own. However, our ability to reach our Year 2000
compliance goal is, and will continue to be, dependent on the parallel efforts
of certain third party vendors, suppliers and business partners. In particular,
we rely on services and products offered by Motorola, for our system
infrastructure equipment and subscriber handset units, and Nextel and third
party providers of services and products to Nextel, for sales, distribution and
back-office support services, and information systems, including customer
activation, billing and customer care. We have begun the process of requesting
from these third parties detailed action plans and timetables for achieving
Year 2000 compliance.
Since we are in the process of gathering information to determine the Year
2000 compliance of Motorola, Nextel and relevant third parties, we have not
fully assessed the impact on our information systems of such third parties'
non-compliance. Any failure by Motorola or Nextel to become Year 2000 compliant
may have a material adverse effect on our ability to become Year 2000 compliant
if such failure were to adversely impact the ability of either party to provide
products or services that it is obligated to provide to us or products or
services that are critical to our operations. To the extent we are not in a
position to validate or certify that technology provided by third parties,
including Motorola, is Year 2000 compliant, we will seek assurances from such
third parties that their systems are or will be Year 2000 compliant no later
than the third quarter of 1999. We cannot assure you that the costs of
modifying, upgrading or replacing our information systems and equipment will
not have a material adverse effect on our ability to complete our portion of
the Digital Mobile Network on schedule, to conduct our operations or to
implement our business plans as currently contemplated.
Moreover we cannot independently assess the impact of Year 2000 risks,
issues and compliance activities and programs involving operators of public
telephone networks or other service providers, such as electric utilities. We
therefore must rely on these operators' estimates of their own Year 2000 risks,
issues and the status of their related compliance activities and programs in
our own risk assessment process. Because our systems are interconnected with
public telephone networks and are dependent upon the systems of other service
providers, the failure of these third parties to address their own Year 2000
risks and the disruption of operations in their computer programs may result in
material adverse effect on our operations, including:
o the inability of subscribers to make or receive phone calls;
o the inability of sites, switches and other interfaces to accurately
record call details of subscriber phone calls; and
o the inability of billing systems to accurately report and bill
subscribers for phone usage.
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We believe that the costs of modifying, upgrading or replacing our systems
and equipment will not have a material effect on our liquidity, financial
condition or results of operations. We currently estimate that our expenditures
in connection with our Year 2000 compliance efforts will not exceed $2 million.
To date, we have not deferred any specific projects, goals or objectives
relating to our operations as a result of our efforts.
SUPPLEMENTAL FINANCIAL DATA
The following unaudited quarterly financial data for the year ended
December 31, 1998 represents our operations during our initial build-out phase.
The results for any quarter are not necessarily indicative of results for any
future quarterly or annual results.
QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 FIRST SECOND THIRD FOURTH TOTAL
- ---- ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues ..................... $ 153 $ 284 $ 1,697 $ 3,175 $ 5,309
Operating expenses ........... 1,243 2,709 9,860 13,795 27,607
-------- -------- -------- --------- ---------
Operating loss ............... (1,090) (2,425) (8,163) (10,620) (22,298)
Income tax provision ......... -- -- -- -- --
-------- -------- -------- --------- ---------
Net loss ..................... $ (1,090) $ (2,425) $ (8,163) $ (10,620) $ (22,298)
======== ======== ======== ========= =========
</TABLE>
MARKET RISKS
We are subject to market risks arising from changes in interest rates. Our
primary interest rate exposure results from changes in LIBOR or the prime rate
which are used to determine the interest rate applicable to borrowings by our
subsidiary under its credit facility. As of March 31, 1999, our subsidiary had
$175 million outstanding under its credit facility. In April 1999, we entered
into an interest rate swap agreement for approximately one-third of these
borrowings to partially hedge our interest rate exposure. Interest rate swaps
have the effect of converting the applicable variable rate obligations to fixed
or other variable rate obligations. Our potential loss over one year that would
result from a hypothetical, instantaneous and unfavorable change of 100 basis
points in the interest rate of all our variable rate obligations would be
approximately $2 million.
In January 1999, we issued the old notes. While fluctuations in interest
rates may affect the fair value of this debt, interest expense will not be
affected due to the fixed interest rate of the notes.
We do not use financial instruments for trading or other speculative
purposes.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-4 to
register this exchange offer. This prospectus, which forms part of the
registration statement, does not contain all of the information included in
that registration statement. For further information about Nextel Partners and
the new notes offered in this prospectus, you should refer to the registration
statement and its exhibits.
Upon consummation of this exchange offer and so long as the notes remain
outstanding, we will file annual, quarterly and current reports with the SEC.
In addition, so long as the notes remain outstanding, we will make available to
any prospective purchaser of the notes or beneficial owner of the notes in
connection with any sale of the notes, the information required by Rule
144A(d)(4) under the Securities Act.
You may read and copy any document we file with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on
the operation of the Public Reference Room. We will file our SEC materials
electronically with the SEC, so you can also review our filings by accessing
the web site maintained by the SEC at http://www.sec.gov. This site contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC.
Our principal executive offices are located at 4500 Carillon Point,
Kirkland, Washington, 98033. Our telephone number is (425) 828-1713.
DELIVERY OF PROSPECTUS
We remind professional securities dealers of their obligation under the
securities laws to deliver a copy of this prospectus to anyone who buys new
notes from them until October 28, 1999, which is the 90th day after the date of
this prospectus. Securities dealers who were initial purchasers of the old
notes and are acting as underwriters of unsold allotments have additional
prospectus delivery requirements.
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BUSINESS
OVERVIEW
We are the only service provider licensed to use the Nextel (Registered
Trademark) brand name and market Nextel digital wireless communications
service based on technology developed by Motorola in 39 mid-sized and smaller
markets throughout the United States. Our markets contain places where
approximately 33 million people live or work and include Albany, Binghamton,
Buffalo, Corpus Christi, Des Moines, Green Bay, Harrisburg, Louisville, Mobile,
Omaha, Peoria, Rochester, Shreveport and Syracuse, as well as the State of
Hawaii, the Florida Panhandle and selected corridors along interstate highways.
We consider these markets to be attractive because:
o based on our understanding of Nextel's plans, these markets are
integral to Nextel's strategy of providing digital wireless services
nationwide;
o we believe that Nextel has experienced rapid subscriber growth and
competitive success in markets with similar economic and demographic
characteristics;
o our markets generally contain fewer wireless competitors than do large
urban markets; and
o a number of our markets are adjacent to operational Nextel markets and
include numerous offices and branches of Nextel's national accounts
that are expected to become our customers as soon as we launch service
in their vicinity.
We have operational systems in five markets covering places where
approximately 4.5 million people live or work in Hawaii and upstate New York
and our other markets are in various stages of design or construction. We
expect to have operational systems in 34 additional markets by the end of 2001.
We offer or plan to offer a differentiated, integrated package of digital
wireless communications services under the Nextel (Registered Trademark) brand
name, initially targeting business users. This package of wireless services
currently is identical to the package of services that Nextel has used to
achieve success in its own markets. Our services include:
o cellular telephone service,
o Nextel Direct Connect(SM) service that allows users to contact
co-workers instantly, one-to-one or on a conference call,
o paging and short text messaging service, and
o in the future, the ability to send and receive data through the user's
handheld unit.
We plan to make our service offerings operationally seamless with those of
Nextel, so that our services and the services of Nextel will be substantially
identical from the customer's point of view, and customers of each company will
be able to roam both within and between the two companies' systems with equal
ease and at no additional charge. To achieve seamless integration, we will
build our portion of the Digital Mobile Network using the same technology used
by Nextel. This technology, developed by Motorola, is referred to as
"integrated Digital Enhanced Network" or "iDEN(TM)".
We will operate our portion of the Digital Mobile Network in accordance
with Nextel's standards to enable both companies to achieve a consistent level
of service throughout the United States. Based on Nextel's current coverage, as
reported in its quarterly report as of March 31, 1999, and our expected
coverage of our markets, the overall Digital Mobile Network is expected to
cover places where approximately 195 million people live or work.
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Nextel's all-digital network provides customers with digital quality and
advanced features wherever they roam on the Digital Mobile Network, in contrast
to the hybrid analog/digital networks of cellular competitors which do not
support these features in the large analog-only portions of their networks.
Nextel reported in its quarterly report that as of March 31, 1999, it
provides digital service to more than 3.1 million subscriber units in the
United States, and that its network constitutes one of the largest wireless
networks in the United States providing fully integrated, all-digital wireless
service using a single transmission technology. Based on information reported
by cellular and digital service providers, in four of the five quarters through
March 31, 1999, Nextel has been one of the top two U.S. wireless industry
growth leaders as measured by net customer additions.
We believe that the Nextel Direct Connect feature is an integral part of
doing business in its targeted industry groups, contributing to both its high
rate of growth and subscriber loyalty. In its 1998 annual report, for the year
ended December 31, 1998, Nextel reported an average monthly churn rate of
approximately 1.8% versus the industry average of 2.5 to 3.5%. "Churn" is an
industry term referring to the percentage of a service provider's customer base
that cancels service or whose service is terminated during a given month.
As reported in its quarterly reports, Nextel's monthly average revenue per
subscriber unit for Nextel's services was $70 for each of the third and fourth
quarters of 1998, as compared with a wireless industry average of $39 for the
same periods as reported by the Cellular Telecommunications Industry
Association. We believe Nextel's focus on business customers, particularly
those customers who employ a mobile workforce with high demand for wireless
communications services, accounts, in part, for this superior performance. We
cannot assure you, however, that Nextel's past or present performance is any
indication of our expected performance.
We intend to achieve the initial system build-out in our portion of the
Digital Mobile Network to cover places where approximately 22.4 million people
live or work within our territory by the end of the third quarter of 2001. We
have completed the initial design for the initial build-out, subject to
on-going review. At the time we were capitalized, Nextel had already launched
commercial operations covering places where approximately 4.5 million people
who live or work in Hawaii and upstate New York. We acquired the assets
relating to these operational networks on January 29, 1999, along with other
plans, surveys and capital assets in our territory in various stages of
completion. We expect to launch service in four additional markets by the end
of 1999 and to complete the initial system build-out in our portion of the
Digital Mobile Network by the end of 2001.
On January 29, 1999, we acquired leasehold interests in 563 cell site
locations for our transmission equipment throughout our territory, which is
more than one-third of the 1,450 sites that we estimate will be required to
complete the initial system build-out of our portion of the Digital Mobile
Network. Of these acquired sites, 220 were already equipped and operational at
the time of acquisition. Under the terms of our agreements with Nextel, Nextel
is responsible for the development of towers used for these sites and provides
us with space on these towers for our equipment. We have agreed, at Nextel's
request, to enter into leasing arrangements with purchasers of Nextel's towers
on agreed terms. Nextel has entered into a transaction with SpectraSite
Communications in which Nextel sold towers to SpectraSite and entered into
agreements pursuant to which SpectraSite would build or purchase additional
towers, including towers in our territory. For these future towers and towers
transferred to SpectraSite, we will lease space on the towers either as a
sub-lessee under our agreement with Nextel or enter into a direct lease with
SpectraSite on economic terms similar to our arrangements with Nextel.
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Through our relationship with Nextel, we expect to have access to many of
Nextel's vendors and distributors and have agreed on terms with Motorola for
the purchase of base radios to be installed at sites, hand-held subscriber
units and other related iDEN technology-based items.
To reduce the risk of zoning and other local regulatory delays,
construction delays and site acquisition costs, we intend to locate our cell
sites on existing transmission towers owned by third parties wherever possible
or if necessary on towers constructed or purchased by SpectraSite or other
contracted third parties at our request. In addition, we plan to take advantage
of the capacity of iDEN technology to efficiently employ base radio equipment
for less densely-populated areas and for coverage along interstate highways.
We have attracted an experienced senior management team including former
managers of AT&T Wireless Services (formerly McCaw Cellular Communications) and
believe that our dedicated management focus will enable us to complete the
initial system build-out in our portion of the Digital Mobile Network and
operate effectively.
THE CAPITALIZATION TRANSACTIONS
On January 29, 1999, we raised $989.4 million in debt and equity capital
through cash and in-kind equity contributions and commitments, issuance of the
old notes and borrowings by our principal operating subsidiary under a secured
credit facility. As a result of these transactions, we have assets and
financial resources that we believe will be sufficient to accomplish the
initial build-out of the Digital Mobile Network, and fund our anticipated
operating losses and working capital requirements through 2003, when we expect
to achieve positive operating cash flow for the full fiscal year.
(1) Equity Investments. In consideration for the issuance of our capital stock
and warrants and pursuant to a subscription agreement:
o The cash equity investors, including DLJ Merchant Banking, Eagle
River, and Madison Dearborn Partners, contributed $52.1 million and
agreed to contribute an additional $104.3 million, for a total of
$156.4 million in cash equity contributions;
o Nextel contributed 800 MHz licenses in our territory, with a book
value of $133.2 million, to Nextel WIP License Corp., and we entered
into management agreements that allow us to use these licenses pending
FCC approval of the transfer of the capital stock of Nextel WIP
License Corp. to us; and
o Motorola granted us an $18.4 million credit against our future
purchases of Motorola infrastructure equipment.
(2) Operating Agreements. Through our principal operating subsidiary, we
entered into agreements with a subsidiary of Nextel, which:
o provide for mutual roaming ability and marketing;
o provide for the sharing of switches so that Nextel's switches and any
switches we purchase in the future can be integrated and used for both
our and Nextel's networks;
o set standards for network quality and support;
o provide us with our access to billing, customer care, information
systems and other back-office support used by Nextel; and
o contemplate our access to Nextel's vendor relationships.
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(3) Credit Facility. Our principal operating subsidiary entered into the $275.0
million credit facility with various financial institutions. We drew down
$175.0 million, an amount representing the entire term loan portion of the
credit facility on January 29, 1999, and we established a cash collateral
account in which we must maintain a balance equal to the amount of such
borrowings until we obtain FCC approval of the transfer of control of the
licenses from Nextel to us.
(4) Offering of the Old Notes. We sold the old notes and received gross
proceeds from this sale of approximately $406.4 million.
BUSINESS STRATEGY
Our principal business objective is to become a leading provider of
wireless communications services in each market in our territory by offering
high-capacity, high-quality, advanced communications services on our portion of
the Digital Mobile Network and implementing key elements of Nextel's business
strategy in our markets. We believe the following elements of our business
strategy will distinguish our wireless service offerings from those of our
competitors and will enable us to compete successfully in the wireless
communications marketplace.
CAPITALIZE ON RELATIONSHIP WITH NEXTEL. We intend to capitalize on our
relationship with Nextel, employing the same iDEN technology as Nextel, and, in
concert with Nextel, accelerating iDEN service coverage under the Nextel brand.
We believe our relationship with Nextel provides strategic and cost saving
advantages, including the following:
o Nextel (Registered Trademark) brand awareness and marketing programs.
We benefit from the broad scope and geographic coverage of Nextel's
marketing efforts and related advertising campaigns, which are
designed to increase awareness of the Nextel brand name and stimulate
interest in and demand for Nextel service by stressing its
versatility, value, simplicity and quality.
o Nationwide roaming. Our customers and customers of Nextel are able to
use interconnect service to roam on both networks at no additional
charge to the customer. Nextel provides our customers the same basic
mobile telephone functionality and related features available to them
in our markets when they roam into Nextel's markets. Conversely,
Nextel's customers generate revenue for us when they roam into our
markets.
o Nextel support services. The operating agreements enable us to:
(1) use Nextel's switching facilities and network monitoring center,
(2) use Nextel's back-office systems to support customer activation,
billing and customer care,
(3) access technology improvements from Nextel's research and
development program, and
(4) use Nextel's employee training sessions.
Prices for these services are based on Nextel's costs.
o Nextel's existing relationships with vendors and distributors. Through
our relationship with Nextel, we have access to many of Nextel's
vendors that provide the goods and services that we need in our
business. Additionally Motorola sells base radios and other related
iDEN-based technology items to us at the same prices it offers to
Nextel. We are developing our own relationships with vendors and
seeking from Nextel's distributors terms similar to those agreed to
with Nextel.
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o Nextel's national accounts. We anticipate that numerous offices and
branches of Nextel's national accounts will become our customers when
we launch service in their vicinity. Nextel national accounts that had
subscribers in our operational markets became our subscribers on
January 29, 1999.
FOCUS ON MID-SIZED AND SMALLER MARKETS. We believe that our focus on mid-sized
and smaller markets represents an opportunity to capture market share as a
result of the competitive advantages of our service offering. We believe that
price competition for our services in our markets may not be as intense as in
major metropolitan areas where a larger number of wireless service providers
compete.
PROVIDE DIFFERENTIATED, INTEGRATED PACKAGE OF WIRELESS SERVICES INCLUDING
DIRECT CONNECT. We offer a bundled product consisting of the following services
accessible through a single device:
o cellular telephone service;
o Nextel Direct Connect service; and
o paging and short text messaging service.
We believe that Nextel's experience demonstrates that a significant degree
of overlap exists in the customer population for these separate wireless
communications services and that business customers are attracted to the
convenience of combining multiple wireless communications options in a single
handset and consolidating all wireless service charges into a single package
price and billing statement.
Nextel's experience and market research show that a sizable portion of
business users' communications involve contacting others within the same
organization. Nextel Direct Connect service is especially well-suited to
address these intracompany wireless communications needs. Nextel Direct Connect
service enables a user to instantly set up a conference on either a one-to-one
or group basis within the same geographic area. This is a feature that is not
included in any integrated service package currently available from competing
cellular and digital operators. We believe that the Nextel Direct Connect
feature generated a majority of Nextel's network traffic as of March 31, 1999.
To further expand the flexibility and convenience offered by Nextel Direct
Connect service to users outside a single organization but within a single
industry or interest group in a particular dispatch service area, Nextel has
introduced the Nextel Business Networks(SM) service. Nextel Business Networks
extends Nextel Direct Connect service beyond a company's employees to
suppliers, customers and other parties involved in the same transaction,
industry or work site. Nextel reported in its 1998 annual report its estimate
that as of December 31, 1998 over 700,000 digital subscriber units were
utilizing Nextel Business Networks offerings.
In 1998, Nextel introduced Motorola's fourth-generation iDEN phone: the
i1000 (Trade Mark) . The i1000 delivers the full functionality of the Nextel
range of services in a compact, lighter, folding-form handset designed to
appeal to business professionals. In addition, this palm-sized unit offers
longer battery life, functions as a wireless speakerphone and has a second line
capability. We offer a full range of iDEN subscriber equipment, including the
i1000 phone, to our customers.
Nextel recently announced an agreement with Microsoft Corp. to deploy
Nextel Online(SM), a wireless internet service offering which enables Nextel
subscribers to access a customized set of internet services offered through a
version of Microsoft's MSN(TM) portal anytime, anywhere on Nextel's network.
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FOCUS ON BUSINESS CUSTOMERS. Our marketing strategy targets business users who
we believe are particularly attracted to the Digital Mobile Network's potential
for increasing efficiencies and reducing costs. Following Nextel's marketing
approach, we have initially concentrated our sales efforts on a number of
distinct groups of mobile workers, including personnel in the transportation,
delivery, real property and facilities management, construction and building
trades, landscaping and other service sectors. We will gradually expand our
target customer group to include additional industry groups.
We believe, based on Nextel's experience, that this focus on business
customers and its unique bundle of services will result in higher monthly
average revenue per unit and lower average monthly churn rate than other
wireless services providers experience.
OFFER COMPETITIVE AND SIMPLIFIED PRICING FEATURES. We have adopted several of
Nextel's pricing strategies that we believe to be both profitable and
attractive to customers, although we set our price levels in each of our
markets independently of Nextel. These pricing features include home-rate
roaming, one-second rounding after the first minute and flat-rate pricing,
which we believe differentiates our services from competitors and enables us to
benefit from Nextel's national advertising of these features:
o Home-rate roaming. Our customers pay the same rates they pay at home
when traveling anywhere on either Nextel's or our portion of the
Digital Mobile Network, without the complex dialing procedures, access
fees or higher roaming airtime rates frequently encountered by roaming
customers of cellular providers. As a result of our planned build-out
and Nextel's existing and planned build-out in its own markets, the
Digital Mobile Network is expected to cover approximately 195 million
people in the United States.
o One-second rounding. We bill our mobile telephone service customers
based on the actual number of seconds of airtime used after the first
minute, in contrast to the common cellular industry practice of
rounding call lengths up to the next minute.
o Flat-rate pricing. Our rate plans do not distinguish between "peak"
and "off-peak" minutes, charging one airtime rate and a single
nationwide long distance rate, regardless of the time of day a call is
made.
EFFICIENT, STANDARDIZED OPERATIONS. We intend to develop efficient,
standardized operations to support customer activation, billing and customer
care. We intend to use our flexibility under the operating agreements to
minimize overhead costs and provide high-quality customer service by utilizing
Nextel's back-office support systems and practices for these services, or
implementing our own when appropriate. For example, we believe that our ability
to establish consistent pricing and billing across our territory will enable us
to offer cost-effective, high-quality customer care. Customers are able to
contact us through the national 800 number advertised by Nextel and Nextel's
call center automatically routes all calls from our customers to us.
EXPERIENCED MANAGEMENT. We have assembled the following senior management team
with significant experience in the telecommunications industry:
o John Chapple, Chief Executive Officer. Mr. Chapple has nearly twenty
years of experience in the wireless communications and cable
television industries. His experience includes serving from 1988 to
1995 as Executive Vice President of Operations for McCaw Cellular
Communications and subsequently AT&T Wireless Services following the
merger of those companies. He is the past Chairman of Cellular One
Group and the Personal Communications Industry Association, as well as
Vice-Chairman of the Cellular Telecommunications Industry Association.
o John Thompson, Chief Financial Officer. Mr. Thompson has twenty years
of finance experience including twelve years in the wireless
communications industry. Mr.
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Thompson served as Vice President of Tax for McCaw Cellular
Communications and, more recently, as Senior Vice President of McCaw
Cellular Communications and as Chief Financial Officer of AT&T
Wireless Services. Mr. Thompson played a significant role in a number
of key initiatives for the company including McCaw Cellular
Communications' acquisition of LIN Broadcasting, the merger of McCaw
Cellular Communications and AT&T, and AT&T's PCS license acquisitions.
o David Thaler, Vice President--Field Operations. Mr. Thaler has nearly
seventeen years of experience in the wireless and cable television
industries. Mr. Thaler served as Vice President of Operations for AT&T
Wireless Services' Central Region business unit and, more recently, as
Senior Vice President and Managing Director of International
Development and Operations for AT&T Wireless Services.
o David Aas, Vice President--Engineering and Technical Operations. Mr.
Aas has over twenty years of experience in the wireless industry. Mr.
Aas led the design, development, construction and operation of AT&T
Wireless Services' national messaging network. He has also served in a
number of senior technical management positions with Airsignal, MCI
and MobileComm.
o Perry Satterlee, Vice President--Business Operations. Mr. Saterlee has
approximately ten years of wireless industry experience. Mr. Satterlee
has spent the last two years at Nextel as President-Pacific Northwest
Area, and prior thereto, served as Vice President and General Manager
of AT&T Wireless Service's Central California District.
For more information on the senior management team, see "Management."
FCC MATTERS
As an equity contribution, Nextel assigned specific 800 MHz specialized
mobile radio licenses that cover areas in our territory and that are or will be
used by us in our network to Nextel WIP License Corp., whose capital stock will
be transferred to us following FCC approval. The transfer applications were
filed with the FCC on or around January 29, 1999. The FCC received no comments
from third parties during the public comment period on these applications, and
we anticipate receiving FCC approval by the fall of 1999. Pending FCC approval,
we have the right to use the frequencies we need under a frequency management
agreement. After FCC approval, we will pledge all of the outstanding shares of
Nextel WIP License Corp. to secure borrowings under the credit facility.
NETWORK BUILD-OUT AND CAPITAL EXPENDITURE PLAN
On January 29, 1999, Nextel sold us operational systems that had been
offering service in upstate New York since July 1998 and in Hawaii since
September 1998. In addition, Nextel, in return for a cash reimbursement,
provided its preliminary design work, construction work in progress and design
and construction contracts for the systems within other parts of our territory.
We currently plan to launch additional commercial operations in our
selected markets so that we cover places where a total of approximately 22.4
million people live or work in our territory by the end of 2001. The table
below indicates the number of markets expected to be commercially launched in
our markets and the total number of people who live or work in such markets.
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<TABLE>
<CAPTION>
NUMBER OF
LAUNCH YEAR MARKETS COVERED POPULATION
- ------------- ---------- -------------------
<S> <C> <C>
1998 5 4.5 million
1999 4 1.5 million
2000 21 12.6 million
2001 9 3.8 million
</TABLE>
We believe that our total projected capital requirements from inception through
year-end 2003 are approximately $922.8 million. These requirements include
capital expenditures related to building out the initial systems in our portion
of the Digital Mobile Network, customer acquisition costs, operating losses
incurred through the initial build-out phase, debt service and closing costs.
Our markets contain places where approximately 33 million people live or
work. Under the terms of the operating agreements, specific build areas,
including metropolitan areas, smaller communities and corridors, are "required
build" areas. Our agreements with Nextel require us to launch commercial
service in the required build areas of our territory within one, two or three
years from January 29, 1999, and have ongoing requirements to complete
additional build-outs in subsequent years. In addition, we have the right to
elect to build out certain additional markets covering places where
approximately 20.4 million people live or work in the aggregate. With respect
to a portion of these optional markets, we have the right to elect to build out
these territories at any time prior to August 29, 2000. For the remaining
optional territories, we have the right to elect to build out before August 29,
1999 so long as we have completed the build-out of our required build areas
scheduled for launch in our first year. Nextel may build out the option markets
prior to our election if we choose not to build out these markets after notice
of Nextel's intent. If our required build markets are not timely built out or
if we choose not to build out optional markets, Nextel will have the right to
build out these markets. If Nextel completes the build-out of these areas, we
will have no right to acquire or operate our network in those areas.
MARKETS
Nextel WIP License Corp. holds licenses in our markets where 33 million
people live or work, of which four markets have populations greater than 1
million and 13 markets have populations between 500,000 and 1 million. The
table below lists the markets in which we intend to provide digital wireless
service.
<TABLE>
<S> <C>
REGION MARKETS
- --------------------------------------------------------------
NORTHEAST Albany
Binghamton/Elmira
Buffalo
Erie
Glens Falls
Harrisburg/York/Lancaster
Ithaca/Norwich
Jamestown
Rochester
Syracuse
Wilkes-Barre/Scranton/Berwick
- --------------------------------------------------------------
</TABLE>
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<TABLE>
<S> <C>
SOUTH Alexandria
Beaumont/Lafayette/Lake Charles
Bristol/Johnson City/Kingsport
Bryan-College Station
Corpus Christi
Florida Panhandle
Gieger/Dothan/Auburn-Opelika
Jackson/Hattiesburg
Lynchburg/Louisville/Lexington
Mobile/Montgomery
Pascagoula
Pensacola/Panama City/Fort Walton Beach
Roanoke/Blacksburg
Shreveport/Texarkana
Tallahassee
Temple-Killeen/Waco
- --------------------------------------------------------------
MIDWEST & WEST Boise/Sun Valley
Davenport/Dubuque
Des Moines/Ames
Duluth
Eau Claire
Green Bay/Fond du Lac
Independence
Omaha/Lincoln
Peoria/Springfield
Rochester
Twin Falls
- --------------------------------------------------------------
NONCONTINENTAL U.S. Hawaii
- --------------------------------------------------------------
</TABLE>
In addition to medium-sized and smaller markets, our markets include
selected corridors along interstate highways and state highways. While these
corridors do not have large business or residential population, we believe that
significant revenues will be earned from travelers on such highways.
Accordingly, the population of a given area may not fully indicate the amount
of the revenues that may be generated in such area.
THE U.S. WIRELESS COMMUNICATIONS INDUSTRY
OVERVIEW
Wireless communications systems use a variety of radio frequencies to
transmit voice and data, and include cellular telephone services, ESMR, PCS and
paging. ESMR stands for enhanced specialized mobile radio, and is the
regulatory term applied to the services, including those provided by the
Digital Mobile Network, that combine wireless telephone service with a dispatch
feature and paging. PCS stands for personal communications service, and refers
to digital wireless telephone service.
Since the first commercial cellular systems became operational in 1983,
wireless telecommunications services have grown dramatically as these services
have become widely available and increasingly affordable. This growth has been
driven by technological advances, changes in consumer preferences and increased
availability of spectrum to new operators.
Wireless telephone service has been one of the fastest growing market
segments in the telecommunications industry. According to the Cellular
Telecommunications Industry Association, between 1994 and 1998, the number of
wireless customers and associated
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industry revenues grew at compounded annual growth rates of 30.8% and 23.3%,
respectively, and in 1998, cellular, ESMR and PCS service providers together
added approximately 13.9 million new customers, an increase of 23.3% from 1997
totals. The following chart illustrates the annual growth in wireless customers
and total industry revenues during the period indicated.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
U.S. WIRELESS SUBSCRIBERS AND TOTAL INDUSTRY REVENUES*
(SUBSCRIBERS IN THOUSANDS, $ IN BILLIONS)
1985 340
1986 682
1987 1,231
1988 2,069
1989 3,509
1990 5,283
1991 7,557
1992 11,033
1993 16,009
1994 24,134
1995 33,786
1996 44,043
1997 55,312
1998 69,209
SOURCE: CELLULAR TELECOMMUNICATIONS INDUSTRY ASSOCIATION
According to the Cellular Telecommunications Industry Association, as of
December 31, 1998, there were over 69 million mobile telephone users in the
United States. Industry sources estimate that U.S. mobile wireless penetration
rates will continue to grow significantly and reach 64% by 2008.
WIRELESS COMMUNICATIONS SYSTEMS
In the U.S. wireless communications industry, there are three wireless
telephone services: cellular, ESMR and PCS. Currently, cellular is the
predominant service available and has several competitive advantages. Cellular
and ESMR services utilize radio spectrum in the 800 MHz band while PCS operates
at higher frequencies of 1850 to 1990 MHz. Use of the 800 MHz band gives
cellular and ESMR superior ability to penetrate objects and structures and
spread or "propagate" through air, reducing infrastructure costs since fewer
base radios are needed to cover a given area and increasing the ability to
penetrate buildings and other physical obstacles.
All cellular services transmissions were originally analog-based, although
some cellular providers have now overlaid digital systems alongside their
analog systems in many markets. Analog cellular technology has the advantage of
using a consistent standard nationwide, permitting nationwide roaming using a
single mode (i.e., analog), single band (i.e., cellular) handset. On the other
hand, analog technology has several disadvantages, including less efficient use
of spectrum, which reduces effective call capacity, inconsistent service
quality, reduced privacy, security and reliability as compared to digital
technologies and the inability to offer services such as voice mail, call
waiting or caller identification.
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Beginning in 1995, the FCC allocated the 1850 to 1990 MHz portion of the
radio spectrum for PCS service. All PCS services, like ESMR, are all-digital
systems which convert voice or data signals into a stream of binary digits that
is compressed before transmission, enabling a single radio channel to carry
multiple simultaneous signal transmissions. This enhanced capacity, along with
improvements in digital signaling, allows digital-based wireless technologies
to offer new and enhanced services, improved voice quality and system
flexibility, as compared with analog technologies. Call forwarding, call
waiting and greater call privacy are among the enhanced services digital
systems provide. In addition, due to the reduced power consumption of digital
handsets, users benefit from an extended battery life.
The FCC assigned non-contiguous portions of the 800 MHz band to
specialized mobile radio service or "SMR", which was initially dedicated to
analog two-way radio dispatch services. This service only became a competitor
in the wireless telephone market with the introduction in 1993 of ESMR, which
applies digital technology to make use of the 800 MHz spectrum band and its
superior propagation characteristics to deliver the advantages of a digital
wireless mobile telephone system while retaining and significantly enhancing
the value of SMR's traditional dispatch feature.
Unlike analog cellular, which has been implemented in a uniform manner
across the United States, several mutually incompatible digital technologies
are currently in use in the United States. Roaming into different areas often
requires multi-mode (analog/digital) and/or multi-band (PCS/cellular) handsets
that function at both cellular and PCS frequencies and/or are equipped for more
than one type of modulation technology. Time-division technologies, which
include Global System for Mobile Communications or "GSM", Time Division
Multiple Access or "TDMA" and iDEN break up each transmission channel into time
slots that increase effective capacity. Code Division Multiple Access or "CDMA"
technology is a spread-spectrum technology which transmits portions of many
messages over a broad portion of the available spectrum rather than a single
channel. iDEN phones presently operate only in the iDEN mode within SMR
frequencies, and therefore cannot roam onto other digital or analog wireless
networks.
NEXTEL
Subscriber and Revenue Growth. Nextel deployed a second generation of
Motorola's iDEN technology beginning in the third quarter of 1996. In its
quarterly reports, Nextel has reported a high rate of customer growth since
that time, making it one of the industry's growth leaders as compared to
information reported by cellular and digital service providers. Based on
Nextel's quarterly reports, over the past two years, the number of Nextel's
ESMR customers has grown at a 34.5% compounded growth rate, quarter over
quarter and as of March 31, 1999, the number of Nextel's ESMR customers is
estimated to have grown to more than 3.1 million. The following chart
illustrates the quarterly growth of Nextel's ESMR customers over the past four
years. Because our physical network will take several years to build out fully,
and because of the smaller size of our territory as compared to Nextel's, our
rate of customer growth may not equal or exceed Nextel's results. Moreover, we
cannot assure you that Nextel itself, whose growth we believe has been driven
primarily by its success in penetrating its core market of industries dependent
upon mobile work groups, will sustain its recent growth rates in the future.
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[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
NEXTEL - QUARTERLY DIGITAL SUBSCRIBERS*
(IN THOUSANDS)
Q4 94 13.5
Q1 95 22.6
Q2 95 37.0
Q3 95 61.0
Q4 95 85.0
Q1 96 129.1
Q2 96 175.0
Q3 96 228.0
Q4 96 300.3
Q1 97 422.9
Q2 97 624.4
Q3 97 946.8
Q4 97 1,270.7
Q1 98 1,641.5
Q2 98 2,042.1
Q3 98 2,417.4
Q4 98 2,956.0
Q1 99 3,152.9
* AS REPORTED IN NEXTEL'S QUARTERLY REPORTS.
Nextel's reported monthly average revenue per unit has generally increased
since 1993, a fact that stands in notable contrast to the overall trend in the
wireless industry, where, according to data reported by the Cellular
Telecommunications Industry Association, monthly average revenue per unit has
been declining since 1993 as a result of increasing competition. Nextel's
monthly average revenue per unit may be adversely affected in the future as it
attempts to broaden its customer base and faces increasing competition. There
can be no assurance that our monthly average revenue per unit will duplicate
that of Nextel, because we set our prices independently, and our markets are
geographically and demographically distinct from Nextel's. The following chart
illustrates the quarterly growth of Nextel's monthly average revenue per unit
rates over the past three years.
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[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
NEXTEL - MONTHLY AVERAGE REVENUE PER DIGITAL SUBSCRIBER UNIT*
Q2 96 $52
Q3 96 $56
Q4 96 $56
Q1 97 $59
Q2 97 $63
Q3 97 $70
Q4 97 $68
Q1 98 $66
Q2 98 $69
Q3 98 $70
Q4 98 $70
Q1 99 $71
* AS REPORTED IN NEXTEL'S QUARTERLY REPORTS.
Differentiated Product Offering We believe that Nextel has maintained and
increased its monthly ARPU as a result of the unique features of its
differentiated product and its focus on mobile work groups. In its 1998 annual
report, Nextel reported that it believes that these groups have made Nextel's
service an integral part of their business operations, which we believe
contributes to high usage and lower rates of churn. Nextel's iDEN service
offers the same mobile telephone features as digital cellular and PCS service,
including call forwarding, call waiting and greater call privacy. Moreover,
iDEN technology's unique differentiation from other digital standards is its
dispatch service, which is marketed by Nextel and us, as Nextel Direct Connect
service.
The Nextel Direct Connect dispatch capability allows any member of a
mobile team to immediately communicate with any or all of a prearranged Nextel
phone-equipped team of up to 100 members with the push of a button. This
"push-to-talk" feature works like a two-way radio, but, in contrast to analog
dispatch SMR radios, digital iDEN technology allows only the person or persons
being called to hear the conversation.
Nextel Direct Connect service, together with other enhancements, including
call alert, speakerphone capability, short text paging and "hot-sync"
programming (on certain subscriber unit models), differentiates Nextel's
digital service from cellular and PCS providers, and we believe it has been
responsible for Nextel's strong appeal to business users in mobile occupations,
including transportation, delivery, real property and facilities management,
construction and building, landscaping, and other service sectors. "Hot-sync"
programming allows users to quickly and easily program their subscriber units
with the data necessary to form a Direct Connect work group by inserting each
unit into a cradle connected to a personal computer. In addition to its
advantages to users, Nextel Direct Connect service uses only half the bandwidth
that an interconnected call over an iDEN network would use, and this efficient
use of spectrum gives the iDEN service provider the opportunity to offer
attractive pricing for Nextel Direct Connect service.
THE OPERATING AGREEMENTS
The operating agreements define the relationship between Nextel and us.
The operating agreements demand that we adhere to certain key operating
requirements, including the following:
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o we generally are required to offer the full complement of products and
services offered by Nextel in comparable service areas;
o we must abide by Nextel's standard pricing structure (principally
home-rate pricing, per-second billing, and flat-rate pricing), but we
need not charge the same prices as Nextel;
o we must meet minimum network performance and customer care thresholds;
and
o we must adhere to standards in other operating areas, such as
frequency design, site acquisition, construction, cell site
maintenance, and marketing and advertising.
The initial terms of the operating agreements, except for the master site
lease, are for ten years which may be extended for up to two and a half years,
with four ten-year renewals at our option. The master site lease has an initial
term of five years with nine five-year renewals at our option.
As an equity contribution, Nextel assigned SMR licenses in our territory
to Nextel WIP License Corp. The capital stock of Nextel WIP License Corp. will
be transferred to us following FCC approval and will then be pledged to secure
borrowings under the credit facility. Pending FCC approval, our use of SMR
frequencies covered by these licenses is governed by the frequency management
agreement. Nextel agreed, as part of its contribution, to pay for future SMR
licenses acquired from third parties in exchange for our assignment of
previously transferred licenses of equivalent value back to Nextel. The
aggregate value of all such exchanges of the transferred licenses may not
exceed $25.0 million. We are responsible for the cost of migrating customers
off of the frequencies if necessary.
In addition, Nextel shares with us its experience and know-how in
operating iDEN networks, by granting us access to meetings and employee
training sessions, and will provide specified services upon our request. The
most significant services we can ask Nextel to provide are:
o use of certain of Nextel's switching facilities in exchange for a
per-minute fee based on Nextel's national average cost for such
service, including financing and depreciation costs;
o monitoring of switches owned by us on a 24-hour per day basis by
Nextel's network monitoring center in exchange for a fee based on
pro-rata costs;
o use of Nextel's back-office systems for a transitional period in order
to support customer activation, billing and customer care in exchange
for fees based on Nextel's national average cost for such services
and, if necessary after the transitional period, for fees to be
mutually determined;
o use of the Nextel brand name and certain trademarks and service marks,
and the marketing and advertising materials developed by Nextel in
exchange for a marketing services fee described below;
o lease space on transmission towers developed by Nextel or purchased by
third parties from Nextel located in our markets;
o access to technology enhancements and improvements in exchange for
pro-rata sharing of any research and development costs; and
o access to Nextel vendor contracts and terms wherever possible,
including Motorola infrastructure and subscriber unit pricing.
To further support us in our efforts, Nextel has also agreed that:
o the per-minute switching fees through the year 2001 will be based on
the estimated national average cost for such services in the year
2001;
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o the switch monitoring services will be supplied for a fee based on
Nextel's average costs of providing such service;
o no marketing services fee is due until the later of January 2002 or
the first month of the quarter beginning after we achieve two
consecutive quarters of positive EBITDA as adjusted, at which time the
fee will be 0.5% of gross monthly service revenues for the next three
years of operation and 1.0% of gross monthly service revenues
thereafter; and
o the roaming rate payable to us when Nextel subscribers use our system
will be 95% of the average revenue per minute through 1999, 90% in
2000, 85% in 2001 and 80% thereafter, subject to upward or downward
adjustment based on the relative customer satisfaction levels of
Nextel and us.
In exchange for its equity contribution, Nextel received equity interests
in Nextel Partners. Subject to certain conditions, Nextel has the option to
acquire 100% of the outstanding equity interests of Nextel Partners which it
does not already own upon the occurrence of any of the following:
o on certain dates beginning on the seventh anniversary of the
commencement of the operating agreements;
o in the event Nextel materially changes its technology and does not
elect to replace our equipment; or
o in the event of a material breach by us of our joint venture agreement
with Nextel.
On the other hand, subject to certain conditions, our shareholders have
the right to put their entire interest to Nextel if:
o there is a change of control of Nextel, such right exercisable at any
time during the 18-month period following such change of control;
o Nextel implements operational changes, technology improvements, or
pricing structure changes that adversely impact our business, and
Nextel does not elect to compensate us for net losses attributable to
such changes; or
o Nextel exercises its right to preempt certain demand registrations of
our stock by DLJ Merchant Banking.
The determination of the purchase price to be paid to interest holders
other than Nextel varies for each of the above scenarios, but is generally
based on formula prices or some variation of "fair market value" or a
percentage thereof as determined by independent appraisers.
We are managed by a board of directors. The board of directors currently
consists of one member designated by each of Nextel and Eagle River, two
members designated by DLJ Merchant Banking (one of whom can be an officer or
director of Madison Dearborn Partners) and our chief executive officer. While
the board of directors will set forth the general policies, decisions regarding
certain matters require the consent of DLJ Merchant Banking, and Nextel's
approval must be obtained before any change in technology, any change in our
business scope and any sale of all or substantially all of our assets. See
"Management" and "Certain Relationships and Related Transactions--Shareholders'
Agreement."
MARKETING
At the time of launch in each of our markets, we expect to market our
services to leads and prospects previously generated by the Nextel marketing
organization within our territory, either as a result of offices or branches of
Nextel national accounts located within
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our territory or as a result of inquiries directed to Nextel prior to the
launch of services. We expect to benefit from Nextel's national advertising
campaign and utilize a direct sales force as well as indirect sales channels,
such as a "store-within-a-store" at building supply superstores, direct mail
and telemarketing.
CUSTOMER CARE
Our customers can reach customer service for our markets through the
national 800 number advertised by Nextel. Nextel's call center automatically
routes all calls from our customers to us. We will initially provide customer
care through a dedicated team based at Nextel's customer care center, and
intend to establish one or more separate customer care centers when our
business base is large enough to justify the expenditures involved.
THE DIGITAL MOBILE NETWORK
Digital Mobile Network Services. We are designing and constructing our
portion of the Digital Mobile Network to generally support the same variety of
service offerings as Nextel, including:
o mobile telephone service, including access to features competitive
with those offered by current wireless communications services, such
as the transfer or "hand-off" of calls as a customer travels from one
site range to another and signal penetration of objects and structures
for improved mobile performance in selected high usage areas;
o Nextel Direct Connect service; and
o signaling or paging capability, which also has been built into each
subscriber unit, to enable a customer to receive alphanumeric
short-text messages.
In addition, the Digital Mobile Network has been designed to offer customers
additional features, such as voicemail, call hold, call waiting, no-answer or
busy-signal transfer, call forwarding and three-way calling.
Roaming Agreements. We expect to enter into international roaming
agreements with carriers operating outside of the United States. To the extent
that we, independently, are unable to obtain any such agreements due to a
technological issue, our operating agreements with Nextel requires us to
cooperate with Nextel WIP Corp. to provide us with the benefit of Nextel's
international roaming arrangement.
Nextel International, Inc., which is a substantially wholly owned
subsidiary of Nextel, owns significant equity interests in a number of entities
that provide wireless communications services (primarily using the iDEN
technology) outside the United States. Nextel International's operating
subsidiaries and affiliated entities plan to construct and operate digital
networks employing iDEN technology in major metropolitan market areas located
in Brazil, Mexico, Argentina, Peru and the Philippines.
Nextel has entered into a roaming agreement with Clearnet Communications,
Inc., which has constructed and operates a digital wireless communications
network in Canada using iDEN technology. Nextel also may enter into a roaming
agreement with Nextel International's wholly owned subsidiary which has
constructed and operates a digital wireless communications network in Mexico
using iDEN technology. Such roaming agreements are expected to provide, among
other things, the coordination of customer identification and validation
necessary to facilitate cross-border roaming service in North America.
Digital Mobile Network Technology. The Digital Mobile Network, as
currently deployed by Nextel, combines the iDEN digital technology developed
and designed by Motorola, with a low-power, multi-site deployment of base
radios similar to that used by cellular service, that permits us to reuse the
same frequency in different cells, increasing our system's effective capacity.
The iDEN technology that we are deploying shares many
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common components with the GSM technology that has been established as the
digital cellular communications standard in Europe and is a variant of the GSM
technology that is being deployed by certain PCS operators in the United
States.
The design of the Digital Mobile Network is premised on dividing a service
area into multiple sites. Each site will contain the base radio connected by a
microwave, fiber optic or telephone line to a computer controlled switching
center. In the case of mobile telephone calls, the switching center controls
the automatic hand-off of calls from site to site as a customer travels,
coordinates calls to and from a customer unit and connects calls to the public
switched telecommunications network. In the case of two-way dispatch calls, the
switching center connects the customer initiating the call directly to the
other customer (in the case of a private call) and directly to a number of
other customers (in the case of a group call) to whom the call is directed in
the geographic service areas.
Northern Telecom, Inc. has supplied the mobile telephone switches for
Nextel's Digital Mobile Network. Nextel reported in its 1998 annual report that
as of the end of that year, it had 31 operational switches and approximately
6,200 cell sites constructed and in operation in its portion of the Digital
Mobile Network. As of March 31, 1999, we had one operational switch and
approximately 203 cell sites constructed and in operation in our portion of the
Digital Mobile Network.
Under our agreements, Nextel is required to cooperate with us to optimize
the location of the switching centers to support both Nextel's existing and
planned Digital Mobile Network Service and our launch of service until such
time, if ever, that we attract a customer base in a region sufficient to
justify our own purchase of a switch in that region. In areas where we do not
have our own switch, we obtain switching services from Nextel. See "Certain
Relationships and Related Transactions--Switch Sharing Agreement."
Nextel now uses iDEN technology throughout its portion of the Digital
Mobile Network, and we intend to use it exclusively. iDEN technology is a
proprietary format for delivering signals over scattered, non-contiguous SMR
frequencies. Although iDEN is based on the TDMA technology format, it differs
in a number of significant respects from the TDMA technology versions being
assessed or deployed by many cellular operators and PCS providers in the United
States, and their differences may have important consequences. The iDEN
technology, when utilized for the two-way radio dispatch function, can be
significantly more efficient than TDMA technology formats utilized by certain
cellular providers.
The implementation of the Digital Mobile Network design and technology
increases the capacity of a SMR channel significantly (as compared to analog
technology) in two ways:
(1) The content of every call made by a digital subscriber is converted
into a stream of data bits that are encoded and compressed before
being transmitted over the airwaves. By converting the call into
digital bits, both the content and the processing information used to
route the call can be transmitted over the same channel without
causing interference with other calls. Upon receipt of the coded data
bits, the subscriber's handset will decode the signal into an audible
voice.
By using the iDEN digital technology instead of analog technology on
our systems, we achieve an approximate six times improvement in
efficiency in the use of our spectrum for two-way radio dispatch
service and an approximate three times improvement in efficiency for
mobile telephone service.
(2) Each cell site provides service in our licensed frequencies to a
particular geographic area by permitting the customer's handset to
communicate with our network. By designing our system with multiple
cell sites, we are able to reuse the frequency channels many times
throughout the same license area by placing our transmitters at low
elevation sites and restricting the power of each transmitter to a
directed geographic area, which may be less than a mile and up to
thirty miles. This process avoids interference, while permitting
significantly more customers to use the frequencies allotted to us.
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The use of the spectrum in the manner described above, combining digital
compression technology with the reuse of spectrum throughout our license area,
allows us to support more customer calls than would otherwise be the case.
SYSTEM CONSTRUCTION AND SUPPLIERS
The first step required to build our network in a new market is the
completion of the radio design plan, which typically takes about four months.
This stage involves the selection of specific areas in the market for the
placement of base radio sites and the identification of specific frequencies
that will be employed at each site in the initial configuration. Sites are
selected on the basis of their proximity to targeted customers, the ability to
acquire and build the site and frequency transmission characteristics. Site
procurement efforts include obtaining leases and permits, and in many cases,
zoning approvals. This site acquisition process for the initial system to be
constructed in a market, depending on the number of sites, typically takes from
two to eighteen months.
Preparation of each site for equipment installation, including
construction of equipment shelters, transmission towers and power systems,
grounding, ventilation and air conditioning, typically takes six weeks, while
equipment installation, testing and pre-operational systems optimization
generally takes an additional six weeks prior to commencement of system
operations. Following commencement of system operations in a selected market,
we expect to add new sites to the system continually in order to improve
coverage and capacity.
Our ability to successfully perform these necessary steps may be hindered
by, among other things, any failure to acquire additional necessary radio
frequencies from third parties or to exchange radio frequency licenses with
Nextel, to commence and complete the construction of sites for our equipment in
a timely and satisfactory manner and to obtain necessary approvals, licenses
and permits from federal, state and local agencies, including zoning or other
land use regulatory approvals and approval from the FAA with respect to the
transmission towers that we will be using. We may also experience cost overruns
and delays not within our control caused by acts of governmental entities,
design changes, material and equipment shortages, delays in delivery and
catastrophic occurrences.
To avoid risks of zoning and construction delays and to minimize site
acquisition costs, we locate our sites on existing transmissions towers
wherever possible. In the event we need a transmission tower, and an existing
site is not available, SpectraSite, through its arrangements with Nextel, or
other third parties with whom we have agreements, will purchase or build towers
for us.
Moreover, Motorola is our sole supplier of transmitters and handset
equipment and we rely on Motorola to manufacture a substantial portion of the
equipment necessary to construct the initial build out of our market. Thus, we
are highly dependent on Motorola's ability to deliver this equipment and on
reasonable terms. See "Certain Relationships and Related Transactions--Motorola
Purchase Agreements."
COMPETITION
In each of the markets where our portion of the Digital Mobile Network
will operate, we will compete with the two established cellular licensees and
as many as six PCS licensees, including AT&T Wireless Services, Sprint PCS,
Bell Atlantic, BellSouth, Southwestern Bell, PrimeCo and Airtouch. Our ability
to compete effectively with other wireless communications service providers
depends on a number of factors, including:
o the continued satisfactory performance of iDEN technology;
o the establishment and maintenance of roaming service among our market
areas and those of Nextel; and
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o the development of cost-effective direct and indirect channels of
distribution for our Digital Mobile Network products and services.
A substantial number of the entities that have been awarded PCS licenses
are current cellular communications service providers and joint ventures of
current and potential wireless communications service providers, many of which
have financial resources, customer bases and name recognition greater than
ours. PCS operators will likely compete with us in providing some or all of the
services available through our network. Additionally, we expect that existing
cellular service providers, some of which have been operational for a number of
years and have significantly greater financial and technical resources,
customer bases and name recognition than ours, will continue to upgrade their
systems to provide digital wireless communications services competitive with
those available on our network. Moreover, cellular and wireline companies have
been granted authority to participate in dispatch and SMR services,
respectively. We also expect our business to face competition from other
technologies and services developed and introduced in the future.
While we believe that the mobile telephone service currently being
provided on the Digital Mobile Network utilizing the iDEN technology is similar
in function to and achieves performance levels competitive with those being
offered by other current wireless communications service providers in our
market areas, there are and will in certain cases continue to be differences
between the services provided by us and by cellular and/or PCS system operators
and the performance of their respective systems. The all-digital networks that
we and Nextel operate provide customers with digital quality and advanced
features wherever they roam on the Digital Mobile Network, in contrast to
hybrid analog/digital networks of cellular competitors, which do not support
these features in the large analog-only portion of their networks.
Nevertheless, our ability to provide roaming services will be more limited than
that of carriers whose subscribers use handsets that can operate on both analog
and digital cellular networks and who have roaming agreements covering larger
parts of the country. As we, with the assistance of Nextel, make progress
toward building out the Digital Mobile Network nationwide, this disadvantage
will be reduced, but we can give no assurance that the Digital Mobile Network
will ever be as ubiquitous as other mobile telephone services. In addition, if
either PCS or cellular operators provide two-way radio dispatch services in the
future, our competitive advantage in being uniquely able to combine that
service with our mobile telephone service would be impaired.
Subscriber units on the Digital Mobile Network are not compatible with
those employed on cellular or PCS systems, and vice versa. This lack of
interoperability may impede our ability to attract cellular or PCS customers or
those new mobile telephone customers that desire the ability to access
different service providers in the same market.
We plan to market the multi-function subscriber units manufactured by
Motorola, which are and are likely to remain significantly more expensive than
analog handsets and are and are likely to remain somewhat more expensive than
digital cellular or PCS handsets that do not incorporate a comparable
multi-function capability. We therefore expect to charge higher prices for the
subscriber handsets to be used by our Digital Mobile Network customers than
those charged by operators for analog cellular handsets and possibly more than
those charged by operators for digital cellular handsets. However, we believe
that our multi-function subscriber units currently are competitively priced
compared to multi-function (mobile telephone service and short text messaging)
digital, cellular and PCS handsets.
During the transition to digital technology, certain participants in the
United States cellular industry are offering subscriber units with dual mode
(analog and digital) compatibility. Additionally, certain analog cellular
system operators that directly or through their affiliates also are
constructing and operating digital PCS systems have made available to their
customers dual mode/dual band (800 MHz cellular/1900 MHz PCS) subscriber units,
to
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combine the enhanced feature set available on digital PCS systems within their
digital service coverage areas with the broader wireless coverage area
available on the analog cellular network. We do not have comparable hybrid
subscriber units available to our customers.
We can give no assurances that potential customers will be willing to
accept system coverage limitations as a trade-off for the enhanced
multi-function wireless communications package we plan to provide on our
portion of the Digital Mobile Network.
Over the past several years as the number of wireless communications
providers in our market areas has increased, the prices of such providers'
wireless service offerings to customers in those markets have generally been
decreasing. We may encounter market pressures to reduce our Digital Mobile
Network service offering prices or to restructure our Digital Mobile Network
service offering packages to respond to particular short-term, market-specific
situations, such as special introductory pricing or packages that may be
offered by new providers launching their service in a market, or to remain
competitive in the event that wireless service providers generally continue to
reduce the prices charged to their customers, particularly if PCS operators
enter the smaller markets that we intend to serve.
Because many of the cellular operators and certain of the PCS operators in
our markets have substantially greater financial resources than us, such
operators may be able to offer prospective customers equipment subsidies or
discounts that are substantially greater than those, if any, that could be
offered by us and may be able to offer services to customers at prices that are
below prices that we are able to offer for comparable services. Thus, our
ability to compete based on the price of our Digital Mobile Network subscriber
units and service offerings will be limited. We cannot predict the competitive
effect that any of these factors, or any combination thereof, will have on us.
Cellular operators and certain PCS operators and entities that have been
awarded PCS licenses each control more spectrum than is allocated for SMR
service in each of the relevant market areas. Each cellular operator is
licensed to operate 25 MHz of spectrum and certain PCS licensees have been
licensed for 30 MHz of spectrum in the markets in which they are licensed,
while no more than 21.5 MHz is available in the 800 MHz band to all SMR
systems, including our systems, in those markets. The control of more spectrum
gives cellular operators and such PCS licensees the potential for more system
capacity and, therefore, more subscribers than SMR operators, including Nextel
and us. We believe that we generally have adequate spectrum to provide the
capacity needed on our portion of the Digital Mobile Network currently and for
the reasonably foreseeable future.
Nextel has told us that it expects to increase over time the proportion of
its Digital Mobile Network customers that it obtains through its indirect
distributor network, and we anticipate that our own marketing efforts will
follow the same pattern of Nextel's, with an initial reliance on direct sales,
followed by increasing reliance on indirect distribution channels. In its 1998
annual report, Nextel reported that, as it expands its retail subscriber base
through increased reliance on indirect distribution channels, and as price
competition in the wireless industry intensifies, its monthly average revenue
per unit is expected to decrease and its average monthly churn rate is expected
to increase, and we may be affected by similar factors in the future.
In 1997, the FCC reallocated and auctioned 30 MHz of 2.3 GHz spectrum to
wireless services. However, the strict operational and technical limitations
the FCC placed on use of the spectrum will likely prohibit the provision of
mobile services using current technology. Additionally, the FCC has reallocated
220 MHz of radio spectrum for use by "emerging telecommunications
technologies," such as PCS, low-earth orbit satellites and mobile satellite
systems. The FCC has authorized a consortium of communications companies to
provide nationwide mobile satellite services. Additionally, the FCC recently
reallocated 36 MHz of the former analog television channels to commercial
services, including broadcasts, fixed and mobile services. We cannot predict
how these technologies will develop or what impact, if any, they will have on
our ability to compete for wireless communications services customers.
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EMPLOYEES
As of March 31, 1999, we had approximately 200 employees, which includes
our upstate New York territory and Hawaii operations. None of our employees are
or are expected to be represented by a labor union or subject to a collective
bargaining agreement, nor have we experienced any work stoppage due to labor
disputes. We believe that our relations with our employees are good.
PROPERTIES
We lease our headquarters located at 4500 Carillon Point in Kirkland,
Washington. This facility is approximately 14,000 square feet and we have a
lease commitment on the facility through December 31, 2002. We also lease
administrative offices of approximately 12,700 square feet in Minnetonka,
Minnesota under a lease expiring March 31, 2002. We lease cell sites for the
transmission of radio service including sites leased from Nextel under the
master site lease agreement. See "Certain Relationships and Related
Transactions--Master Site Lease Agreement". These sites are located on
transmission towers generally at heights ranging from 150 to 300 feet above the
ground. The terms of these leases generally range from month-to-month to 20
years at monthly rents ranging from $300 to $2,200. As of March 31, 1999, we
had approximately 245 constructed sites at leased locations.
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REGULATION
Federal Regulation
SMR Regulation. We are an SMR operator regulated as such by the FCC. The
FCC also regulates the licensing, construction, operation and acquisition of
all other wireless telecommunications systems in the United States, including
cellular and PCS operators. We are generally subject to the same FCC rules and
regulations as cellular and PCS operators, but our status as an SMR operator
creates some important regulatory differences.
Within the limitations of available spectrum and technology, SMR operators
are authorized to provide mobile communications services to business and
individual users, including mobile telephone, two-way radio dispatch, paging
and mobile data services. SMR regulations have undergone significant changes
during the last five years and continue to evolve as new FCC rules and
regulations are adopted.
The first SMR systems became operational in 1974, but these early systems
were not permitted or designed to provide mobile telephone service competitive
with that provided by cellular operators. SMR operators originally emphasized
two-way dispatch service, which involves shorter duration communications than
mobile telephone service and places less demand on system capacity. SMR system
capacity and quality was originally limited by:
o the smaller portion of the radio spectrum allocated to SMR,
o the assignment of SMR frequencies on a non-contiguous basis,
o regulations and procedures that initially served to spread ownership
of SMR licenses among a large number of operators in each market,
thereby further limiting the amount of SMR spectrum available to any
particular operator, and
o older SMR technology, which employed analog transmission and a single
site, high-power transmitter configuration, thus precluding the use of
any given SMR frequency by more than one caller at a time within a
given licensed service area.
The original analog SMR market, therefore, was oriented largely to
customers such as contractors, service companies 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
one-to-many basis, within a limited geographic area. SMR licenses granted prior
to 1997 have several unfavorable characteristics, as compared with cellular or
PCS licenses. Because these SMR licenses were on a site-by-site basis, numerous
SMR licenses were required to cover the metropolitan area typically covered by
a single cellular or PCS license.
SMR licenses granted in 1997 and later were granted to cover a large area
(known as an economic area, or EA) rather than a particular antenna at a
particular site. EA licenses, therefore, are more like cellular or PCS licenses
in this regard, and eliminate one of the former regulatory disadvantages of SMR
licenses. Nextel was the largest successful bidder in the FCC's auction of EA
licenses, and, as a result, Nextel WIP License Corp. holds EA licenses for all
of the territory that we intend to serve.
EA licences grant the licensee exclusive use of the frequencies in the EA
territory. To the extent that another SMR site-by-site licensee may be
operating in the same frequencies in the EA pursuant to another license, the EA
licensee has priority, but must compensate the incumbent for the cost of
changing to another frequency. Most of our EA licenses are free of incumbent
carriers other than Nextel. Nextel has transferred to us those site-by-site
licenses located in our EA territories operating at the same frequencies. EA
licenses to operate on these frequencies were granted pursuant to a one time
auction and are issued for ten years, after which we will need to apply for
renewal from the FCC. EA licensees generally expect to obtain renewal of their
licenses.
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All of our SMR licenses are subject to FCC build-out requirements. The FCC
recently suspended the build-out deadlines for our pre-1997 site-by-site SMR
licenses. Our EA licenses must provide coverage to at least one-third of the
population of the license area within three years of the initial grant and
two-thirds of the population within five years. Failure to comply with the
build-out requirements for both site-by-site licenses and EA licenses may
result in a revocation of these licenses by the FCC. We will be acquiring and
utilizing both site-by-site licenses and EA licenses.
Federal Regulation of Wireless Operators. SMR regulations have undergone
significant changes during the last five years and continue to evolve as new
FCC rules and regulations are adopted pursuant to the Omnibus Budget
Reconciliation Act of 1993 and the Telecommunications Act. Since 1996 SMR
operators like us and Nextel have been subject to common carrier obligations
similar to those of cellular and PCS operators. This regulatory change
recognized the emergence of Nextel's type of SMR service as competitive with
the wireless service provided by cellular and PCS providers.
As a result, SMR providers like us now have many of the same rights (such
as the right to interconnect with other carriers) and are subject to many of
the same obligations applicable to cellular and PCS operators.
The FCC prohibits any SMR, cellular, or PCS provider, collectively
regulated as "CMRS" providers, from restricting another carrier's ability to
resell our services until November 24, 2002. The FCC also has adopted
requirements for CMRS providers, including covered SMR providers, to implement
various enhanced 911 capabilities by October 2001. The FCC also requires CMRS
providers to deploy technology that would allow customers to keep their
telephone numbers when switching to another carrier. Covered SMR providers,
including Nextel and us, along with other CMRS services providers, must offer
this number portability service in the 100 largest metropolitan areas,
including the ability to support nationwide roaming, by November 2002. This
requirement also includes enabling calls from our network to be delivered to
telephone numbers which have been switched from one wireline carrier to
another. The FCC is presently considering whether to accelerate this deployment
schedule so that CMRS providers could use this technology to foster more
efficient utilization of telephone numbers. An acceleration of this schedule
could result in significant costs on us and other carriers.
The FCC's spectrum cap regulations limit any entity from holding
attributable interests in more than 45 MHz of licensed broadband PCS, cellular
or covered SMR spectrum with significant overlap in any geographic area. The
FCC is presently reviewing these spectrum cap regulations. An interest of 20%
or more of the equity or voting rights in a PCS, SMR or cellular licensee may
subject an investor to restrictions on ownership of overlapping wireless
providers. These rules may affect our ability to obtain additional spectrum.
Wireless providers, including us, also must satisfy FCC requirements
relating to technical and reporting matters. One such requirement is the
coordination of proposed frequency usage with adjacent wireless users,
permittees and licensees in order to avoid electrical interference between
adjacent networks. In addition, the height and power of base radio transmitting
facilities of certain wireless providers and the type of signals they emit must
fall within specified parameters.
The FCC is responsible for the other rules and policies which govern the
operations over the SMR spectrum which we intend to use. This includes the
terms under which CMRS providers interconnect their networks and the networks
of wireline and other wireless providers of interstate communications services.
The FCC also has the authority to adjudicate complaints filed under the
Communications Act with respect to service providers subject to its
jurisdiction among other matters. Under its broad oversight authority with
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respect to market entry and the promotion of a competitive marketplace for
wireless providers, the FCC regularly conducts rulemaking and other types of
proceedings to determine rules and policies that could affect SMR operations.
These rules and policies are applicable to our operations and we intend to
comply with the FCC's promulgations.
In August 1996, the FCC adopted rules implementing certain Communications
Act provisions which impose a number of obligations for local telephone
companies to interconnect their network to other carriers' networks which
affect wireless service providers. Established local telephone companies must
provide for collocation of equipment necessary for interconnection, as well as
any technically feasible method of interconnection requested by a CMRS
provider. In addition, all local telephone companies are obligated to enter
into reciprocal, cost-based compensation arrangements with CMRS providers for
the transmission of local calls. If we cannot successfully negotiate an
interconnection agreement with an established local telephone companies, it may
require the relevant state public utilities commission to serve as arbitrators.
In addition, the Communications Assistance for Law Enforcement Act of 1994
requires all telecommunications carriers, including wireless carriers, as of
June 30, 2000, to ensure that their equipment is capable of permitting the
government, pursuant to a court order or other lawful authorization, to
intercept any wire and electronic communications carried by the carrier to or
from its subscribers and to access certain call-identifying information that is
reasonably available to the carriers. Although final standards have yet to be
promulgated, compliance with the requirements of this act could impose
significant additional direct and/or indirect costs on us and other wireless
carriers.
Wireless networks are also subject to certain FCC and FAA regulations
respecting the relocation, lighting and construction of transmitter towers and
antennas and are subject to regulation under the National Environmental Policy
Act and the environmental regulations of the FCC. The FCC's rules require
antenna structure owners to notify the FAA of structures that may require
marking or lighting. In addition to our SMR licenses, we may also utilize other
carriers' facilities to connect base radio sites and to link them to their
respective main switching offices. These facilities may be separately licensed
by the FCC and may be subject to regulation as to technical parameters,
service, and transfer or assignment.
Pursuant to the Telecommunications Act, all telecommunications carriers
that provide interstate telecommunications services, including SMR providers
such as ourselves, are required to make an "equitable and non-discriminatory
contribution" to support the cost of federal universal service programs. These
programs are designed to achieve a variety of public interest goals, including
affordable telephone service nationwide, as well as subsidizing
telecommunications services for schools and libraries. Contributions are
calculated on the basis of each carrier's interstate and, for certain programs,
intrastate end-user telecommunications revenue. The Telecommunications Act also
permits states to adopt universal service regulations not inconsistent with the
Telecommunications Act or the FCC's regulations. The FCC has concluded that
states can require CMRS providers to contribute to their universal services
funds. This decision is presently pending before the United States Court of
Appeals for the Fifth Circuit. Additional costs may be incurred by us and
ultimately by our subscribers as a result of our compliance with these required
contributions.
The Telecommunications Act also requires all telecommunications carriers,
including SMR licensees, to ensure that their services are accessible to and
useable by persons with disabilities, if readily achievable. Compliance with
the Telecommunications Act requirements, and the regulations promulgated
thereunder, could impose additional direct and/or indirect costs on us and
other licensees.
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In addition, other regulations may be promulgated pursuant to the
Communications Act or the Telecommunications Act which would significantly
raise our cost of providing service. In response, we may be required to modify
our business plans or operations in order to comply with any such regulations.
Moreover, the FCC or other federal government agencies or any state regulatory
agency having jurisdiction over our business may adopt or change regulations or
take other action that could adversely affect our financial condition or
results of operations.
State Regulation and Local Approvals
The states in which we operate generally have state agencies or
commissions charged under state law with regulating telecommunications
companies, and local governments generally seek to regulate placement of
transmitters and rights of way. While the powers of state and local governments
to regulate wireless carriers are limited to some extent by federal law, we
will have to devote resources to comply with state and local requirements. For
example, state and local governments generally may not regulate our rates or
our entry into a market, but are permitted to manage public rights of way, for
which they can require fair and reasonable compensation.
Under the Communications Act, states and local authorities maintain
authority over the zoning of sites where our antennas are located. These
authorities, however, may not discriminate against or prohibit our services
through their use of zoning authority. Therefore, while we may need approvals
for particular sites or may not be able to choose the exact location for our
site we do not foresee significant problems in placing our antennas at sites in
our territory.
Pending Regulatory Initiatives
The FCC and a number of state regulatory authorities have initiated
proceedings or indicated their intention to examine the implementation of
number portability to permit customers to retain their telephone numbers when
they change service providers, the implementation of various number
conservation mechanisms, and alterations in the structure of universal service
funding, among other matters. These initiatives could impose significant
financial obligations on us and other wireless service providers, the magnitude
of which we cannot predict.
LEGAL AND ADMINISTRATIVE PROCEEDINGS
The Communications Act requires us to obtain FCC approval before we can
assume full control of the licenses Nextel is transferring to us. We began the
approval process by filing transfer applications with the FCC. The period for
third parties to file petitions to deny these applications has closed with no
petitions filed. The FCC, however, may accept late filed petitions under
exceptional circumstances. At the conclusion of the process, the FCC may
approve the transfer of the licenses as in the public interest, or may conclude
that there are substantial and material issues of fact that prevent approval of
the transfer. The latter determination requires the FCC to convene a hearing on
the transfer. However, the FCC is not required to complete its assessment
within any time limit, and any determination it reaches is subject to judicial
review. While neither we nor Nextel are aware of any basis for the FCC to deny
the transfer, we cannot be absolutely certain that the transfer will be
granted.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of Nextel Partners:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John Chapple ................ 45 President, Chief Executive Officer and Director
John D. Thompson ............ 45 Chief Financial Officer and Treasurer
David Thaler ................ 43 Vice President--Field Operations
David Aas ................... 45 Vice President--Engineering and Technical
Operations
Perry Satterlee ............. 39 Vice President--Business Operations
Mark Fanning ................ 39 Vice President--People Development
Donald Manning .............. 39 Vice President, General Counsel and Secretary
Timothy M. Donahue .......... 49 Director
Andrew H. Rush .............. 40 Director
Andrew E. Sinwell ........... 34 Director
Dennis M. Weibling .......... 47 Director
</TABLE>
The board of directors is comprised of five directors. The members of the
board of directors were elected in accordance with the provisions of a
shareholders' agreement where the shareholders agreed to elect:
o two directors selected by DLJ Merchant Banking, one of whom is a
director of Madison Dearborn Partners: Andrew Rush and Andrew Sinwell,
respectively,
o one director selected by Nextel: Timothy Donahue,
o one director selected by Eagle River: Dennis Weibling, and
o the chief executive officer of Nextel Partners: John Chapple.
See "Certain Relationships and Related Transaction--The Shareholders'
Agreement."
Each director shall hold office until the next annual meeting of
shareholders or until his successor has been elected or qualified. All
executive officers of Nextel Partners are elected by, and serve at the
discretion of, the board of directors.
The board of directors does not have a compensation committee. The board
of directors as a whole makes compensation decisions.
John Chapple has worked to organize Nextel Partners throughout 1998 and
has been the President, Chief Executive Officer and a director of Nextel
Partners since August 1998. Mr. Chapple, a graduate of Syracuse University and
Harvard University's Advanced Management Program, has nearly twenty years
experience in the cable television and wireless communications industries. From
1978 to 1983, he served on the senior management team of Rogers Cablesystems
before moving to American Cablesystems as Senior Vice President of Operations
from 1983 to 1988. From 1988 to 1995, he served as Executive Vice President of
Operations for McCaw Cellular Communications and subsequently AT&T Wireless
Services following the merger of those companies. From 1995 to 1997, Mr.
Chapple was the President and Chief Operating Officer for Orca Bay Sports and
Entertainment in Vancouver, B.C. Orca Bay owns and operates Vancouver's
National Basketball Association and National Hockey League sports franchises in
addition to the General Motors Place sports arena and retail interests. Mr.
Chapple is the past Chairman of Cellular One Group and the Personal
Communications Industry Association, as well as Vice-Chairman of the Cellular
Telecommunications Industry Association.
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John D. Thompson has been the Chief Financial Officer and Treasurer of
Nextel Partners since August 1998 and has approximately twenty years of finance
experience including twelve years in the wireless communications industry. Mr.
Thompson holds both a B.A. in Accounting and a Juris Doctor from the University
of Puget Sound. From 1978 to 1986, he served as Tax Manager for Laventhol &
Horwath. In 1986, he joined McCaw Cellular Communications as Vice President of
Tax. In 1990, he became Senior Vice President of McCaw Cellular Communications
and assumed a significant role in a number of key initiatives for the company,
including its acquisition of LIN Broadcasting in 1990, the merger of it and
AT&T in 1993 and AT&T's PCS license acquisitions in 1996. In 1997, he became
Chief Financial Officer for AT&T Wireless Services. Mr. Thompson has served on
the boards of a number of AT&T Wireless Services joint ventures, including Bay
Area Cellular Telephone Company.
David Thaler has been the Vice President-Field Operations of Nextel
Partners since August 1998 and has nearly seventeen years of management
experience in the wireless and cable television industries. From February 1997
to 1998, he served as Senior Vice President and Managing Director of
International Development and Operations for AT&T Wireless Services. In this
role, Mr. Thaler had overall responsibility for all operating facets related to
AT&T Wireless joint ventures in Brazil, Hong Kong, India, Colombia and Taiwan.
From 1995 to 1997, Mr. Thaler was Vice President of Operations for AT&T
Wireless Services' Central Region business unit. From 1988 to 1995, Mr. Thaler
served as Vice President and General Manager of McCaw Cellular Communications'
Minnesota District providing overall leadership for an operation consisting of
fourteen metropolitan areas. From 1983 to 1988, he served as General Manager
and Regional Vice President for American Cablesystems.
David Aas has been the Vice President-Engineering and Technical Operations
of Nextel Partners since August 1998. Prior to joining Nextel Partners, Mr. Aas
served as Vice President of Engineering and Operations of AT&T Wireless
Services' Messaging Division. Mr. Aas has twenty-one years experience in the
wireless industry and has held a number of senior technical management
positions, including positions with Airsignal from 1977 to 1981, MCI from 1981
to 1986 and MobileComm from 1986 to 1989. Since 1989, he has been with AT&T
Wireless Services, where he has led the design, development, construction and
operation of AT&T Wireless Services' national messaging network. Mr. Aas served
on the Technical Development Committee of the Personal Communications Industry
Association and led the development and deployment of the PACT two-way
messaging system.
Perry Satterlee has been the Vice President-Business Operation of Nextel
Partners since August 1998 and has approximately ten years of wireless industry
experience. He has spent the last two years with Nextel, where he held the
position of President-Pacific Northwest Area since its inception in 1996. Prior
to joining Nextel, Mr. Satterlee served from 1992 to 1996 as Vice President and
General Manager of AT&T Wireless Services' Central California District. From
1990 to 1992, he was General Manager of McCaw Cellular Communications'
Ventura/Santa Barbara market. From 1988 to 1990, Mr. Satterlee was Director of
Planning for McCaw Cellular Communications, where he led the company's planning
and budgeting processes.
Mark Fanning has been the Vice President-People Development of Nextel
Partners since August 1998 and has over seventeen years of human resources
experience, including nine years in the wireless industry with McCaw Cellular
Communications and AT&T Wireless Services. From 1995 to 1998, Mr. Fanning
served as Vice President for People Development Operations for AT&T Wireless
Services. From 1991 to 1995, he served as Director and later as Vice President
of Compensation & Benefits for AT&T Wireless Services. From 1989 to 1991, he
was the Director of People Development for McCaw's California/Nevada region.
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Donald Manning has been the Vice President, General Counsel and Secretary
of Nextel Partners since July 1998. Prior thereto, he served as Regional
Attorney for AT&T Wireless Services' Western Region, an eleven state business
unit generating over $400 million in revenues annually. Prior to joining AT&T
Wireless Services, Mr. Manning was a Senior Associate with Heller, Ehrman,
White and McAuliffe specializing in corporate and commercial litigation. From
1985 through 1989, he was an Associate with the Atlanta-based firm of Long,
Aldridge & Norman.
Timothy M. Donahue has been a director of Nextel Partners since January
1999. Mr. Donahue has been a director of Nextel since May 1996 and has been the
President of Nextel since February 1996. From 1986 to January 1996, Mr. Donahue
held various senior management positions with AT&T Wireless Services.
Andrew H. Rush has been a director of Nextel Partners since January 1999.
Mr. Rush has been a Managing Director of DLJ Merchant Banking since January
1997. From 1992 to 1997, Mr. Rush was an officer of DLJ Merchant Banking and
its predecessors. Mr. Rush currently serves as a member of the advisory board
of Triax Midwest Associates, L.P. and as a member of the board of directors of
Societe d'Ethanol de Synthese.
Andrew E. Sinwell has been a director of Nextel Partners since January
1999. Mr. Sinwell has been a Director of Madison Dearborn Partners since August
1996. From 1994 to 1996, Mr. Sinwell was a Senior Policy Advisor at the FCC.
Dennis M. Weibling has been a director of Nextel Partners since January
1999. Mr. Weibling has been a director of NEXTLINK since January 1997. Mr.
Weibling also has been President of Eagle River, Inc. since October 1993. Mr.
Weibling is a director of Nextel and a member of the operations, audit, finance
and compensation committees. Mr. Weibling
serves on the board and executive committee of Teledesic Corporation, a
satellite telecommunications company backed by Craig McCaw and Bill Gates.
DIRECTOR COMPENSATION
Directors of Nextel Partners do not receive compensation for services
provided as a director. All directors are reimbursed for their out-of-pocket
expenses in serving on the board of directors.
EXECUTIVE COMPENSATION
Summary Compensation Table. Prior to January 29, 1999, Nextel Partners did
not pay any compensation to its executive officers, and on January 29, 1999,
certain executive officers received a lump sum in recognition of such officer's
service prior to such date. See "--Executive Employment Contracts." The
following table sets forth the estimated compensation to be paid by Nextel
Partners to the chief executive officer and the other four most highly
compensated executive officers of Nextel Partners for fiscal year 1999.
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SUMMARY COMPENSATION TABLE
ESTIMATED COMPENSATION FOR FISCAL YEAR 1999
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1) LONG TERM COMPENSATION
---------------------------------- --------------------------------------
OTHER RESTRICTED SECURITIES
BASE ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) COMPENSATION AWARDS ($) (2) OPTIONS/SARS ($) COMPENSATION (4)
- ----------------------------------- ------ ------------ -------------- ------------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
John Chapple
Chief Executive Officer .......... 1999 $150,000 -- $ 491,111(2a) -- $87,500
John D. Thompson
Chief Financial Officer and
Treasurer ........................ 1999 $150,000 -- $ 339,444(2b) 35,000(3) $87,500
David Thaler
Vice President--Field
Operation ........................ 1999 $150,000 -- $ 195,000(2c) -- $87,500
David Aas
Vice President--Engineering
and Technical Operations ......... 1999 $140,000 -- $ 162,500(2d) -- $10,000
Perry Satterlee
Vice President--Business
Operations ....................... 1999 $150,000 -- $ 137,222(2e) -- $44,000
</TABLE>
- ----------
(1) Does not include bonuses that may be paid to these officers. See
"--Executive Employment Contracts."
(2) Represents estimated value of $1.01 per share as of the date of grant
(less price paid per share by such officer) for shares of Class A common
stock, $.001 par value, sold to such officer at $0.01 per share pursuant
to restricted stock purchase agreements. These shares will vest over a
four-year period based on the continued employment during the relevant
vesting period, the achievement of certain performance goals related to
revenue, EBITDA as adjusted and the scheduled build-out of the Digital
Mobile Network. See "--Restricted Stock Purchase Agreements." These
shares are entitled to distributions to the extent paid by Nextel
Partners.
(2a) Represents 491,111 shares of Class A common stock awarded, of which
122,778 shares have vested to date.
(2b) Represents 339,444 shares of Class A common stock awarded, of which
84,861 shares have vested to date.
(2c) Represents 195,000 shares of Class A common stock awarded, of which
48,750 shares have vested to date.
(2d) Represents 162,500 shares of Class A common stock awarded, of which
40,625 shares have vested to date.
(2e) Represents 137,222 shares of Class A common stock awarded, of which
34,306 shares have vested to date.
(3) Represents number of shares of Class A common stock granted to such
officer on January 29, 1999. See "--Executive Employment Contracts."
(4) Represents lump sum payments made to officers. See "--Executive
Employment Contracts."
EXECUTIVE EMPLOYMENT CONTRACTS
Nextel Partners has entered into employment agreements with Messrs.
Chapple, Thompson, Thaler, Aas, Satterlee and Fanning in connection with their
employment. Each receives an annual base salary ranging from $125,000 to
$150,000 with an additional cash payment of up to 40% of his then current base
salary if certain performance targets are met. On or about January 29, 1999,
each received a lump sum ranging from $70,000 to $90,000 in recognition of his
service prior to such date. Each agreement has an initial 4 year term. Upon
completion of the build-out of initial sections and applicable optional
sections of the Digital Mobile Network on or before March 1, 2002, each may
receive a raise in his base salary and performance based bonus. In addition,
each has agreed that while employed by Nextel Partners, and for one year
thereafter, he will not compete against, or solicit employees or business of,
Nextel Partners or Nextel, or their affiliates.
In addition, on January 29, 1999, Nextel Partners entered into a stock
option agreement whereby Nextel Partners granted Mr. Thompson the option to
purchase up to 35,000 shares of Class A common stock at an exercise price of
$10.00 per share. After the fourth anniversary of the agreement, Mr. Thompson
may surrender, without payment of the
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exercise price, all or a portion of the option for payment in cash by Nextel
Partners of $14.286 per share. Moreover, Mr. Thompson obtained a secured loan
of $2.2 million from Nextel Partners, evidenced by the non-negotiable
promissory note delivered by Mr. Thompson on January 29, 1999 to Nextel
Partners. The option is vested and exercisable by Mr. Thompson, and will expire
on January 29, 2009.
RESTRICTED STOCK PURCHASE AGREEMENTS
On November 20, 1998, Nextel Partners entered into restricted stock
purchase agreements with Messrs. Chapple, Thompson, Thaler, Aas, Satterlee and
Fanning in consideration of their employment, which were amended on January 29,
1999. Nextel Partners issued an aggregate of 1,462,499 shares of Class A common
stock to these purchasers at a price of $0.01 per share.
As of January 29, 1999, the majority of shares representing 25% of the
total restricted shares issued to the executive officers were vested. A
percentage of the remaining issued shares vest annually over a four-year period
through December 31, 2002 based on the continued employment of the officer
during the relevant vesting period and the achievement of performance goals
related to revenue, EBITDA as adjusted and the build-out of the Digital Mobile
Network.
The vesting of the shares may be accelerated upon a change of control of
Nextel Partners or Nextel or, subject to certain conditions, upon the sale or
disposition by DLJ Merchant Banking of Series A convertible preferred stock,
par value $0.001 per share or the Class A common stock issuable upon conversion
thereof.
Subject to certain conditions, these shares may be repurchased due to
termination of the employment of such officer or on account of death or
disability.
EMPLOYEE STOCK OPTION PLAN
Nextel Partners has established a stock option plan which offers employees
the opportunity to purchase shares of Class A common stock at a price equal to
the fair market value of a share of such stock as of the date of grant of such
options. The total number of shares that could be acquired under the plan would
be approximately 2,022,222 shares.
The grant of options to senior managers is conditioned on Nextel Partners'
achievement of performance criteria based on buildout, revenue and EBITDA as
adjusted targets. The grants to employees, other than senior managers, may be
subject to similar performance criteria or other criteria established by Nextel
Partners' board of directors. Nextel Partners expects 25% of the options
subject to the plan to be granted in connection with the recruitment of new
employees and that senior managers will receive in the aggregate 20% of the
total number of options granted in each year.
No more than 30% of the number of authorized options will be granted in
any year. The first options will be awarded as of December 31, 1999. No options
may be granted after January 1, 2003.
The options granted will be exercisable and vested in whole or in part
depending on the number of years such option holder has worked at Nextel
Partners.
The plan contemplates the acceleration of vesting of some or all options
upon a change of control of Nextel Partners.
The options granted would be exercisable for 10 years. The options would
be generally non-transferable and the right to exercise can terminate
concurrently with termination of employment.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to January 29, 1999, we had limited financial resources and Nextel
and Eagle River funded our operations. On January 29, 1999, we reimbursed
Nextel and Eagle River $1.5 million and $1.2 million for operating advances
previously made to us and we made a return of capital payment to Nextel of
$130.9 million representing the reimbursement of net operating expenses of
$15.1 million and capital expenditures of $115.8 million incurred by our
operations prior to January 29, 1999. As of March 31, 1999, we owed Nextel and
Eagle River $12.9 million.
As a result of the initial capitalization transactions which were
consummated on January 29, 1999, we raised $989.4 million in debt and equity
capital through cash and in-kind equity contribution and commitments, issuance
of the notes and borrowings by our principal operating subsidiary. See
"Business--The Capitalization Transactions" and "Use of Proceeds." In
connection with these transactions, we or our subsidiary entered into several
agreements with our shareholders, including operating agreements with Nextel
WIP Corp., a subsidiary of Nextel, and equipment purchase agreements with
Motorola.
THE SUBSCRIPTION AND CONTRIBUTION AGREEMENT
As discussed under "Business--The Capitalization Transactions," through a
subscription agreement, Nextel agreed to assign certain licenses to its wholly
owned subsidiary, Nextel WIP License Corp. Upon approval by the FCC, we will
receive the capital stock of Nextel WIP License Corp. The book value of these
licenses was approximately $133.2 million as of January 29, 1999. In exchange,
Nextel WIP Corp. received 2,185,000 shares of Series B redeemable or
convertible preferred stock 8,740,000 shares of Series C convertible preferred
stock and 2,185,000 shares of Series D convertible preferred stock.
The cash equity investors, including DLJ Merchant Banking and its
affiliates, Eagle River and Madison Dearborn Partners, made irrevocable
commitments to contribute to Nextel Partners an aggregate of $156.4 million in
cash in exchange for a total of 15,643,322 shares of Series A convertible
preferred stock. See "Ownership of Capital Stock and Principal Stockholders."
As of January 29, 1999, these investors contributed an aggregate of $52.1
million of their $156.4 million commitment and are required to contribute the
unfunded portion of their respective commitments in installments of $52.1
million on each of December 31, 1999 and December 31, 2000.
In addition, we issued to DLJ Merchant Banking and its affiliates,
including Madison Dearborn Partners, warrants to purchase in the aggregate
405,710 shares of our Class A common stock. These warrants are exercisable at a
price of $0.01 per share, subject to adjustment, starting March 30, 1999 and
expire on January 29, 2004, subject to early termination as a result of the
exercise of certain rights by other shareholders.
Motorola contributed to us an $18.4 million credit against future
purchases of certain Motorola system infrastructure equipment in exchange for
1,836,649 shares of Series A convertible preferred stock.
THE SHAREHOLDERS' AGREEMENT
General. As set forth in a shareholders' agreement, the shareholders,
including executive officers who own restricted shares of Class A common stock,
and we agreed to certain matters in connection with our management and
operations and the sale, transfer or other disposition of our capital stock by
these shareholders.
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Management. We are governed by the board of directors consisting of five
persons, and, unless otherwise required, actions of the board of directors
require the affirmative vote of a majority of the board of directors at a duly
convened meeting. The shareholders agreed to vote for the five persons as
follows: (i) two directors selected by DLJ Merchant Banking (one of whom can be
an officer of Madison Dearborn Partners); (ii) one director selected by Nextel;
(iii) one director selected by Eagle River; and (iv) our chief executive
officer. See "Management." DLJ Merchant Banking also has the right to have two
non-voting observers present at board meetings. On January 29, 1999, the
shareholders elected John Chapple, our chief executive officer, Timothy
Donahue, Nextel's designee, Andrew Rush and Andrew Sinwell, DLJ Merchant
Banking's designees and Dennis Weibling, Eagle River's designee. The right of a
shareholder to designate a director terminates when the shareholder and its
affiliates own, in the aggregate, less than 50% of their original ownership of
our capital stock. DLJ Merchant Banking loses its right to designate a second
board member when its ownership of us, combined with its affiliates, is less
than 12% of their original ownership.
Until our initial public offering of equity or when DLJ Merchant Banking
owns less than 80% of its initial capital ownership of us, the approval of at
least one of the directors designated by DLJ Merchant Banking is required for
certain significant matters, including:
o the determination of compensation and benefits of senior management,
o modifications of long-term business strategy or scope of business, or
o material modifications of any material customer relationships.
Other matters, including a material change in the technology we use, a
disposition of all or substantially all of our assets, or a decision to broaden
the scope of business, require the approval of the director selected by Nextel,
although these approval rights terminate if and when Nextel transfers all of
its shares to a third party after the twelfth anniversary of the shareholders'
agreement.
Restrictions on Transfer. The shareholders' agreement imposes numerous
restrictions with respect to the sale, transfer or other disposition of our
capital stock. Generally, prior to the completion of our portion of the Digital
Mobile Network and the achievement of positive EBITDA as adjusted for two
consecutive fiscal quarters (excluding the effects of optional markets on
earnings), Eagle River, Nextel and the management shareholders may transfer
shares only to family members (in the case of individuals), affiliates and
certain other permitted transferees. Other shareholders may transfer shares to
third parties, subject to rights of first offer and rights of first refusal
available to DLJ Merchant Banking, Eagle River, Motorola, Nextel, the
management shareholders and their permitted transferees.
Registration Rights. DLJ Merchant Banking has certain demand registration
rights after June 29, 2003 and prior to an initial public offering so long as
DLJ Merchant Banking does not own less than 80% of its initial ownership of our
capital stock. After the initial public offering, DLJ Merchant Banking has
demand registration rights so long as its holdings of our stock are above
established thresholds. The parties to the shareholders' agreement are entitled
to register their securities at any time if and when we propose to register our
own securities.
Preemptive and Antidilutive Rights. Prior to the completion of the initial
build-out of scheduled sections of our territory and the fourth anniversary of
the shareholders' agreement, Nextel has the right to preempt any public
offering of our stock by us or DLJ Merchant Banking and to purchase all of the
stock being offered. If, on or prior to the initial public offering, we propose
to issue any equity security (other than pursuant to any warrant, stock option
or stock appreciation rights plan) for cash, each shareholder has an
antidilutive right to purchase its pro rata portion of such securities.
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Certain Rights and Obligations of Nextel. Subject to certain limitations,
Nextel has the right to purchase all of our outstanding stock:
(1) on January 29, 2006, and specified dates thereafter,
(2) if Nextel changes technology and we do not implement the new
technology, or
(3) upon the termination of the joint venture agreement resulting from our
breach.
The parties to the shareholders' agreement, other than Nextel, have the
right, with some exceptions, to require Nextel to purchase all of our
outstanding stock:
(1) upon a change of control of Nextel,
(2) if Nextel exercises its rights under the shareholders' agreement as
described above,
(3) upon a change of technology used by Nextel,
(4) upon a sale by Nextel of its interest in us, or
(5) upon the termination of the joint venture agreement resulting from a
breach by Nextel.
In addition, the parties to the shareholders' agreement, other than Nextel have
the right to participate in any sale by Nextel of all of its shares to a third
party.
Reimbursement of Certain Expenses. We have reimbursed Nextel and Eagle
River $16.6 million and $1.2 million, respectively, for operating expenses made
and incurred by them prior to January 29, 1999 in order to facilitate the
construction of our portion of the Digital Mobile Network. We also reimbursed
the actual out-of-pocket transaction costs, including reasonable fees and
expenses of counsel, for Nextel, Eagle River and DLJ Merchant Banking in
connection with the consummation of the capitalization transactions on January
29, 1999.
Repurchase Rights. Under the joint venture agreement, we have the right to
extend our build-out of the Digital Mobile Network to include option markets
within a specified time period. If we do not elect to construct option markets
covering a specified number of people prior to the expiration of such period,
or upon our earlier merger or consolidation with another entity or sale of all
or substantially all of our assets, we are obligated to purchase from Eagle
River and each of the management shareholders, and Eagle River and each of the
management shareholders is obligated to sell, at $.01 per share up to 200,200
shares of Class A common stock, representing 12.6% of the shares that Eagle
River and such management shareholders purchased from us on November 20, 1998,
a value far below the fair value of such shares under any foreseeable
circumstance.
Termination. The shareholders' agreement will terminate on January 29,
2014.
NEXTEL OPERATING AGREEMENTS
As described under "Business--The Capitalization Transactions, --The
Operating Agreements," we, through our principal subsidiary, entered into
agreements with Nextel WIP Corp., which govern the build-out and operation of
our portion of the Digital Mobile Network. Except as specifically set forth
below, these operating agreements executed on January 29, 1999 have an initial
term of ten years, which may be extended for up to an additional two and a half
years and renewed for up to four ten-year renewal terms at our option.
Summarized below are some important terms of these agreements. Copies of these
agreements have been filed with the SEC as part of our registration statement
of which this prospectus is a part.
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THE JOINT VENTURE AGREEMENT
Build-Out and Operations. Our agreements with Nextel require us to build
our portion of the Digital Mobile Network on time and make it compatible with
Nextel's systems. We are also required to offer a set of core service features
and to upgrade our system to comply with future Nextel standards. We have also
agreed to meet or exceed Nextel's quality standards. If we determine that
implementation of a required upgrade would be materially adverse to us, then we
will not be required to implement the upgrade unless Nextel agrees to pay a
subsidy to us in an amount not to exceed the lesser of:
(1) Nextel Partners' anticipated aggregate net losses resulting from
the upgrade,
(2) Nextel Partners' actual net losses associated with the upgrade
through the date of the subsidy payment,
(3) the anticipated cumulative losses for all the upgrades net of all
cumulative anticipated profits for all the upgrades, and
(4) the actual cumulative losses for all the upgrades net of all
actual cumulative profits for all the upgrades.
Alternatively, Nextel can agree under certain circumstances to waive the
requirement that we make the upgrade or can exercise an option to buy all of
our capital stock. In the event that we do not make the upgrade, our operations
may become less compatible with the operations of Nextel, and this
incompatibility may have a material adverse effect on us.
Acquisition of Licenses. We are awaiting FCC approval of Nextel's initial
contribution of licenses. To the extent that we require additional frequencies
to operate our business, the joint venture agreement sets forth the terms under
which we may acquire such frequencies from Nextel, from third parties or from
FCC auctions of spectrum. All of the frequencies we use are subject to transfer
restrictions and rights of first refusal in favor of Nextel. See "--Frequency
Management Agreement."
Equipment, Vendors and Discounts. If we request, Nextel will to try to
obtain for us the same discounts as are available to Nextel from any vendor or
service provider with whom we are negotiating for the purchase of equipment,
advertising, media buying, telemarketing and related services.
Nextel Approval Rights. We have agreed that we will obtain Nextel's
approval prior to taking certain action, including:
o making a material change in the technology,
o disposing all or substantially all of our assets, or
o broadening the scope of our business beyond set limits prior to the
occurrence of specified events.
Exclusivity. Nextel has agreed that during the term of the joint venture
agreement, Nextel will not provide digital mobile wireless communications
services within our markets, except that Nextel:
(1) may continue to provide analog 800 MHz service in our markets
without using the marks licensed to us under the trademark
license agreement, and
(2) may provide digital wireless communications services (other than
cellular-like telephone services like ours) in our markets on
non-800 MHz frequencies so long as these services:
(a) do not use any of the marks licensed to us under the
trademark license agreement, and
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(b) do not use Motorola iDEN or other digital service on 800 MHz
frequencies.
Marketing, Advertising, Pricing etc. We are generally required to adhere
to Nextel standards for pricing structure, advertising, promotions, customer
care, telemarketing and related activities. We do, however, set our own prices
in our markets, except that we are required to honor pricing plans established
by Nextel for Nextel's national accounts even with respect to subscribers of
those national accounts located in our markets.
Back Office/MIS Services. Nextel provides us access to certain back-office
support and information systems on an ongoing basis. We pay Nextel fees, based
on Nextel's cost, for access to and use of these systems. For the three month
period ended March 31, 1999, we were charged approximately $45,000 for these
services.
Material Breach; Termination. In the case of certain material breaches of
the operating agreements, including without limitation, a delay in the
completion of the build-out of the Digital Mobile Network, the failure to offer
services required by Nextel and the failure to meet performance requirements,
Nextel may have the right to terminate the joint venture agreement and the
other operating agreements following an arbitration proceeding.
If Nextel were awarded termination of the operating agreements at a time
when Nextel owned an equity interest in us, Nextel is required to acquire all
outstanding shares of our capital stock as set forth in our restated
certificate of incorporation. Alternatively, if we were awarded termination of
the operating agreements at a time when Nextel owned an equity interest in us,
we would have the right to require Nextel to acquire all the outstanding shares
of our capital. In any case, termination of the operating agreements may be
materially adverse to us, and such purchases by Nextel would not constitute a
change of control as defined in the indenture.
TRADEMARK LICENSE AGREEMENT
Under the trademark license agreement, Nextel granted us a license to use
certain Nextel trademarks and service marks.
We can sublicense the licensed marks to our subsidiaries and authorized
dealers in connection with the marketing, promotion and sale of our services
and equipment. We will pay royalties to Nextel for the use of the licensed
marks, beginning on a date that is the later of January 1, 2002 or the first
day of the month after we have achieved two consecutive fiscal quarters of
positive EBITDA as adjusted. For the first three years after such date, the
royalty is equal to 0.5% of gross monthly service revenues, and will be equal
to 1% of gross monthly service revenues thereafter.
This agreement terminates automatically upon termination of the joint
venture agreement. Nextel is entitled to seek termination of the trademark
license agreement upon the occurrence of certain material defaults under the
joint venture agreement, even if the joint venture agreement and other
operating agreements remain in effect. Termination of the trademark license
agreement would require, among other things, that we change our corporate name
and all of our promotional material.
ROAMING AGREEMENT
Through the roaming agreement, we and Nextel provide ESMR service to
subscribers and certain other designated users of the other, in either case,
the "Home Service Provider," while the subscribers or designated users are out
of the Home Service Provider's territory and roaming in the territory of the
other.
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Subject to quarterly adjustment, we receive revenues from the payment of
roaming fees by Nextel equal to 95% of the aggregate service revenue generated
by Nextel's customers roaming on our portion of the Digital Mobile Network
through 1999, 90% in 2000, 85% in 2001 and 80% thereafter. When our customers
roam onto Nextel's portion of the Digital Mobile Network, 80% of the aggregate
service revenue generated by such customers will be paid to Nextel. In either
case, such percentage payments are subject to adjustment based on a comparison
between customer satisfaction levels attained in Nextel's and our portions of
the Digital Mobile Network. For the three month period ended March 31, 1999, we
earned approximately $7,500 from Nextel customers roaming on our system and
were charged approximately $3,300 for our customers roaming on Nextel's
systems.
FREQUENCY MANAGEMENT AGREEMENT
Pending FCC approval, our right to utilize the frequencies covered by
these licenses is governed by the frequency management agreement. This
agreement obligates us to, among other things, comply with all applicable FCC
rules and regulations governing the licenses and with various standards and
criteria established by Nextel relating to the construction, implementation and
operation of the Digital Mobile Network. Pending FCC approval of the transfer
applications, Nextel will represent us before the FCC with respect to any
matters relating to the managed frequencies. The frequency management agreement
will terminate upon FCC approval.
ANALOG MANAGEMENT AGREEMENT
Through the analog management agreement, we permit Nextel to use SMR
frequencies that are covered by the licenses being transferred to us and that
are not being used by us to operate our portion of the Digital Mobile Network,
to operate analog systems and to offer analog service. If we need to use these
frequencies for our portion of the Digital Mobile Network, we may terminate
Nextel's right to use any of these frequencies upon at least six months notice.
The analog management agreement requires Nextel to, among other things, comply
with all applicable FCC rules and regulations governing the licenses covering
the managed frequencies.
ASSET TRANSFER AND REIMBURSEMENT AGREEMENT
We purchased from Nextel assets located in our markets at a cost of
approximately $115.8 million through the asset transfer reimbursement
agreement. We also reimbursed Nextel for operating losses incurred by Nextel
prior to January 29, 1999 in the amount of $15.1 million.
Nextel agreed to indemnify us for undisclosed assumed liabilities incurred
outside the ordinary course of business arising from the ownership or operation
of the assets transferred if those liabilities exceed $1.5 million and if we
give notice in reasonable detail within 180 days after January 29, 1999.
MASTER SITE LEASE AGREEMENT
Under the master site lease agreement, we lease space on
telecommunications towers from Nextel. The joint venture agreement provides
that, as the build-out of the Digital Mobile Network progresses, Nextel will
have the right to construct additional telecommunications towers for us and to
acquire towers constructed by us in our markets. These towers would then be
leased back to us under the master site lease agreement. We pay Nextel monthly
rental payments based on the number of sites subject to the master site lease,
and for the three month period ended March 31, 1999, we were charged
approximately $94,000 by Nextel under these arrangements.
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Nextel and SpectraSite have entered into an agreement whereby SpectraSite
purchased certain existing telecommunications towers from Nextel and will build
or purchase, and lease back, additional towers, including in each case towers
located in our territory. Concurrent with these transactions, Nextel and its
subsidiaries entered into a master site lease agreement with SpectraSite in
order to lease space on the transferred towers. Currently we lease space on
these towers from Nextel and its affiliates which in turn leases the towers
from SpectraSite. We plan to execute a master site lease agreement with
SpectraSite to replace, and which will contain substantially similar economic
terms as, the current master lease with Nextel. In addition, Nextel has agreed
that certain economic terms, such as the rental amounts due for the first three
years, will be the same under the SpectraSite master lease and, if such terms
are less favorable to us, Nextel will compensate us for the difference.
TRANSITION SERVICES AGREEMENT
Under the transition services agreement, certain accounting, payroll,
customer care, purchasing, human resources and billing functions are made
available during a defined transition period to us by Nextel.
The services provided under the transition services agreement have
different variable terms agreed to by the parties. Subject to notice
requirements, we have the right to terminate any services covered by the
transition services agreement before the end of any term of service. The
parties contemplate that in the event we desire to purchase any services from
Nextel following the expiration of the transition services agreement, Nextel
may, at its election, agree to provide certain services to us on an arm's
length basis, at prices to be agreed upon.
We pay monthly fees based on Nextel's cost of providing such services. For
the three month period ended March 31, 1999, we were charged approximately
$327,000 for these services.
SWITCH SHARING AGREEMENT
Nextel provides certain telecommunications switching services to us which
permits us to link cell sites to and electronically access certain switching
equipment used and maintained by affiliates of Nextel and thereby allows us to
provide ESMR service to our customers in areas in which we do not own a switch.
Until January 1, 2001, we pay Nextel monthly switching fees based on Nextel's
cost of providing such services at a rate reflecting Nextel's estimated cost as
of January 1, 2001 subject to adjustment, while we develop our own
infrastructure. For the three month period ended March 31, 1999, we were
charged approximately $224,000 for these services.
As Nextel's and our operations expand and customer bases grow, the monthly
switching fees are expected to increase in the aggregate, but decrease on a per
customer basis (assuming a reduction in the minute of use charge). We are
entitled to a credit against our monthly switching fee charges based on the
operation of certain owned switching network elements as described in the
switch sharing agreement. If and when we install or acquire additional
switching equipment to serve additional areas within our markets, our
dependency on Nextel and its affiliates for switching services should decrease.
Nextel is obligated, on the terms set forth in the switch sharing
agreement, to implement upgrades so that sufficient switching capacity is
available to meet our predicted customer growth and increased service use
during the term of the joint venture agreement. We are also obligated to
install our own equipment when our customer usage reaches certain levels.
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At any time upon or following termination or expiration of the joint venture
agreement, either party will be allowed to terminate the switch sharing
agreement upon notice to the other.
AGREEMENT SPECIFYING OBLIGATIONS OF AND LIMITING LIABILITY AND RECOURSE TO
NEXTEL
Pursuant to the terms of this agreement, the maximum cumulative, aggregate
cash liability of Nextel and its controlled affiliates, other than Nextel WIP
Corp., for any and all actual or alleged claims or causes of action arising in
connection with any aspect of the agreements governing or otherwise relating to
the operating agreements is capped at $200.0 million.
The cap amount will be reduced, dollar for dollar, by the aggregate amount
that Nextel and its affiliates have advanced, expended or otherwise provided to
or for the benefit of Nextel WIP Corp. to enable Nextel WIP Corp. to perform
its obligations relating to the operating agreements other than contributions
for which Nextel has received equity securities or has received consideration
equal to Nextel's cost to provide the contribution.
Some significant Nextel obligations, including Nextel's commitments to
subsidize required upgrades and to buy our stock from our other shareholders
under certain circumstances, will not be subject to the cap. This agreement
will survive the expiration or termination of any and all of the agreements
governing or otherwise relating to the operating agreements.
MOTOROLA PURCHASE AGREEMENTS
Under the iDEN infrastructure equipment purchase agreement and the
subscriber purchase and distribution agreement between us and Motorola, dated
as of January 29, 1999, we agreed to purchase, and Motorola agreed to sell,
certain infrastructure equipment and related software and services required for
the build-out of our portion of the Digital Mobile Network, as well as
subscriber handsets and other accessories.
We obtained pricing for the Motorola equipment and subscriber units on
financial and other terms that we believe are substantially similar to those
obtained by Nextel. Under these purchase agreements, we expect to purchase over
a three year period $98.5 million worth of subscriber units and accessories and
over the same period approximately $145.0 million worth of Motorola equipment.
For the three month period ended March 31, 1999 and the year ended December 31,
1998, we purchased approximately $1.7 million and $46.5 million, respectively,
of infrastructure and other equipment, handsets, warranties and services from
Motorola.
We received, in connection with our purchases of Motorola equipment, an
$18.4 million credit from Motorola in return for the issuance of 1,836,649
shares of Series A convertible preferred stock to Motorola as part of the
capitalization transactions consummated on January 29, 1999. See "Business--The
Capitalization Transactions,--Business Strategy."
DLJMB AFFILIATION WITH INITIAL PURCHASER/BANK SYNDICATE
DLJ Capital Funding, Inc. has received customary fees and reimbursement of
expenses in connection with the arrangement and syndication of the credit
facility and will receive other fees and reimbursements as a lender thereunder.
Donaldson, Lufkin & Jenrette Securities Corporation acted as our financial
advisor, as arranger under the credit facility and as an initial purchaser in
the offering of the old notes. The aggregate amount of all fees paid to the DLJ
entities in connection with the capitalization transactions was approximately
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$14.7 million. We may from time to time enter into other investment banking
relationships with Donaldson, Lufkin & Jenrette Securities Corporation or one
of its affiliates for which Donaldson, Lufkin & Jenrette Securities Corporation
or its affiliate will receive customary fees and will be entitled to
reimbursement of reasonable disbursements and out-of-pocket expenses incurred
in connection with such services. We expect that any such arrangement will
include provisions for the indemnification of Donaldson, Lufkin & Jenrette
Securities Corporation against certain liabilities, including liabilities under
the federal securities laws. See "Plan of Distribution."
DLJ Capital Funding and Donaldson, Lufkin & Jenrette Securities
Corporation are affiliates of DLJ Merchant Banking, which, along with its
affiliates, is one of our significant shareholders, and is represented on our
board of directors. See "--The Subscription and Contribution Agreement" and
"--The Shareholders' Agreement."
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OWNERSHIP OF CAPITAL STOCK AND PRINCIPAL STOCKHOLDERS
CAPITAL STOCK
General. Nextel Partners is authorized to issue 170 million shares of
capital stock consisting of:
(1) 100 million shares of common stock, of which:
(a) 75 million shares are designated as Class A common stock, par
value $.001 per share, and
(b) 25 million are designated as Class B convertible common stock,
par value $.001 per share; and
(2) 70 million shares of preferred stock, of which:
(a) 25 million shares are designated as Series A convertible
preferred stock, par value $.001 per share,
(b) 25 million shares are designated as Series B redeemable or
convertible preferred stock, par value $.001 per share,
(c) 15 million shares are designated as Series C convertible
preferred stock, par value $.001 per share, and
(d) 5 million shares are designated as Series D convertible preferred
stock, par value $.001 per share.
Currently, the following shares of each class and series are outstanding:
(1) 1,588,888 shares of Class A common stock,
(2) 17,479,971 shares of Series A convertible preferred stock,
(3) 2,185,000 shares of Series B redeemable or convertible preferred
stock,
(4) 8,740,000 shares of Series C convertible preferred stock, and
(5) 2,185,000 shares of Series D convertible preferred stock.
The following is a summary of certain of the rights and privileges
pertaining to the common stock and the preferred stock. A copy of our restated
certificate of incorporation is filed as an exhibit to the registration
statement of which this prospectus is a part.
COMMON STOCK
The common stock is classified into two classes: Class A common stock and
Class B convertible common stock. As of March 31, 1999, all outstanding shares
of common stock were Class A common stock. The holders of common stock are
entitled to one vote per share on all matters submitted for action by the
shareholders. There is no provision for cumulative voting with respect to the
election of directors. Holders of common stock are entitled to share equally,
share for share, and on a parity with the Series A, Series C and Series D
preferred stock, if and when dividends are declared on common stock, whether
payable in cash, property or securities.
Class A Common Stock. Under certain circumstances, shares of Class A
common stock and securities convertible into Class A common stock, other than
Class B convertible common stock, are callable at the option of Nextel or may
be put to Nextel at the option of the holders.
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Class B Convertible Common Stock. Shares of Class B convertible common
stock are convertible at any time at the option of the holder into an equal
number of shares of Class A common stock.
PREFERRED STOCK
Ranking
With respect to rights on liquidation, dissolution or winding up the order
of preference is as follows:
(1) the Series B redeemable or convertible preferred stock;
(2) the Series A convertible preferred stock;
(3) the Series C and Series D convertible preferred stock; and
(4) the Class A common stock and the Class B convertible common stock.
Liquidation Preference
Upon our liquidation, holders of the Series A, Series C and Series D
convertible preferred stock will be entitled to receive $10.00 per share, plus
accumulated but unpaid dividends. Holders of the Series B redeemable or
convertible preferred stock will be entitled to receive an accreted liquidation
preference equal to $21,850,000, plus an accreting amount from the date of
issue up to the liquidation date equal to 12% per year, compounded quarterly.
Voting
The holders of the Series A and Series C convertible preferred stock are
entitled to vote on an as converted basis on all matters submitted for action
by the shareholders. The approval of a majority of the shareholders of each
series of preferred stock then outstanding is required in order for the board
of directors to take certain actions, including among others:
o amending the restated certificate of incorporation (including
authorizing additional shares of existing series of preferred stock);
o authorizing securities senior to any series of preferred stock;
o allowing mergers or consolidations adverse to the rights of holders of
such securities, subject to exceptions; or
o redeeming any outstanding shares of common or preferred stock, subject
to exceptions.
The holders of the Series D convertible preferred stock and the Series B
redeemable or convertible preferred stock do not have any other voting rights.
Dividends
The holders of the Series A, Series C and Series D convertible preferred
stock are entitled to share equally, share for share, on an as converted basis,
if and when dividends are declared on common stock, whether payable in cash,
property or securities. The holders of the Series B redeemable or convertible
preferred stock are not entitled to receive dividends on their shares of
preferred stock.
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Conversion
Each share of the Series A convertible preferred stock is convertible into
one share of the Class A common stock at any time at the option of the holder.
Upon an IPO or in the event the holder defaults on its payment obligations
under the subscription agreement, each share of the Series A convertible
preferred stock will be converted automatically into one share of the Class A
common stock.
Each share of the Series C and Series D convertible preferred stock is
convertible into one share of the Class B common stock at any time at the
option of the holder. Upon an IPO, each share of the Series C and Series D
convertible preferred stock will be converted automatically into one share of
the Class B convertible common stock.
The holders of the Series B redeemable or convertible preferred stock have
no conversion rights.
We may elect under certain circumstances to redeem the Series B redeemable
or convertible preferred stock by issuing the Series C convertible preferred
stock for each share of the Series B redeemable or convertible preferred stock
so redeemed as long as an IPO has not occurred.
Redemption
The holders of the Series A, Series C and Series D convertible preferred
stock have no redemption rights.
We may redeem the Series B redeemable or convertible preferred stock, in
whole but not in part, at any time in exchange for its accreted liquidation
preference. See "--Liquidation Preference."
We must redeem the Series B preferred redeemable or convertible stock on
February 11, 2010 in exchange for its accreted liquidation preference. See
"--Liquidation Preference." We may elect to pay the redemption price by
exchanging each share of the Series B redeemable or convertible preferred stock
for one share of the Series C convertible preferred stock, so long as an IPO
has not occurred.
Both the indenture governing the notes and the credit facility contain
restrictions with respect to payments made with respect to its capital stock.
These restrictions may limit our ability to redeem the Series B redeemable or
convertible preferred stock.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of March 31, 1999,
with respect to the beneficial ownership of shares of the Series A and Series C
convertible preferred stock, the Class A common stock and the Class B
convertible common stock by:
(1) certain persons known to us to be a beneficial owner of more than 5%
of the outstanding shares of such stock,
(2) each of our directors and executive officers, and
(3) all executive officers and directors as a group.
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<TABLE>
<CAPTION>
NUMBER AND
NUMBER AND PERCENTAGE OF
PERCENTAGE OF SERIES C
SERIES A CONVERTIBLE CONVERTIBLE
NAME AND ADDRESS PREFERRED STOCK(1) PREFERRED STOCK(1)
- ---------------------------------- ---------------------- ------------------
<S> <C> <C> <C> <C>
Nextel WIP Corp.
2001 Edmund Halley Drive
Reston, VA 20191 ................ 8,740,000 100%
Motorola
1303 East Algonquin Road,
11th Floor
Schaumburg, IL 60196 ............ 1,836,649 10.5%
Eagle River
2300 Carillon Point
Kirkland, WA 98033 .............. 2,622,000 15.0
DLJMB Funds(6)
277 Park Avenue
New York, NY 10172 .............. 3,800,000 21.7
Madison Dearborn Partners
Three First National Plaza
Chicago, IL 60602 ............... 3,624,972 20.7
General Electric Capital
Corporation
120 Long Ridge Road
Stamford, CT 06927 .............. 439,248 2.5
NMS Capital L.P.
9 West 57th Street
New York, NY 10019 .............. 419,271 2.3
Cascade Investments, L.L.C.
2365 Carillon Point
Kirkland, WA 98033 .............. 698,800 4.0
Ampersand Holdings, L.L.C.
1301 Santa Barbara Street
Santa Barbara, CA 93101 ......... 419,271 2.3
John Chapple ..................... 19,960 *
John D. Thompson .................
David Thaler .....................
David Aas ........................
Perry Satterlee ..................
Mark Fanning .....................
Andrew H. Rush(8) ................ 3,800,000 21.7
Dennis M. Weibling(9) ............ 2,622,000 15.0 8,740,000 100
Timothy M. Donahue(10) ........... 8,740,000 100
Andrew E. Sinwell(11) ............ 3,624,972 20.7
Directors and officers of
Nextel Partners as a group
(10 persons)(12) ................
<CAPTION>
NUMBER AND
NUMBER AND FULLY DILUTED
PERCENTAGE OF PERCENTAGE OF
CLASS B CLASS A
NAME AND ADDRESS COMMON STOCK(1) COMMON STOCK(1)
- ---------------------------------- --------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Nextel WIP Corp.
2001 Edmund Halley Drive
Reston, VA 20191 ................ 10,925,000 100%(2) 10,925,000(3) 33.3%
Motorola
1303 East Algonquin Road,
11th Floor
Schaumburg, IL 60196 ............ 1,836,649(4) 5.6
Eagle River
2300 Carillon Point
Kirkland, WA 98033 .............. 2,748,389(4) 8.4
DLJMB Funds(6)
277 Park Avenue
New York, NY 10172 .............. 4,007,637(4)(5) 12.2
Madison Dearborn Partners
Three First National Plaza
Chicago, IL 60602 ............... 3,823,045(4)(5) 11.6
General Electric Capital
Corporation
120 Long Ridge Road
Stamford, CT 06927 .............. 439,248(4) 1.3
NMS Capital L.P.
9 West 57th Street
New York, NY 10019 .............. 419,271(4) 1.3
Cascade Investments, L.L.C.
2365 Carillon Point
Kirkland, WA 98033 .............. 698,800(4) 2.1
Ampersand Holdings, L.L.C.
1301 Santa Barbara Street
Santa Barbara, CA 93101 ......... 419,271(4) 1.3
John Chapple ..................... 511,071(4) 1.6
John D. Thompson ................. 374,444(7) 1.1
David Thaler ..................... 195,000 *
David Aas ........................ 162,500 *
Perry Satterlee .................. 137,222 *
Mark Fanning ..................... 137,222 *
Andrew H. Rush(8) ................ 4,007,637 12.2
Dennis M. Weibling(9) ............ 10,925,000 100 13,673,389 41.6
Timothy M. Donahue(10) ........... 10,925,000 100 10,925,000 33.3
Andrew E. Sinwell(11) ............ 3,823,045 11.6
Directors and officers of
Nextel Partners as a group
(10 persons)(12) ................ 1,517,459 4.6
</TABLE>
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- ----------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
SEC. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares subject to options,
warrants and convertible securities held by that person that are
currently exercisable or exercisable within 60 days are deemed
outstanding. Except as indicated in the footnotes to this table, each
shareholder named in the table has sole voting and investment power with
respect to the shares set forth opposite such shareholder's names.
(2) Includes shares of Class B common stock which Nextel has the right to
acquire upon conversion of its Series C convertible preferred stock and
Series D convertible preferred stock.
(3) Includes shares of Class A common stock which Nextel has the right to
acquire upon conversion of its Series C convertible preferred stock and
Series D convertible preferred stock into Class B convertible common
stock which is convertible into Class A common stock.
(4) Includes shares of Class A common stock which it has the right to acquire
upon conversion of its or its affiliates' Series A convertible preferred
stock.
(5) Includes shares of Class A common stock which it has the right to acquire
upon exercise of its or its affiliates' warrants which are exercisable
within 60 days of January 29, 1999.
(6) Consists of shares held directly by DLJ Merchant Banking Partners II,
L.P. and the following related investors: DLJ Merchant Banking Partners
II-A, L.P., DLJ Offshore Partners II, C.V., DLJ Diversified Partners,
L.P., DLJ Diversified Partners-A, L.P., DLJ Millennium Partners, L.P.,
DLJ Millennium Partners-A, L.P., DLJMB Funding II, Inc., UK Investment
Plan 1997 Partners, Inc., DLJ EAB Partners, L.P., DLJ First ESC L.P. and
DLJ ESC II L.P. The address of UK Investment Plan 1997 Partners, Inc., is
2121 Avenue of the Stars, Fox Plaza, Suite 3000, Los Angeles, California
90067. The address of the others is 277 Park Avenue, New York, New York
10172.
(7) Includes 35,000 shares of Class A common stock issuable upon exercise of
options exercisable within 60 days of January 29, 1999.
(8) Shares represent those that Mr. Rush may be deemed to beneficially own as
a result of his position as Managing Director of DLJ Merchant Banking.
Mr. Rush disclaims beneficial ownership of such shares.
(9) Shares represent those that Mr. Weibling may be deemed to beneficially
own as a result of his position as President of Eagle River and as a
director of Nextel. Mr. Weibling disclaims beneficial ownership of such
shares.
(10) Shares represent those that Mr. Donahue may be deemed to beneficially own
as a result of his position as President, Chief Operating Officer and
director of Nextel. Mr. Donahue disclaims beneficial ownership of such
shares.
(11) Shares represent those that Mr. Sinwell may be deemed to beneficially own
as a result of his position as a director of Madison Dearborn Partners.
Mr. Sinwell disclaims beneficial ownership of such shares.
(12) Does not include shares which directors or officers disclaim beneficial
ownership of. See footnotes 8 through 11 above.
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THE EXCHANGE OFFER
BACKGROUND
On January 29, 1999, Nextel Partners privately placed the old notes in a
transaction exempt from registration under the Securities Act. Accordingly, the
old notes may not be reoffered, resold or otherwise transferred in the United
States unless so registered or unless an exemption from the Securities Act
registration requirements is available.
In the registration rights agreement, Nextel Partners agreed with the
initial purchasers to, at its cost:
o file an exchange offer registration statement within 120 days after
January 29, 1999,
o use its commercially reasonable efforts to cause the exchange offer
registration statement to become effective under the Securities Act at
the earliest possible time, but no later than 180 days following
January 29, 1999, and
o upon effectiveness of the exchange offer registration statement, offer
new notes in exchange for surrender of the old notes.
In addition, Nextel Partners agreed to keep the exchange offer open for at
least 20 business days, or longer if required by applicable law, after the date
the exchange offer registration statement becomes effective. The new notes are
being offered under this prospectus to satisfy these obligations of Nextel
Partners under the registration rights agreement.
A copy of the registration rights agreement is filed as an exhibit to the
registration statement of which this prospectus is a part.
TERMS OF THE EXCHANGE
Upon the terms and subject to the conditions contained in this prospectus
and in the letter of transmittal that accompanies this prospectus, Nextel
Partners will accept any and all old notes validly tendered and not withdrawn
before 5:00 p.m., New York City time, on the expiration date of the exchange
offer. Nextel Partners will issue an equal principal amount at maturity of new
notes in exchange for the principal amount at maturity of old notes accepted in
the exchange offer. Old notes may be tendered only in integral multiples of
$1,000.
The form and terms of the new notes are substantially identical to the
form and terms of the old notes, except that:
(1) the new notes will be freely transferable, other than as described in
this prospectus, and will not contain any legend restricting their
transfer;
(2) holders of the new notes will not be entitled to certain rights of
holders of old notes under the registration rights agreement, which
rights will terminate upon consummation of the exchange offer; and
(3) the new notes will not contain any provisions regarding the payment of
liquidated damages.
The new notes will evidence the same debt as the old notes and will be
entitled to the benefits of the indenture. See "Description of the Notes."
The exchange offer is not conditioned on any minimum aggregate principal
amount at maturity of old notes being tendered for exchange.
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RESALE OF THE NEW NOTES
Based on interpretations by the staff of the SEC in no-action letters
issued to third parties, Nextel Partners believes that the new notes issued
pursuant to the exchange offer in exchange for the old notes may be offered for
resale, resold and otherwise transferred by holders of the new notes without
complying with the registration and prospectus delivery requirements of the
Securities Act if:
(1) the holder acquired the new notes in the ordinary course of its
business;
(2) the holder is not engaged in, and does not intend to engage in, and
has no arrangement or understanding with any person to participate in,
a distribution of the new notes;
(3) the holder is not an "affiliate" of Nextel Partners within the meaning
of Rule 405 under the Securities Act;
(4) the holder is not a broker-dealer who acquired the old notes directly
from Nextel Partners; and
(5) the holder is not a broker-dealer who acquired the old notes as a
result of market-making or other trading activities.
Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of those new notes. 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. A participating broker-dealer must
acknowledge that it acquired the old notes as a result of market-making
activities or other trading activities and that it will deliver a prospectus
meeting the requirements of the Securities Act. The broker-dealer may use this
prospectus, as it may be amended or supplemented from time to time, in
connection with resales of new notes received in exchange for old notes. Nextel
Partners will make this prospectus available to any participating broker-dealer
in connection with any resale of this kind for a period of one year after the
consummation of the exchange offer.
See "Plan of Distribution."
SHELF REGISTRATION STATEMENT
If applicable law or interpretations of the staff of the SEC are changed
such that either:
(1) the exchange offer is no longer permitted or
(2) the new notes received by a holder who makes all of the above
representations in the letter of transmittal are not, or would not be
upon receipt, transferable by such holder without restriction under
the Securities Act,
Nextel Partners will, at its cost:
o file a shelf registration statement covering resales of the old notes,
within 60 days after
(a) Nextel Partners determines clause (1) above or
(b) Nextel Partners receives notice of clause (2) above,
o use all commercially reasonable efforts to cause the shelf
registration statement to be declared effective under the Securities
Act within 90 days after the filing deadline, and
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o use all commercially reasonable efforts to keep effective the shelf
registration statement until the earlier of January 29, 2001 or the
time when all of the applicable old notes are no longer outstanding.
Nextel Partners will, if and when it files the shelf registration
statement:
o provide to each holder of the old notes copies of the prospectus which
is a part of the shelf registration statement,
o notify each holder when the shelf registration statement has become
effective, and
o take other actions as are required to permit unrestricted resales of
the old notes.
A holder that sells old notes pursuant to the shelf registration statement
generally:
o must be named as a selling security holder in the related prospectus,
o must deliver a prospectus to purchasers,
o will be subject to civil liability provisions under the Securities Act
in connection with these sales, and
o will be bound by the provisions of the registration rights agreement
which are applicable to the holder, including certain indemnification
obligations.
In addition, each holder of old notes must deliver information to be used
in connection with the shelf registration statement and provide comments on the
shelf registration statement in order to have its old notes included in the
shelf registration statement and benefit from the provisions regarding any
liquidated damages described below.
LIQUIDATED DAMAGES
Liquidated damages will accrue on the principal amount at maturity of the
old notes, in addition to the stated interest on the old notes, from the date
on which a registration default occurs to the date such registration default is
cured.
The occurrence of any of the following is a registration default:
(1) neither the exchange offer registration statement nor the shelf
registration statement has been filed with the SEC on or before the
applicable deadline described above;
(2) neither the exchange offer registration statement nor the shelf
registration statement has been declared effective by the SEC on or
before the applicable deadline described above;
(3) the exchange offer has not been consummated by the 30th business day
after the exchange offer registration statement has become effective;
or
(4) after either the exchange offer registration statement or the shelf
registration statement has been declared effective, that registration
statement ceases to be effective or usable, subject to certain
exceptions, without being succeeded within two days by an amendment to
that registration statement that cures such failure and is declared
effective within five days of such filing.
Liquidated damages will accrue at a rate of $0.05 per week per $1,000 in
principal amount at maturity of the notes during the 90-day period after the
occurrence of the registration default and will increase by an additional $0.05
per week per $1,000 in principal amount at maturity at the end of each
subsequent 90-day period until all registration defaults have been cured. In no
event will the rate exceed $0.50 per week per $1,000 in principal amount at
maturity of the notes.
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The sole remedy available to the holders of the old notes will be the
immediate assessment of liquidated damages on the old notes as described above.
Any amount of liquidated damages due as described above will be payable in cash
on the same interest payment dates as the old notes.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date of the exchange offer is 5:00 p.m., New York City
time, on September 1, 1999, unless Nextel Partners, in its reasonable
discretion, extends the exchange offer, in which case the expiration date shall
be the latest date and time to which the exchange offer is extended.
In order to extend the exchange offer, Nextel Partners will notify the
exchange agent of any extension by oral or written notice and will make a
public announcement of the extension prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
Nextel Partners reserves the right, in its reasonable discretion:
o to delay accepting any old notes, to extend the exchange offer or to
terminate the exchange offer if, in its reasonable judgment, any of
the conditions described below under "--Conditions" shall not have
been satisfied, by giving oral or written notice of the delay,
extension or termination to the exchange agent, or
o to amend the terms of the exchange offer in any manner.
Nextel Partners will promptly announce any such event by making a timely
release to the Dow Jones News Service and may or may not do so by other means
as well.
PROCEDURES FOR TENDERING
To tender old notes in the exchange offer, the holder must:
o properly complete, sign and date the letter of transmittal, or a
facsimile of the letter of transmittal,
o have the signatures thereon guaranteed if required by the letter of
transmittal, and
o except as discussed in "Guaranteed Delivery Procedures," mail or
otherwise deliver the letter of transmittal, or facsimile thereof,
together with the old notes and any other required documents, to the
exchange agent prior to 5:00 p.m., New York City time, on the
expiration date of the exchange offer.
The exchange agent must receive the old notes, a completed letter of
transmittal and all other required documents at the address listed below under
"--Exchange Agent" before 5:00 p.m., New York City time, on the expiration date
for the tender to be effective. You may deliver your old notes by using the
book-transfer procedures described below, as long as the exchange agent
receives confirmation of the book-entry transfer before the expiration date.
The Depository Trust Company has authorized its participants that hold old
notes on behalf of beneficial owners of old notes through The Depository Trust
Company to tender their old notes as if they were holders. To effect a tender
of old notes, The Depository Trust Company participants should either:
(1) complete and sign the letter of transmittal, have the signature
thereon guaranteed if required by the instructions to the letter of
transmittal and mail or deliver the letter of transmittal, or the
manually signed facsimile, to the exchange agent according to the
procedures described above, or
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(2) transmit their acceptance to The Depository Trust Company through its
automated tender offer program for which the transaction will be
eligible and follow the procedure for book-entry transfer as described
in "Book-Entry; Delivery and Form."
By tendering, each holder will make the representations contained in the
first paragraph under the heading "--Resale of the New Notes." Each
participating broker-dealer must acknowledge that it will deliver a prospectus
in connection with any resale of such new notes. See "Plan of Distribution."
The tender by a holder and the acceptance of the tender by Nextel Partners
will constitute the agreement between the holder and Nextel Partners in
accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal.
THE METHOD OF DELIVERY OF THE OLD NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, HOLDERS SHOULD ALLOW
SUFFICIENT TIME TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES OR BOOK-ENTRY CONFIRMATION SHOULD
BE SENT TO NEXTEL PARTNERS. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE
TRANSACTIONS ON THEIR BEHALF.
Any beneficial owner whose old notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If the
beneficial owner wishes to tender on its own behalf, such owner must, prior to
completing and executing the letter of transmittal and delivering its old
notes, either make appropriate arrangement to register ownership of the old
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 must be
guaranteed by an eligible guarantor institution that is a member of a
recognized signature guarantee medallion program unless the old notes are
tendered:
o by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the
letter of transmittal, or
o for the account of an eligible guarantor institution.
If signatures on a letter of transmittal or notice of withdrawal, as the
case may be, are required to be guaranteed, the guarantee must be 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.
If a letter of transmittal is signed by a person other than the registered
holder of any old notes listed in the letter of transmittal, the old notes must
be endorsed or accompanied by a properly completed bond power signed by the
registered holder as the registered holder's name appears on the old notes.
If a letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others
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acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by Nextel Partners, evidence
satisfactory to Nextel Partners of their authority to so act must be submitted
with the letter of transmittal.
Promptly after the date of this prospectus, the exchange agent will
establish a new account or utilize an existing account with respect to the old
notes at the book-entry transfer facility, The Depository Trust Company, for
the purpose of facilitating the exchange offer. Subject to the establishment of
the accounts, any financial institution that is a participant in The Depository
Trust Company's system may make a book-entry tender of old notes by causing The
Depository Trust Company to transfer such old notes into the exchange agent's
account in accordance with book-entry transfer procedures. Although delivery of
the old notes may be effected through book-entry transfer into the exchange
agent's account at The Depository Trust Company, an appropriate letter of
transmittal properly completed and duly executed or an agent's message with any
required signature guarantee and all other required documents, must be received
by the exchange agent at its address listed below on or prior to the expiration
date of the exchange offer, or, if the guaranteed delivery procedures described
below must be complied with, within the time period provided under such
procedures. Delivery of documents to The Depository Trust Company does not
constitute delivery to the exchange agent.
The term "agent's message" means a message transmitted by The Depository
Trust Company to, and received by, the exchange agent, which states that The
Depository Trust Company has received an express acknowledgment from the
participant in The Depository Trust Company tendering the old notes stating:
o the aggregate principal amount at maturity of old notes which have
been tendered by such participant,
o that such participant has received and agrees to be bound by the terms
of the letter of transmittal, and
o that Nextel Partners may enforce such agreement against the
participant.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of tendered old notes will be determined by
Nextel Partners, which determination shall be final and binding. Nextel
Partners reserves the right to reject any and all old notes not properly
tendered or any old notes the acceptance of which would, in the opinion of
counsel for Nextel Partners, be unlawful. Nextel Partners also reserves the
right to waive any defects, irregularities or conditions of tender as to
particular old notes. Nextel Partners' 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 of irregularities in connection with tenders of old notes must be cured
within such time as Nextel Partners shall determine. Neither Nextel Partners,
the exchange agent nor any other person shall incur any liability for failure
to give notice of any defect or irregularity with respect to any tender of old
notes. Tender of old notes will not be deemed to have been made until such
defects or irregularities have been cured or waived. Any old notes received by
the exchange agent that are not properly tendered and as to which the defects
or irregularities have not been cured or waived will be returned by the
exchange agent to the tendering holders, unless otherwise provided in the
letter of transmittal, as soon as practicable following the expiration date.
GUARANTEED DELIVERY PROCEDURES
A holder who wishes to tender old notes and:
o whose old notes are not immediately available,
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o who cannot deliver the old notes, the letter of transmittal or any
other required documents to the exchange agent prior to the expiration
date, or
o who cannot complete the procedures for book-entry transfer before the
expiration date
may effect a tender if:
(1) the tender is made through an eligible guarantor institution,
(2) before the expiration date, the exchange agent receives from the
eligible guarantor institution a properly completed and duly
executed notice of guaranteed delivery by facsimile transmission,
mail or hand delivery setting forth the name and address of the
holder, the certificate number(s) of the old notes and the
principal amount at maturity of the old notes tendered, stating
that the tender is being made thereby and guaranteeing that,
within three New York Stock Exchange trading days after the
expiration date, the letter of transmittal (or facsimile thereof)
together with the certificate(s) representing the old notes (or a
confirmation of book-entry transfer of the old notes into the
exchange agent's account at The Depository Trust Company), and
any other documents required by the letter of transmittal will be
deposited by the eligible guarantor institution with the exchange
agent, and
(3) the exchange agent receives, within three New York Stock Exchange
trading days after the expiration date, a properly completed and
executed letter of transmittal or facsimile, as well as the
certificate(s) representing all tendered old notes in proper form
for transfer or a confirmation of book-entry transfer of the old
notes into the exchange agent's account at The Depository Trust
Company, and all other documents required by the letter of
transmittal.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of old notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the expiration date of
the exchange offer.
To withdraw a tender of old notes in the exchange offer, a letter or
facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the expiration date. Any notice of withdrawal must:
o specify the name of the person having deposited the old notes to be
withdrawn,
o identify the old notes to be withdrawn, including the certificate
number(s) and principal amount at maturity of such old notes, or in
the case of old notes transferred by book-entry transfer, the name and
number of the account at the book-entry transfer facility to be
credited, and otherwise comply with the procedures of the exchange
agent,
o be signed by the holder in the same manner as the original signature
on the letter of transmittal by which such old notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee under the
indenture governing the old notes register the transfer of the old
notes into the name of the person withdrawing the tender, and
o specify the name in which any such old notes are to be registered, if
different from that of the person who deposited the notes.
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If certificates for old notes have been delivered or otherwise identified
to the exchange agent, then, before the release of the certificates, the
withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an eligible guarantor institution.
All questions as to the validity, form and eligibility, including time of
receipt, of such notices will be determined by Nextel Partners, which
determination shall be final and binding on all parties. Any old notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
exchange offer, and no new notes will be issued, unless the old notes so
withdrawn are validly retendered. Any old notes which have been tendered but
which are not accepted for exchange will be returned to the holder of the notes
without cost to the holder as soon as practicable after withdrawal, rejection
of tender or termination of the exchange offer. Properly withdrawn old notes
may be retendered by following any of the procedures described above under
"--Procedures for Tendering" at any time prior to the expiration date.
CONDITIONS
Despite any other term of the exchange offer, Nextel Partners shall not be
required to accept for exchange, or exchange new notes for, any old notes, and
may terminate the exchange offer as provided in this prospectus prior to the
expiration date if:
(1) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the exchange
offer which, in the reasonable judgment of Nextel Partners, might
materially impair the ability of Nextel Partners to proceed with the
exchange offer or materially impair the contemplated benefits of the
exchange offer to Nextel Partners, or any material adverse development
has occurred in any existing action or proceeding with respect to
Nextel Partners or any of its subsidiaries;
(2) any change, or any development involving a prospective change, in the
business or financial affairs of Nextel Partners or any of its
subsidiaries has occurred which, in the reasonable judgment of Nextel
Partners, might materially impair the ability of Nextel Partners to
proceed with the exchange offer or materially impair the contemplated
benefits of the exchange offer to Nextel Partners;
(3) any law, statute, rule or regulation is proposed, adopted or enacted,
which, in the reasonable judgment of Nextel Partners, might materially
impair the ability of Nextel Partners to proceed with the exchange
offer or materially impair the contemplated benefits of the exchange
offer to Nextel Partners; or
(4) any governmental approval has not been obtained, which approval Nextel
Partners shall, in its reasonable discretion, deem necessary for the
consummation of the exchange offer as contemplated hereby.
The conditions listed above are for the sole benefit of Nextel Partners
and may be asserted by Nextel Partners regardless of the circumstances giving
rise to any of these conditions. Nextel Partners may waive these conditions in
its reasonable discretion in whole or in part from time to time. The failure by
Nextel Partners at any time to exercise any of the above rights shall not be
deemed a waiver of such right and each such right shall be deemed an ongoing
right which may be asserted at any time and from time to time.
If Nextel Partners determines in its reasonable discretion that any of the
conditions are not satisfied, Nextel Partners may:
(1) refuse to accept any old notes and return all tendered old notes to
the tendering holders,
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(2) extend the exchange offer and retain all old notes tendered prior to
the expiration of the exchange offer, subject, however, to the rights
of holders to withdraw these old notes (see "--Withdrawal of Tenders"
above), or
(3) waive unsatisfied conditions with respect to the exchange offer and
accept all properly tendered old notes which have not been withdrawn.
If this waiver constitutes a material change to the exchange offer,
Nextel Partners will promptly disclose the waiver by means of a
prospectus supplement that will be distributed to the registered
holders. Nextel Partners will also extend the exchange offer for a
period of five to ten business days, depending upon the significance
of the waiver and the manner of disclosure to the registered holders,
if the exchange offer would otherwise expire during such five to ten
business day period.
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the exchange
offer. Questions and requests for assistance and requests for additional copies
of this prospectus or of the letter of transmittal should be directed to The
Bank of New York addressed as follows:
For Information by Telephone:
(212) 815-2824
By Registered or Certified Mail:
The Bank of New York
101 Barclay Street, Floor 7 East
New York, NY 10286
Attention: Tolutope Adeyoju
By Hand or Overnight Delivery:
The Bank of New York
101 Barclay Street
Attention: Reorganization
Corporate Trust Services Window
Ground Level
New York, NY 10286
By Facsimile Transmission:
(212) 815-4699
(Telephone Confirmation)
(212) 815-2824
The Bank of New York also acts as trustee under the indenture governing
the notes.
FEES AND EXPENSES
Nextel Partners will bear the expenses of soliciting tenders. Nextel
Partners 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. Nextel Partners, however, will pay the
exchange agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection with
providing the services.
The cash expenses to be incurred in connection with the exchange offer
will be paid by Nextel Partners. Such expenses include fees and expenses of The
Bank of New York as exchange agent and as trustee under the indenture governing
the notes, accounting and legal fees and printing costs, among others.
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Tendering holders of the old notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the letter of
transmittal, transfer taxes relating to the exchange of old notes for new notes
in the exchange offer.
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the old notes
as reflected in Nextel Partners' accounting records on the date of exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by
Nextel Partners. The expenses of the exchange offer and the unamortized
expenses related to the issuance of the old notes will be amortized over the
term of the notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of old notes who are eligible to participate in the exchange offer
but who do not tender their old notes will not have any further registration
rights, and their old notes will continue to be subject to restrictions on
transfer. Accordingly, such old notes may be resold only:
o to Nextel Partners, upon redemption of these notes or otherwise,
o so long as the old notes are eligible for resale pursuant to Rule 144A
under the Securities Act, to a person inside the United States whom
the seller reasonably believes is a qualified institutional buyer
within the meaning of Rule 144A in a transaction meeting the
requirements of Rule 144A,
o in accordance with Rule 144 under the Securities Act, or under another
exemption from the registration requirements of the Securities Act,
and based upon an opinion of counsel reasonably acceptable to Nextel
Partners,
o to a foreign person outside the United States in a transaction meeting
the requirements of Rule 904 under the Securities Act, or
o pursuant to an effective registration statement under the Securities
Act,
in each case in accordance with any applicable securities laws of any state of
the United States.
REGULATORY APPROVALS
Nextel Partners does not believe that the receipt of any material federal
or state regulatory approvals will be necessary in connection with the exchange
offer, other than the effectiveness of the exchange offer registration
statement under the Securities Act.
OTHER
Participation in the exchange offer is voluntary and holders of old notes
should carefully consider whether to accept the terms and conditions of this
offer. Holders of the old notes are urged to consult their financial and tax
advisors in making their own decisions on what action to take with respect to
the exchange offer.
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DESCRIPTION OF THE NOTES
The new notes, like the old notes, will be issued under the indenture,
dated January 29, 1999, between Nextel Partners and The Bank of New York, as
trustee. The new notes are the same as the old notes except that the new notes:
o will not bear legends restricting their transfer, and
o will not contain certain terms providing for the payment of liquidated
damages under the circumstances described in the registration rights
agreement.
The indenture and its associated documents contain the full legal text of
the matters described in this section. A copy of the indenture has been filed
with the SEC as part of our registration statement of which this prospectus
forms a part. See "Where You Can Find More Information" on page 32 for
information on how to obtain a copy.
Because this section is a summary of the material provisions of the
indenture, it does not describe every aspect of the indenture or the notes.
This summary is subject to and qualified in its entirety by reference to the
Trust Indenture Act. In this section we use capitalized words to signify
defined terms that have been given special meaning in the indenture. We
describe the meaning for only the more important terms under "Certain
Definitions." We also include references in parentheses to certain sections of
the indenture.
In this description of the notes, the term "Nextel Partners" refers to
Nextel Partners, Inc. and does not include its subsidiaries except for purposes
of financial data determined on a consolidated basis.
BRIEF DESCRIPTION OF THE NOTES
These notes:
o will be senior unsecured obligations of Nextel Partners;
o will be limited to $1.0 billion in aggregate principal amount at
maturity, of which $800 million in aggregate principal amount at
maturity has been issued;
o will mature on February 1, 2009; and
o will bear interest at the rate of 14% per annum.
The old notes were issued at a discount to their aggregate principal
amount at maturity generating aggregate gross proceeds of approximately
$406,376,000. The notes will accrete in value representing the amortization of
original issue discount at a rate of 14%, compounded semiannually, to an
aggregate principal amount of $800.0 million by February 1, 2004. Cash interest
will not accrue on the notes prior to February 1, 2004.
Interest will be paid semi-annually on February 1 and August 1 of each
year, commencing August 1, 2004, to the registered holder at the close of
business on the preceding January 15 or July 15.
Interest on the notes will be computed on the basis of a 360-day year of
twelve 30-day months. (Sections 3.01, 3.09 and 3.12) Accretion of
original issue discount will be computed on a basis of a 360-day year of twelve
30-day months, compounded semiannually.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee will initially act as paying agent and registrar. Nextel
Partners may change the paying agent or registrar without prior notice to the
holders, and Nextel Partners or any of its subsidiaries may act as paying agent
or registrar.
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TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the indenture.
Nextel Partners and The Bank of New York, the exchange agent and trustee, may
require a holder, among other things, to furnish appropriate endorsements and
transfer documents, and Nextel Partners may require a holder to pay any taxes
and fees required by law or permitted by the indenture. (Section 3.05)
METHODS OF RECEIVING PAYMENTS ON THE NOTES
Nextel Partners will pay interest, principal and any other money due on
the notes at the corporate trust office of the trustee in New York City. That
office is currently located at 101 Barclay Street, New York, New York 10286.
You must make arrangements to have your payments picked up at or wired from
that office. Nextel Partners may also choose to pay interest by mailing checks.
(Sections 3.01 and 10.02)
The notes will be issued only in fully registered form, without coupons,
in denominations of $1,000 and any integral multiple of $1,000. (Section 3.02)
You will not be required to pay a service charge to transfer or exchange notes,
but you may be required to pay for any tax or other governmental charge
associated with the exchange or transfer. (Section 3.05)
RANKING
The notes:
o will be senior unsecured obligations of Nextel Partners;
o will rank equally in right of payment to all existing and future
senior unsecured obligations of Nextel Partners; and
o will rank senior in right of payment to all existing and future
subordinated obligations of Nextel Partners.
Holders of secured obligations of Nextel Partners will, however, have
claims that are prior to the claims of the holders of the notes with respect to
the assets securing those other obligations.
Nextel Partners' principal operations are conducted through its
subsidiaries, and Nextel Partners is therefore dependent upon the cash flow of
its subsidiaries to meet its obligations. The payment of dividends and making
of payments to Nextel Partners by its subsidiaries are subject to restrictions
imposed by the credit facility. Future debt of some of the subsidiaries may
prohibit the payment of dividends or payments to Nextel Partners. In addition,
the ability of subsidiaries of Nextel Partners to make these payments to Nextel
Partners is limited by laws of the relevant states in which the subsidiaries
are organized or located.
Nextel Partners' subsidiaries will have no obligation to guarantee or
otherwise pay amounts due under the notes. Therefore, the notes will be
effectively subordinated to all indebtedness and other liabilities and
commitments, including borrowings under the credit facility and trade payables,
of Nextel Partners' subsidiaries. Any right of Nextel Partners to receive
assets of any subsidiary upon any liquidation or reorganization of that
subsidiary (and the resulting right of holders of the notes to participate in
those assets) will be effectively subordinated to the claims of the
subsidiary's creditors, except to the extent that Nextel Partners itself is
recognized as a creditor of the subsidiary. See "Risk Factors--Our subsidiaries
may not be in a position to pay us the cash we need to make payments on the
notes."
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As of March 31, 1999:
o the total amount of outstanding consolidated liabilities of Nextel
Partners and its subsidiaries, including trade payables, was
approximately $609.9 million, of which $591.2 million were secured
obligations, and
o the total amount of outstanding liabilities of Nextel Partners'
subsidiaries, including trade payables, were $193.8 million, of which
$175 million were secured obligations.
For more information, see "Description of Credit Facility" and "Nextel
Partners-- Summary Historical and Pro Forma Consolidated Financial Information
and Operating Data."
OPTIONAL REDEMPTION
Nextel Partners may opt to redeem the notes, in whole or in part, at any
time on or after February 1, 2004. If Nextel Partners chooses this optional
redemption, it is required to mail a notice of redemption not less than 30 nor
more than 60 days prior to the redemption to each holder of notes at the
holder's address as it appears in the note register at the redemption prices
set forth below, plus an amount in cash equal to all accrued and unpaid
interest and any liquidated damages, if any, to the redemption date, if
redeemed during the twelve-month period beginning on February 1 of each of the
years set forth below.
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- -----------------
<S> <C>
2004 ........................ 107.000%
2005 ........................ 104.667%
2006 ........................ 102.333%
2007 and thereafter ......... 100.000%
</TABLE>
The prices are expressed as percentages of the principal amount at
maturity of the notes. (Sections 2.03, 11.01, 11.05 and 11.07)
Prior to February 1, 2002, Nextel Partners may redeem up to 35% of the
notes at a redemption price of 114% of the accreted value of the notes on the
redemption date, plus liquidated damages, if any, to the redemption date if:
o Nextel Partners receives net proceeds of at least $75 million from one
or more sales of its capital stock (other than redeemable stock) prior
to February 1, 2002,
o at least 65% of the aggregate accreted value of the notes originally
issued remain outstanding immediately after the redemption, and
o the redemption occurs within 60 days of such sale.
If less than all the notes are to be redeemed, the trustee shall select
the particular notes to be redeemed or any portion thereof that is an integral
multiple of $1,000. The trustee will make this selection on a pro rata basis,
by lot or by such other method as it will deem fair and appropriate.
MANDATORY REDEMPTION; SINKING FUND
Except as described under "--Covenants--Limitation on Asset Sales" and
"--Covenants--Change of Control" below, Nextel Partners is not required to
purchase or make mandatory redemption payments or sinking fund payments with
respect to the notes.
COVENANTS
In the indenture, Nextel Partners agreed to certain restrictions that
limit its and its restricted subsidiaries' ability to:
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(1) incur additional debt;
(2) pay dividends, acquire shares of Nextel Partners, make certain
investments or redeem debt of Nextel Partners which is subordinate in right of
payment to the notes;
(3) designate unrestricted subsidiaries;
(4) enter into transactions with affiliates;
(5) engage in any business other than telecommunications;
(6) create liens;
(7) pay dividends, make loans or advances to Nextel Partners or its
restricted subsidiaries or transfer any of its property or assets to Nextel
Partners or its restricted subsidiaries;
(8) issue or sell shares of capital stock of its restricted subsidiaries;
and
(9) sell assets.
In addition, if a Change of Control occurs, each holder of notes will have
the right to require Nextel Partners to repurchase all or part of such holder's
notes at a price equal to 101% of the accreted value plus liquidated damages,
if any, to any purchase date prior to February 1, 2004 or 101% of the aggregate
principal amount of the notes, plus accrued and unpaid interest and liquidated
damages, if any, to any purchase date thereafter. The above limitations are
restrictive covenants that are promises that we make to you about how we will
run our business, or business actions that we promise not to take. A more
detailed description of the restrictive covenants and the exceptions to them
follows below.
All of the current subsidiaries of Nextel Partners are restricted
subsidiaries for purposes of the indenture.
Limitation on Consolidated Debt
Nextel Partners may not, and may not permit any Restricted Subsidiary to,
Incur any Debt (including Acquired Debt), other than Permitted Debt, unless
immediately after giving effect to the Incurrence of such Debt and the receipt
and application of the net proceeds therefrom (including, without limitation,
the application or use of the net proceeds therefrom to repay Debt or make any
Restricted Payment):
(1) the Consolidated Debt to Annualized Operating Cash Flow Ratio would
be less than 7.0 to 1.0, or
(2) in the case of any incurrence of Debt prior to January 1, 2005 only,
Consolidated Debt would be equal to or less than 80% of Total Invested
Capital. (Section 10.08)
Limitation on Restricted Payments
Nextel Partners may not and, with respect to clauses (2) through (4), may
not permit any Restricted Subsidiary to, directly or indirectly:
(1) declare or pay any dividend on, or make any distribution in respect
of, its Capital Stock or to holders thereof, excluding any dividends or
distributions payable solely in its shares of Capital Stock (other than
Redeemable Stock) or in options, warrants or other rights to purchase any
such Capital Stock (other than Redeemable Stock);
(2) purchase, redeem or otherwise acquire or retire for value (other than
value consisting solely of its Capital Stock of Nextel Partners that is not
Redeemable Stock or
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options, warrants or other rights to acquire such Capital Stock that is not
Redeemable Stock), any of its Capital Stock (including options, warrants or
other rights to acquire such Capital Stock);
(3) redeem, repurchase, defease or otherwise acquire or retire for value,
or permit any Restricted Subsidiary to, directly or indirectly, redeem,
repurchase, defease or otherwise acquire or retire for value (other than
value consisting solely of its Capital Stock that is not Redeemable Stock
or options, warrants or other rights to acquire such Capital Stock that is
not Redeemable Stock), prior to any scheduled maturity, scheduled repayment
or scheduled sinking fund payment, any Debt that is subordinate (whether
pursuant to its terms or by operation of law) in right of payment to the
notes; or
(4) directly or indirectly, make any Investment, except for Permitted
Investments, in any Person, other than in a Restricted Subsidiary or a
Person that becomes a Restricted Subsidiary as a result of such Investment
(each of clauses (1) through (4), other than any such action that is a
Permitted Investment or a Permitted Distribution, being referred to as a
"Restricted Payment") unless, at the time of such Restricted Payment, and
upon giving effect to such Restricted Payment:
(a) no Default or Event of Default has occurred and be continuing;
(b) Nextel Partners would have been permitted to Incur at least $1.00
of additional Debt pursuant to the terms of the indenture described in
clause (1) under the caption "Limitation on Consolidated Debt" above;
and
(c) the aggregate amount of all Restricted Payments made from January
29, 1999 does not exceed:
(A) the amount of the Operating Cash Flow of Nextel Partners after
December 31, 2002 through the end of the latest full fiscal quarter
for which consolidated financial statements of Nextel Partners are
available preceding the date of such Restricted Payment (treated as a
single accounting period) less 150% of the cumulative Consolidated
Interest Expense of Nextel Partners after December 31, 2002 through
the end of the latest full fiscal quarter for which consolidated
financial statements of Nextel Partners are available preceding the
date of such Restricted Payment (treated as a single accounting
period), plus
(B) the aggregate net proceeds (other than proceeds from a
Committed Capital Contribution), including the fair market value of
property other than cash, as determined:
(x) in the case of any property other than cash with a value
less than $25.0 million, by Nextel Partners' board of directors,
whose good faith determination will be conclusive and as
evidenced by a board resolution, or
(y) in the case of any property other than cash with a value
equal to or greater than $25.0 million, by an accounting,
appraisal or investment banking firm of national standing and
evidenced by a written opinion of such firm,
received by Nextel Partners from the issuance and sale (other than to
a Restricted Subsidiary) after January 29, 1999 of shares of its
Capital Stock (other than Redeemable Stock) or any options, warrants
or other rights to purchase such Capital Stock (other than Redeemable
Stock), other than
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shares of Capital Stock or options, warrants or other rights to
purchase Capital Stock (or shares issuable upon exercise thereof),
the proceeds of the issuance of which is used to make a Directed
Investment, unless such designation has been revoked by Nextel
Partners' board of directors and Nextel Partners is able to make such
Investment pursuant to this covenant (other than as a Directed
Investment), plus
(C) the aggregate net proceeds, including the fair market value of
property other than cash, as determined:
(x) in the case of any property other than cash with a value
less than $25.0 million, by Nextel Partners' board of directors,
whose good faith determination will be conclusive and as
evidenced by a board resolution, or
(y) in the case of any property other than cash with a value
equal to or greater than $25.0 million, by an accounting,
appraisal or investment banking firm of national standing and
evidenced by a written opinion of such firm,
received by Nextel Partners from the issuance or sale (other than to a
Restricted Subsidiary) after January 29, 1999 of any Capital Stock of
Nextel Partners (other than Redeemable Stock) or any options,
warrants or other rights to purchase such Capital Stock (other than
Redeemable Stock), upon the conversion of, or exchange for, Debt of
Nextel Partners or a Restricted Subsidiary.
Nothing contained in this section limits or restricts Nextel Partners from
making any Permitted Distribution, Permitted Investment or Directed Investment,
and neither a Permitted Distribution or Permitted Investment will be counted as
a Restricted Payment for purposes of clause (c) above.
In addition, the foregoing limitations do not prevent Nextel Partners
from:
(1) paying any dividend on its Capital Stock within 60 days after the
declaration thereof if, on the date when the dividend was declared, Nextel
Partners could have paid such dividend in accordance with the provisions of
the indenture,
(2) repurchasing its Capital Stock (including options, warrants or other
rights to acquire such Capital Stock) from former employees or directors of
Nextel Partners or any Subsidiary thereof for consideration not to exceed:
(a) in the case of all such employees or directors (other than
Itemized Executives), $500,000 in the aggregate in any fiscal year, with
amounts not used in any given fiscal year being carried over into
subsequent fiscal years, and
(b) in the case of any Itemized Executive, $2.0 million per Itemized
Executive (plus the amount of any proceeds of any key man life insurance
received by Nextel Partners in respect to such Itemized Executive) in
any fiscal year, with the aggregate amount of such repurchases not to
exceed $5.0 million in any fiscal year;
provided that the aggregate amount of all such repurchases made pursuant to
this paragraph (2) does not exceed $17.0 million in the aggregate (not
including the amount of any proceeds of key man life insurance received by
Nextel Partners in respect to any Itemized Executive),
(3) repurchasing, redeeming or acquiring for value Capital Stock of
Nextel Partners to the extent necessary to prevent the loss or secure the
renewal or reinstatement of any license or franchise held by Nextel
Partners or any of its Subsidiaries from any governmental agency,
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(4) making a loan in the aggregate principal amount of approximately $2.2
million to certain officers of Nextel Partners as described in this
prospectus (with Restricted Payments pursuant to this clause not being
counted as Restricted Payments for purposes of clause (c) above),
(5) redeeming, repurchasing, defeasing or acquiring or retiring for value
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:
(a) the proceeds of a capital contribution or a substantially
concurrent offering of, shares of Capital Stock of Nextel Partners
(other than Redeemable Stock) or options, warrants or other rights to
acquire such Capital Stock, the proceeds of which are not designated as
a Directed Investment, or
(b) Debt that is at least as subordinated in right of payment to the
notes, including premium, if any, and accrued and unpaid interest, as
the Debt being purchased (with Restricted Payments pursuant to this
paragraph not being counted as Restricted Payments for purposes of
clause (c) above),
(6) repurchasing, redeeming or acquiring of Capital Stock of Nextel
Partners, or options, warrants or other rights to acquire such Capital
Stock, in exchange for, or out of the proceeds of a capital contribution or
a substantially concurrent offering of, shares of Common Stock of Nextel
Partners (other than Redeemable Stock) or options, warrants or other rights
to acquire such Capital Stock) the proceeds of which are not designated as
a Directed Investment, or
(7) making other Restricted Payments not to exceed $5.0 million in the
aggregate at any time outstanding (with Restricted Payments pursuant to
this paragraph not being counted as Restricted Payments for purposes of
clause (c) above).
Notwithstanding the foregoing, no Investment in a Person that immediately
thereafter would be a Restricted Subsidiary will be a Restricted Payment. In
addition, if any Person in which an Investment is made, such Investment
constituting a Restricted Payment when made, thereafter becomes a Restricted
Subsidiary, all such Investments previously made in such Person will no longer
be counted as Restricted Payments for purposes of calculating the aggregate
amount of Restricted Payments pursuant to clause (c) above or the aggregate
amount of Investments pursuant to paragraph (5)(a) above, in each case to the
extent such Investments would otherwise be so counted.
For purposes of clause (c)(C) above, the net proceeds received by Nextel
Partners from the issuance or sale of its Capital Stock either upon the
conversion of, or exchange for, Debt of Nextel Partners or any Restricted
Subsidiary will be deemed to be an amount equal to:
(a) the sum of the principal amount or accreted value (whichever is
less) of such Debt on the date of such conversion or exchange and the
additional cash consideration, if any, received by Nextel Partners upon
such conversion or exchange, less any payment on account of fractional
shares, minus
(b) all expenses incurred in connection with such issuance or sale.
In addition, for purposes of clause (c)(C) above, the net proceeds
received by Nextel Partners from the issuance or sale of its Capital Stock upon
the exercise of any options or warrants of Nextel Partners or any Restricted
Subsidiary will be deemed to be an amount equal to the additional cash
consideration, if any, received by Nextel Partners upon such exercise, minus
all expenses incurred in connection with such issuance or sale.
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For purposes of this "Limitation on Restricted Payments" covenant, if a
particular Restricted Payment involves a non-cash payment, including a
distribution of assets, then such Restricted Payment will be deemed to be an
amount equal to the cash portion of such Restricted Payment, if any, plus an
amount equal to the fair market value of the non-cash portion of such
Restricted Payment, as determined by Nextel Partners' board of directors whose
good faith determination shall be conclusive and evidenced by a board
resolution.
The amount of any Investment outstanding at any time will be deemed to be
equal to the amount of such Investment on the date made less the return of
capital, repayment of loans and return on capital (including interest and
dividends), in each case, received in cash, up to the amount of such Investment
on the date made. (Section 10.09)
Restricted Subsidiaries
Subject to compliance with the "Limitation on Restricted Payments"
covenant, Nextel Partners' board of directors may designate any Restricted
Subsidiary as an Unrestricted Subsidiary.
The designation by the board of directors of a Restricted Subsidiary as an
Unrestricted Subsidiary will, for all purposes of the "Limitation on Restricted
Payments" covenant (including clause (b) thereof), be deemed to be a Restricted
Payment of an amount equal to the fair market value of Nextel Partners'
ownership interest in such Subsidiary (including, without duplication, such
indirect ownership interest in all Subsidiaries of such Subsidiary), as
determined by Nextel Partners' board of directors in good faith and evidenced
by a board resolution.
Notwithstanding the foregoing provisions of this "Restricted Subsidiaries"
covenant, the board of directors may not designate a Subsidiary of Nextel
Partners to be an Unrestricted Subsidiary if, after such designation:
(a) Nextel Partners or any Restricted Subsidiary:
(1) provides credit support for, or a Guarantee of, any Debt of
such Subsidiary (including any undertaking, agreement or instrument
evidencing such Debt) or
(2) is directly or indirectly liable for any Debt of such
Subsidiary,
(b) a default with respect to any Debt of such Subsidiary (including
any right which the holders thereof may have to take enforcement action
against such Subsidiary) would permit (upon notice, lapse of time or
both) any holder of any other Debt of Nextel Partners or any Restricted
Subsidiary to declare a default on such other Debt or cause the payment
thereof to be accelerated or payable prior to its final scheduled
maturity, or
(c) such Subsidiary owns any Capital Stock of, or owns or holds any
Lien on any property of, any Restricted Subsidiary which is not a
Subsidiary of the Subsidiary to be so designated.
Nextel Partners' board of directors, from time to time, may designate any
Person that is about to become a Subsidiary of Nextel Partners as an
Unrestricted Subsidiary, and may designate any newly-created Subsidiary as an
Unrestricted Subsidiary, if at the time such Subsidiary is created it contains
no assets (other than such de minimis amount of assets then required by law for
the formation of corporations) and no Debt. Subsidiaries of Nextel Partners
that are not designated by Nextel Partners' board of directors as Restricted or
Unrestricted Subsidiaries shall be deemed to be Restricted Subsidiaries.
Notwithstanding any
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provisions of this "Restricted Subsidiaries" covenant, all Subsidiaries of an
Unrestricted Subsidiary shall be Unrestricted Subsidiaries. (Section 10.10)
Transactions with Affiliates
Nextel Partners may not, and may not permit any Restricted Subsidiary to,
directly or indirectly, enter into any transaction (including the purchase,
sale, lease or exchange of any property or the rendering of any service) or
series of related transactions with any Affiliate of Nextel Partners on terms
that are less favorable to Nextel Partners or such Restricted Subsidiary, as
the case may be, than those which might be obtained at the time of such
transaction from a Person that is not such an Affiliate. However, this
"Transactions with Affiliates" covenant will not limit, or be applicable to:
(1) any transaction between Unrestricted Subsidiaries not involving
Nextel Partners or any Restricted Subsidiary,
(2) any transaction between Nextel Partners and any Restricted Subsidiary
or between Restricted Subsidiaries, or
(3) any Permitted Transactions.
In addition, any transaction or series of related transactions, other than
Permitted Transactions, between Nextel Partners or any Restricted Subsidiary
and any Affiliate of Nextel Partners (other than a Restricted Subsidiary)
involving an aggregate consideration of $5 million or more must be approved in
good faith by:
(a) a majority of Nextel Partners' Disinterested Directors (of which
there must be at least one) and evidenced by a board resolution, or
(b) if there is no Disinterested Director at such time or such
transaction involves aggregate consideration of $25.0 million or more,
by an opinion as to fairness to Nextel Partners or such Subsidiary from
a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing.
For purposes of this "Transactions with Affiliates" covenant, any
transaction or series of related transactions between Nextel Partners or any
Restricted Subsidiary and an Affiliate of Nextel Partners that is approved by a
majority of the Disinterested Directors (of which there must be at least one)
and evidenced by a board resolution or for which a fairness opinion has been
issued will be deemed to be on terms as favorable as those that might be
obtained at the time of such transaction or series of transactions from a
Person that is not such an Affiliate and thus will be permitted under this
"Transactions with Affiliates" covenant. (Section 10.11)
Limitation on the Activities of Nextel Partners and its Restricted
Subsidiaries
Nextel Partners may not, and may not permit any Restricted Subsidiary to,
engage in any business other than the telecommunications business and related
activities and services, including the businesses, activities and services
engaged in by Nextel Partners and the Restricted Subsidiaries on January 29,
1999. (Section 10.15)
Limitation on Liens
Nextel Partners may not and may not permit any Restricted Subsidiary to,
create, incur, assume or otherwise cause or suffer to exist or become effective
any Lien of any kind (other than Permitted Liens) upon any of their property or
assets, now owned or hereafter acquired, unless all payments due under the
indenture and the notes are secured on an equal and ratable basis with the
obligations so secured until such time as such obligations are no longer
secured by a Lien. (Section 10.12)
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Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries
Nextel Partners may not, and may not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions to Nextel Partners or
any of its Restricted Subsidiaries with respect to its Capital Stock or any
other interest or participation in, or measured by, its profits, or
(2) pay any indebtedness owed to Nextel Partners or any of its Restricted
Subsidiaries,
(3) make loans or advances to Nextel Partners or any of its Restricted
Subsidiaries, or
(4) transfer any of its properties or assets to Nextel Partners or any of
its Restricted Subsidiaries.
However, the foregoing restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(a) existing Debt as in effect on the date of the indenture,
(b) any Credit Facility as in effect as of the date of the indenture
(or in the case of the New Credit Facility, as initially executed by the
parties thereto), and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements
or refinancings are no more restrictive, taken as a whole, with respect
to such dividend and other payment restrictions than those contained in
such Credit Facility as in effect on the date of the indenture (as
conclusively determined in good faith by Nextel Partners' board of
directors and set forth in a board resolution),
(c) the indenture and the notes,
(d) applicable law,
(e) any instrument governing Debt and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements
or refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement
or refinancings are no more restrictive, taken as a whole, with respect
to such dividend and payment restrictions other than those contained in
such Debt as in effect on the date of its incurrence by Nextel Partners
or any Restricted Subsidiary (as conclusively determined in good faith
by an executive officer of Nextel Partners) or Capital Stock of a Person
acquired by Nextel Partners or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such Debt
was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the
Person, or the property or assets of the Person, so acquired, and
provided further that, in the case of Debt, such Debt was permitted by
the terms of the indenture to be incurred,
(f) customary non-assignment provisions in leases entered into in the
ordinary course of business,
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(g) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in
clause (4) above on the property so acquired,
(h) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Subsidiary pending its
sale or other disposition,
(i) Liens securing Debt otherwise permitted to be incurred pursuant to
the provisions of the covenant described above under the caption
"Limitation on Liens" that limit the right of Nextel Partners or any of
its Restricted Subsidiaries to dispose of the assets subject to such
Lien,
(j) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar
agreements entered into in the ordinary course of business, and
(k) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business. (Section 10.14)
Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Subsidiaries
Nextel Partners may not, and may not permit any Restricted Subsidiary to:
(1) transfer, convey, sell or otherwise dispose of any Capital Stock in
any Wholly Owned Restricted Subsidiary of Nextel Partners to any Person
(other than Nextel Partners or any Wholly Owned Restricted Subsidiary of
Nextel Partners) unless:
(a) such transfer is of all the Capital Stock in such Wholly Owned
Restricted Subsidiary and
(b) the cash Net Proceeds from such transfer are applied in accordance
with the covenant described under the caption "--Limitation on Asset
Sales," and
(2) permit any Wholly Owned Restricted Subsidiary of Nextel Partners to
issue any of its Capital Stock (other than, if necessary, shares of its
Capital Stock constituting directors' qualifying shares) to any Person
other than to Nextel Partners or a Wholly Owned Restricted Subsidiary of
Nextel Partners.
The foregoing restrictions shall not apply to:
(1) the creation of Permitted Joint Ventures,
(2) any transfer required by applicable law or regulation,
(3) the issuance of Redeemable Stock that is otherwise permitted to be
issued pursuant to the terms of the indenture, and
(4) transfers in which Nextel Partners or a Restricted Subsidiary
acquires at the same time not less than its proportionate share in such
issuance of Capital
Stock. (Section 10.20)
Limitation on Asset Sales
Nextel Partners may not, and may not permit any Restricted Subsidiary to,
make any Asset Sale unless:
(1) Nextel Partners or such Restricted Subsidiary, as the case may be,
receives consideration for such Asset Sale at least equal to the fair
market value for the assets or Capital Stock issued or sold or otherwise
disposed of as determined by the board of directors in good faith and
evidenced by a board resolution set forth in an officers' certificate
delivered to the trustee, which determination shall be conclusive, and
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(2) at least 80% of the consideration for such disposition consists of
cash; provided that the amount of any liabilities (as shown on Nextel
Partners' or such Restricted Subsidiary's most recent balance sheet) of
Nextel Partners or any Restricted Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to the
notes or any guarantee thereof) that are assumed by the transferee of any
such assets and any securities, notes or other obligations received by
Nextel Partners or any such Restricted Subsidiary from such transferee that
are contemporaneously (subject to ordinary settlement periods) converted by
Nextel Partners or such Subsidiary into cash (to the extent of the cash
received) shall be deemed to be cash for purposes of this provision.
At its option, Nextel Partners may, within 360 days after receipt, apply
the Net Proceeds from such Asset Sale to:
(1) repay Debt under a Credit Facility or any Vendor Financing Debt,
(2) make a capital expenditure in the same or similar line of business as
Nextel Partners is engaged in on the date of the indenture or in a business
reasonably related thereto, or
(3) acquire Capital Stock of an entity that is or becomes a Restricted
Subsidiary or other long-term assets that are used or useful in the same or
similar line of business as Nextel Partners or such Restricted Subsidiaries
were engaged in on the date of the indenture or in businesses reasonably
related thereto.
Pending the final application of any such Net Proceeds, Nextel Partners
may temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess
Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5.0 million, Nextel
Partners will be required to make an offer to all holders of notes and all
holders of other Debt that is pari passu with the notes containing provisions
similar to those set forth in the indenture with respect to offers to purchase
or redeem with the proceeds of sales of assets to purchase the maximum
principal amount at maturity of notes and such other pari passu Debt that may
be purchased with the Excess Proceeds. The offer price for such offer shall be
an amount in cash equal to 100% of the principal amount (or Accreted Value, if
applicable) thereof plus accrued and unpaid interest thereon, if any, to the
date of purchase, in accordance with the procedures set forth in the indenture
and the instrument or instruments governing such other pari passu Debt,
respectively.
To the extent that any Excess Proceeds remain after consummation of an
offer, Nextel Partners may use such Excess Proceeds for any purpose not
otherwise prohibited by the indenture. If the aggregate principal amount of
notes tendered in such offer by holders thereof exceeds the amount of Excess
Proceeds, the trustee shall select the notes to be purchased on a pro rata
basis. Upon completion of such offer to purchase, the amount of Excess Proceeds
shall be reset at zero. (Section 10.22)
Change of Control
Within 30 days of the occurrence of a Change of Control, Nextel Partners
will be required to make an offer to purchase in accordance with the indenture
all outstanding notes at a cash purchase price equal to 101% of the Accreted
Value of the notes plus liquidated
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damages, if any, to the purchase date prior to February 1, 2004 or 101% of the
aggregate principal amount at maturity of the notes, plus accrued and unpaid
interest and liquidated damages, if any, to the purchase date on or after
February 1, 2004. (Section 10.13)
Except as described above with respect to a Change of Control, the
indenture does not contain provisions that permit the holders of the notes to
require Nextel Partners to repurchase or redeem the notes in the event of a
takeover, recapitalization or similar restructuring.
Restrictions in the indenture on the ability of Nextel Partners and its
Restricted Subsidiaries to incur additional Indebtedness, to grant Liens on its
or their property, to make Restricted Payments and to make Asset Sales may also
make more difficult or discourage a takeover of Nextel Partners, whether
favored or opposed by the management of Nextel Partners. Consummation of any
such transaction in certain circumstances may require redemption or repurchase
of the notes, and there can be no assurance that Nextel Partners or the
acquiring party will have sufficient financial resources to effect such
redemption or repurchase. Such restrictions and the restrictions on
transactions with Affiliates may, in certain circumstances, make more difficult
or discourage any leveraged buyout of Nextel Partners or any of its
Subsidiaries by the management of Nextel Partners or other Persons. While such
restrictions cover a variety of arrangements which have traditionally been used
to effect highly leveraged transactions, the indenture may not afford the
holders of notes protection in all circumstances from the adverse aspects of a
highly leveraged transaction, reorganization, restructuring, merger or similar
transaction.
A Change of Control constitutes an event of default under the credit
facility and would require repayment of all loans outstanding. Nextel Partners
does not currently have adequate financial resources to effect such redemption
and repurchase of the notes upon a Change of Control and there can be no
assurance that Nextel Partners will have such resources in the future. The
inability of Nextel Partners to repurchase the notes upon a Change of Control
would constitute an Event of Default.
There may be restrictions contained in instruments evidencing Indebtedness
incurred by Nextel Partners or its Restricted Subsidiaries permitted under the
indenture which restrict or prohibit the ability of Nextel Partners to effect
any repurchase required under the indenture in connection with a Change of
Control.
In the event that Nextel Partners makes an offer to purchase the notes in
accordance with the indenture, Nextel Partners intends to comply with any
applicable securities laws and regulations, including any applicable
requirements relating to tender offers set forth in Section 14(e) of, and Rule
l4e-1 under, the Exchange Act.
In addition, one of the events that constitutes a Change of Control under
the indenture is a sale, transfer, assignment, lease, conveyance or other
disposition of all or substantially all of the assets of Nextel Partners. The
indenture will be governed by New York law, and there is no established
definition under New York law of "substantially all" of the assets of a
corporation. Accordingly, if Nextel Partners were to engage in a transaction in
which it disposed of less than all of its assets, a question of interpretation
could arise as to whether such disposition was of substantially all of its
assets and whether Nextel Partners was required to make an offer to purchase in
accordance with the indenture.
Provision of Financial Information
Nextel Partners has agreed that, for so long as any notes remain
outstanding, it will file with the SEC copies of the annual and quarterly
reports and the information, documents,
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and other reports that Nextel Partners would have been required to file with
the SEC pursuant to the Exchange Act if Nextel Partners were subject thereto on
or prior to dates by which Nextel Partners would have been required to file
such document. Nextel Partners also agreed that it will, within 15 days of such
filing, transmit by mail to all holders without cost to such holders and file
with the trustee the required filings. If under the Exchange Act Nextel
Partners is not permitted to file such documents with the SEC, upon written
request of any prospective holder, Nextel Partners shall supply copies of these
documents. (Section 10.16)
MERGERS, SALES OF ASSETS, ETC.
Nextel Partners may not, in any transaction or series of related
transactions:
(1) merge or consolidate with or into, or sell, assign, convey, transfer
or otherwise dispose of its properties and assets substantially as an
entirety to, any Person, or
(2) permit any of its Restricted Subsidiaries to enter into any such
transaction or series of transactions if such transaction or series of
transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer or other disposition of the properties and assets of
Nextel Partners and its Restricted Subsidiaries, taken as a whole,
substantially as an entirety to any Person,
unless:
(a) either:
(A) if the transaction or series of transactions is a consolidation
of Nextel Partners with or a merger of Nextel Partners with or into
any other Person, Nextel Partners shall be the surviving Person of
such merger or consolidation, or
(B) the Person formed by any consolidation with or merger with or
into Nextel Partners, or to which the properties and assets of Nextel
Partners or Nextel Partners and its Restricted Subsidiaries, taken as
a whole, as the case may be, substantially as an entirety are sold,
assigned, conveyed or otherwise transferred shall be a corporation,
partnership, limited liability company or trust organized and
existing under the laws of the United States of America, any state
thereof or the District of Columbia and shall expressly assume by a
supplemental indenture executed and delivered to the trustee, in a
form satisfactory to the trustee, all the obligations of Nextel
Partners under the notes and the indenture and, in each case, the
indenture, as so supplemented, shall remain in full force and effect,
(b) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (including
any Debt Incurred or anticipated to be Incurred in connection with or in
respect of such transaction or series of transactions), no Default or
Event of Default shall have occurred and be continuing, and
(c) Nextel Partners or the successor entity to Nextel Partners will,
at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the
applicable period:
(A) have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of Nextel
Partners immediately preceding the transaction and
(B) be permitted to Incur at least $1.00 of additional Debt
pursuant to clause (1) of the covenant described above under
"--Covenants--Limitation on Consolidated Debt."
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The foregoing requirements shall not apply to any transaction or series of
transactions involving the sale, assignment, conveyance, transfer or other
disposition of the properties and assets by any Restricted Subsidiary to any
other Restricted Subsidiary, or the merger or consolidation of any Restricted
Subsidiary with or into any other Restricted Subsidiary.
The indenture also provides that Nextel Partners may not, directly or
indirectly, lease all or substantially all of its properties or assets, in one
or more related transactions, to any other Person.
In connection with any consolidation, merger, sale, assignment,
conveyance, transfer or other disposition contemplated by the foregoing
provisions, Nextel Partners shall deliver, or cause to be delivered, to the
trustee, in form and substance reasonably satisfactory to the trustee, an
officers' certificate stating that such consolidation, merger, sale,
assignment, conveyance, transfer, or other disposition and the supplemental
indenture in respect thereof (required under clause (a)(B) above) comply with
the requirements of the indenture and an opinion of counsel. Each such
officers' certificate shall set forth the manner of determination of Nextel
Partners' compliance with clause (c) above.
For all purposes of the indenture and the notes (including the provisions
described in this covenant and the "Limitation on Consolidated Debt" and
"Restricted Subsidiaries" covenants), Subsidiaries of any successor entity
will, upon such transaction or series of transactions, become Restricted
Subsidiaries or Unrestricted Subsidiaries as provided pursuant to the
"Restricted Subsidiaries" covenant and all Debt of the successor entity and its
Subsidiaries that was not Debt of Nextel Partners and its Subsidiaries
immediately prior to such transaction or series of transactions shall be deemed
to have been Incurred upon such transaction or series of transactions.
The successor entity shall succeed to, and be substituted for, and may
exercise every right and power of Nextel Partners under the indenture, and the
predecessor company shall be released from all its obligations and covenants
under the indenture and the notes. (Sections 8.01 and 8.02)
CERTAIN DEFINITIONS
Set forth below is a summary of some of the definitions used in the
indenture. Reference is made to the indenture for the definition of all such
terms. (Section 1.01)
"Accreted Value" of any note as of or to any date of determination means
an amount equal to the sum of:
(1) the issue price of such note as determined in accordance with Section
1273 of the Internal Revenue Code plus
(2) the aggregate of the portions of the original issue discount (the
excess of the amounts considered as part of the "stated redemption price at
maturity" of such note within the meaning of Section 1273(a)(2) of the
Internal Revenue Code or any successor provisions, whether denominated as
principal or interest, over the issue price of such note) that shall
theretofore have accrued pursuant to Section 1272 of the Internal Revenue
Code (without regard to Section 1272(a)(7) of the Internal Revenue Code)
from the date of issue of such note to the date of determination plus
(3) accrued and unpaid interest to the date such Accreted Value is paid
(without duplication of any amount set forth in (2) above) and minus
(4) all amounts theretofore paid in respect of such note, which amounts
are considered as part of the "stated redemption price at maturity" of such
note within the meaning of Section 1273(a)(2) of the Internal Revenue Code
or any successor provisions (whether such amounts paid were denominated
principal or interest).
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"Acquired Debt" means Debt of a Person:
(1) existing at the time such Person becomes a Restricted Subsidiary or
assumed by Nextel Partners or a Restricted Subsidiary in connection with
the acquisition of assets from such Person, and
(2) secured by a Lien encumbering any asset of such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For purposes of the covenant described under
"--Covenants--Transactions with Affiliates" only, "affiliate" shall be deemed
to include, any Person owning, directly or indirectly:
(1) 10% or more of the outstanding Common Stock of Nextel Partners, or
(2) securities having 10% or more of the total voting power of the Voting
Stock of Nextel Partners.
For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. No individual shall be
deemed to be controlled by or under common control with any specified Person
solely by virtue of his or her status as an employee or officer of such
specified Person or of any other Person controlled by or under common control
with such specified Person.
"Annualized Operating Cash Flow" means, for any fiscal quarter, the
Operating Cash Flow for such fiscal quarter multiplied by four.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, including, without limitation, by way of a sale and leaseback other
than sales of inventory and obsolete equipment in the ordinary course of
business, provided that the sale, conveyance or other disposition of all or
substantially all of the assets of Nextel Partners and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
indenture described above under the caption "--Covenants--Change of
Control" and/or the provisions described above under the caption "--Merger,
Sale of Assets, Etc." and not by the provisions of the Asset Sale covenant,
and
(2) the issue or sale by Nextel Partners or its Restricted Subsidiaries
of Capital Stock of any of Nextel Partners' Subsidiaries;
provided in each case, the transaction or a series of related transactions has
a fair market value in excess of $5.0 million or net proceeds in excess of $5.0
million.
The following items shall not be deemed to be Asset Sales:
(a) a transfer of assets by Nextel Partners to a Wholly Owned
Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to
Nextel Partners or to another Wholly Owned Restricted Subsidiary;
(b) an issuance of Capital Stock by a Wholly Owned Restricted
Subsidiary to Nextel Partners or to another Wholly Owned Restricted
Subsidiary;
(c) a Restricted Payment that is permitted by the covenant described
under "--Covenants--Limitation on Restricted Payments";
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(d) Permitted Joint Ventures; and
(e) any License Exchange.
"Average Life" means, at any date of determination with respect to any
Debt, the quotient obtained by dividing:
(1) the sum of the products of the number of years from such date of
determination to the dates of each successive scheduled principal payment
of such Debt and the amount of such principal payment by
(2) the sum of all such principal payments.
"Beneficial Owner" means a beneficial owner as defined in Rules 13d-3 and
13d-5 under the Exchange Act or any successor rules, including the provision of
such Rules that a person shall be deemed to have beneficial ownership of all
securities that such person has a right to acquire within 60 days, provided
that a person shall not be deemed a beneficial owner of, or to own
beneficially, any securities if such beneficial ownership arises solely as a
result of a revocable proxy delivered in response to a proxy or consent
solicitation made pursuant to, and in accordance with, the Exchange Act and the
applicable rules and regulations thereunder and is not also then reportable on
Schedule 13D or any successor schedule under the Exchange Act.
"Capital Lease Obligations" of any Person means the obligations to pay
rent or other amounts under lease of or other Debt arrangements conveying the
right to use real or personal property of such Person which are required to be
classified and accounted for as a capital lease or a liability on the face of a
balance sheet of such Person determined in accordance with generally accepted
accounting principles and the amount of such obligations shall be the
capitalized amount thereof in accordance with generally accepted accounting
principles and the stated maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents of stock of, or other ownership interests
in, such Person.
"Change of Control" means the occurrence of any of the following events:
(1) any person or group of persons, as such term is used in Section
13(d)(3) of the Exchange Act and the regulations thereunder, other than a
Permitted Holder is or becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the total Voting Stock or Total Common
Equity of Nextel Partners; provided that no Change of Control shall be
deemed to occur pursuant to this clause (1) if the person is a corporation
with outstanding debt securities having a maturity at original issuance of
at least one year and if such debt securities are rated at least BBB-- by
S&P or Baa3 by Moody's for a period of at least 90 consecutive days,
beginning on the date of such event (which period will be extended up to 90
additional days for as long as the rating of such debt securities is under
publicly announced consideration for possible downgrading by the applicable
rating agency); or
(2) Nextel Partners consolidates with, or merges with or into, another
Person other than a Permitted Holder or sells, assigns, conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets to
any Person other than a Permitted Holder, or any Person other than a
Permitted Holder consolidates with, or merges with or into,
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Nextel Partners, in any such event pursuant to a transaction in which the
outstanding Voting Stock of Nextel Partners is converted into or exchanged
for cash, securities or other property, other than any such transaction
where:
(a) the outstanding Voting Stock of Nextel Partners is converted into
or exchanged for:
(A) Voting Stock (other than Redeemable Stock) of the surviving or
transferee Person or
(B) cash, securities and other property in an amount which could be
paid by Nextel Partners as a Restricted Payment under the indenture,
and
(b) immediately after such transaction no person or group of persons
(as such term is used in Section 13(d)(3) of the Exchange Act and the
regulations thereunder) is the Beneficial Owner, directly or indirectly,
of more than 50% of the total Voting Stock or Total Common Equity of the
surviving or transferee Person; provided that no Change of Control shall
be deemed to occur pursuant to this clause (2), if the surviving or
transferee Person or the person referred to in clause (2)(b) is a
corporation with outstanding debt securities having a maturity at
original issuance of at least one year and if such debt securities are
rated at least BBB-- by S&P or Baa3 by Moody's for a period of at least
90 consecutive days, beginning on the date of such event (which period
will be extended up to 90 additional days for as long as the rating of
such debt securities is under publicly announced consideration for
possible downgrading by the applicable rating agency); or
(3) during any consecutive two-year period, individuals who at the
beginning of such period constituted the board of directors together with:
(a) any directors who are members of the board of directors on January
29, 1999,
(b) any new directors whose election by such board of directors or
whose nomination for election by the stockholders of Nextel Partners was
approved by a vote of 66 2/3% of the directors then still in office who
were either directors at the beginning of such period or whose election
or nomination for election was previously so approved, and
(c) any new directors appointed or selected by a Permitted Holder,
whether pursuant to a transaction of a type described in either of the
preceding paragraphs (a) and (b), pursuant to a contractual right or
pursuant to a right granted under Nextel Partners' certificate of
incorporation or by-laws,
cease for any reason to constitute a majority of the board of directors
then in office; or
(4) the adoption of a plan relating to the liquidation or dissolution of
Nextel Partners.
Any event that would constitute a Change of Control pursuant to clause (1)
or (2) above but for the exceptions thereto shall not be deemed to be a Change
of Control until such time, if any, as the conditions described in such
exceptions cease to have been met.
"Closing Price" on any trading day with respect to the per share price of
any shares of Capital Stock means the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are
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not listed or admitted to trading on such exchange, on the principal national
securities exchange on which such shares are listed or admitted to trading or,
if not listed or admitted to trading on any national securities exchange, on
the Nasdaq Stock Market or, if such shares are not listed or admitted to
trading on any national securities exchange or quoted on the Nasdaq Stock
Market but the issuer is a Foreign Issuer (as defined in Rule 3b-4(b) under the
Exchange Act) and the principal securities exchange on which such shares are
listed or admitted to trading is a Designated Offshore Securities Market (as
defined in Rule 902(a) under the Securities Act), the average of the reported
closing bid and asked prices regular way on such principal exchange, or, if
such shares are not listed or admitted to trading on any national securities
exchange or quoted on the Nasdaq Stock Market and the issuer and principal
securities exchange do not meet such requirements, the average of the closing
bid and asked prices in the over-the-counter market as furnished by any New
York Stock Exchange member firm of national standing that is selected from time
to time by Nextel Partners for that purpose.
"Committed Capital Contribution" means the irrevocable cash commitments
pursuant to that certain subscription and contribution agreement by and among
Nextel Partners, Nextel WIP Corp., Motorola and the other investors named
therein, as in effect on the date of the indenture.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Debt" means the aggregate amount of Debt of Nextel Partners
and its Restricted Subsidiaries on a Consolidated basis outstanding at the date
of determination.
"Consolidated Debt to Annualized Operating Cash Flow Ratio" means, as at
any date of determination, the ratio of Consolidated Debt to the Annualized
Operating Cash Flow of Nextel Partners for the most recently completed fiscal
quarter of Nextel Partners for which financial statements are available.
"Consolidated Interest Expense" of any Person means, for any period:
(1) the aggregate interest expense and fees and other financing costs in
respect of Debt (including amortization of original issue discount and
non-cash interest payments and accruals),
(2) the interest component in respect of Capital Lease Obligations and
any deferred payment obligations of such Person and its Restricted
Subsidiaries, determined on a Consolidated basis in accordance with
generally accepted accounting principles,
(3) all commissions, discounts, other fees and charges owed with respect
to letters of credit and bankers' acceptance financing and net costs
(including amortizations of discounts) associated with interest rate swap
and similar agreements and with foreign currency hedge, exchange and
similar agreements and
(4) the product of:
(a) all dividend payments, whether or not in cash, on any series of
Preferred Capital Stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Capital Stock payable
solely in Capital Stock of Nextel Partners (other than Redeemable Stock)
or to Nextel Partners or its Restricted Subsidiary, times
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(b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case,
on a Consolidated basis in accordance with generally accepted accounting
principles.
"Consolidated Net Income" and "Consolidated Net Loss" mean, for any
period, the net income or net loss, as the case may be, of Nextel Partners and
its Restricted Subsidiaries for such period, all as determined on a
Consolidated basis in accordance with generally accepted accounting principles,
adjusted, to the extent included in calculating such net income or net loss, as
the case may be, by excluding without duplication:
(1) any after-tax gain or loss attributable to the sale, conversion or
other disposition of assets other than in the ordinary course of business,
(2) any after-tax gains resulting from the write-up of assets and any
loss resulting from the write-down of assets,
(3) any after-tax gain or loss on the repurchase or redemption of any
securities including in connection with the early retirement or defeasance
of any Debt,
(4) any foreign exchange gain or loss,
(5) all payments in respect of dividends on shares of Preferred Capital
Stock of Nextel Partners,
(6) any other extraordinary, non-recurring or unusual items incurred by
Nextel Partners or any Restricted Subsidiary,
(7) the net income or loss of any Person acquired by Nextel Partners or
any Restricted Subsidiary in a pooling-of-interests transaction for any
period prior to the date of such transaction,
(8) all income or losses of Unrestricted Subsidiaries and Persons (other
than Subsidiaries) accounted for by Nextel Partners using the equity method
of accounting, and
(9) the net income, but not net loss, of any Restricted Subsidiary which
is subject to any judgment, decree, order or governmental regulation which
prevent the payment of dividends or the making of distributions to Nextel
Partners but only to the extent of such restrictions.
"Consolidated Net Income (Loss)" means, for any period, Nextel Partners'
Consolidated Net Income or Consolidated Net Loss for such period, as
applicable.
"Consolidated Net Worth" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with generally accepted accounting principles, less amounts
attributable to Redeemable Stock of such Person; provided that, with respect to
Nextel Partners, no effect shall be given to adjustments following January 29,
1999 to the accounting books and records of Nextel Partners in accordance with
Accounting Principles Board Opinions Nos. 16 and 17 or successor opinions
thereto or otherwise resulting from the acquisition of control of Nextel
Partners by another Person.
"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of Nextel Partners, if and to the extent
that the accounts of each such Restricted Subsidiary would normally be
consolidated with those of Nextel Partners in accordance with generally
accepted accounting principles; provided, however, that
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"Consolidation" shall not include consolidation of the accounts of any
Unrestricted Subsidiary, but the interest of Nextel Partners or any Restricted
Subsidiary in any Unrestricted Subsidiary shall be accounted for as an
investment. The term "Consolidated" has a correlative meaning.
"Credit Facility" means any credit facility whether a term or revolving
type or both, including the New Credit Facility or letter of credit facility of
the type customarily entered into with banks or any Hedging Agreement (as
defined below under "Debt"), between Nextel Partners and/or any of its
Restricted Subsidiaries, on the one hand, and any banks or other lenders or
affiliates thereof, on the other hand (and any renewals, refundings, extensions
or replacements of any such credit facility), which credit facility is
designated by Nextel Partners as a "Credit Facility" for purposes of the
indenture, and shall include all such credit facilities in existence on January
29, 1999 whether or not so designated.
"Debt" means, without duplication, with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent:
(1) every obligation of such Person for money borrowed, including without
limitation, in each case, premium, interest, including interest accruing
subsequent to the filing of, or which would have accrued but for the filing
of, a petition for bankruptcy, whether or not such interest is an allowable
claim in such bankruptcy proceeding, fees and expenses relating thereto,
(2) every obligation of such Person evidenced by bonds, debentures, notes
or other similar instruments, including obligations Incurred in connection
with the acquisition of property, assets or businesses,
(3) every reimbursement obligation of such Person with respect to letters
of credit, bankers' acceptances or similar facilities issued for the
account of such Person,
(4) every obligation of such Person issued or assumed as the deferred
purchase price of property or services but excluding trade accounts payable
or accrued liabilities arising in the ordinary course of business which are
not overdue or which are being contested in good faith,
(5) every Capital Lease Obligation of such Person,
(6) the maximum fixed redemption or repurchase price of Redeemable Stock
of such Person at the time of determination plus accrued but unpaid
dividends,
(7) every obligation of such Person under interest rate swap or similar
agreements or foreign currency hedge, exchange or similar agreements of
such Person (collectively, "Hedging Agreements"), and
(8) every obligation of the type referred to in clauses (1) through (7)
of another Person and all dividends of another Person the payment of which,
in either case, such Person has Guaranteed or is liable, directly or
indirectly, as obligor, Guarantor or otherwise.
The amount of Debt of any Person issued with original issue discount is the
face amount of such Debt less the unamortized portion of the original issue
discount of such Debt at the time of its issuance as determined in conformity
with generally accepted accounting principles, and money borrowed at the time
of the Incurrence of any Debt in order to pre-fund the payment of interest on
such Debt shall be deemed not to be "Debt." The amount of Debt represented by
an obligation under an agreement referred to in clause (7) shall be equal to:
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(a) zero if such obligation has been Incurred under clause (5)(b) of
the definition of Permitted Debt, and
(b) the notional amount of such obligation if it is not so Incurred.
"Default" means an event that is, or after notice or passage of time, or
both, would be, an Event of Default.
"Default Amount" means, in respect of any note:
(1) as of any particular date prior to February 1, 2004, the Accreted
Value of the note as of such date, or
(2) as of any particular date on and after February 1, 2004, 100% of the
principal amount payable in respect of the note at the Stated Maturity
thereof.
"Directed Investment" by Nextel Partners or any of its Restricted
Subsidiaries means any Investment for which the cash or property used for such
Investment is received by Nextel Partners from the issuance and sale (other
than to a Restricted Subsidiary) on or after the date of the indenture of
shares of its Capital Stock (other than any of the Preferred Stock), or any
options, warrants or other rights to purchase such Capital Stock (other than
any of the Preferred Stock) designated by Nextel Partners' board of directors
as a "Directed Investment" to be used for one or more specified investments in
the telecommunications business including related activities and services and
is so designated and used at any time within 365 days after the receipt
thereof; provided that the aggregate amount of any such Directed Investments
may not at any time exceed 50% of the aggregate amount of such cash or property
received by Nextel Partners on or after the date of the indenture from any such
issuance and sale or capital contribution; and provided further that any
proceeds from any such issuance or sale may not be used for such an Investment
if such proceeds were, prior to being designated for use as a Directed
Investment, used to make a Restricted Payment.
"Disinterested Director" means, with respect to any proposed transaction
between Nextel Partners and an Affiliate thereof, a member of Nextel Partners'
board of directors who is not an officer or employee of Nextel Partners, would
not be a party to, or have a financial interest in, such transaction and is not
an officer, director or employee of, and does not have a financial interest in,
such Affiliate. For purposes of this definition, no person would be deemed not
to be a Disinterested Director solely because such person holds Capital Stock
of Nextel Partners.
"Fair Market Value" means, for purposes of clause (1) of the "Limitation
on Consolidated Debt" covenant, 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 Nextel Partners' board of directors, whose determination shall be
conclusive if evidenced by a board resolution, provided that:
(a) 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 sale of Capital Stock, and
(b) in the event the aggregate Fair Market Value of any other property
received by Nextel Partners exceeds $10 million, the Fair Market Value
of such property shall be determined in good faith by Nextel Partners'
board of directors, including a majority of the Disinterested Directors
who are then members of such board of directors, which determination
shall be conclusive if evidenced by a board resolution.
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"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person guaranteeing any Debt of any other Person in any manner, whether
directly or indirectly, and including any obligation of such Person:
(1) to purchase or pay or advance or supply funds for the purchase or
payment of such Debt or to purchase or to advance or supply funds for the
purchase of any security for the payment of such Debt,
(2) to purchase property, securities or services for the purpose of
assuring the holder of such Debt of the payment of such Debt, or
(3) to maintain working capital, equity capital or other financial
statement condition or liquidity of such Person so as to enable such Person
to pay such Debt;
provided, however, that the Guarantee by any Person shall not include
endorsements by such Person for collection or deposit, in either case, in the
ordinary course of business.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur by conversion, exchange or otherwise, assume pursuant
to a merger, consolidation, acquisition or other transaction, Guarantee or
otherwise become liable in respect of such Debt or other obligation or the
recording, as required pursuant to generally accepted accounting principles or
otherwise, of any such Debt or other obligation on the balance sheet of such
Person; provided, however, that a change in generally accepted accounting
principles that results in an obligation of such Person that exists at such
time becoming Debt shall not be deemed an Incurrence of such Debt; provided
further, however, that the accretion of original issue discount on Debt shall
not be deemed to be an Incurrence of Debt. Debt otherwise Incurred by a Person
before it becomes a Subsidiary of Nextel Partners shall be deemed to have been
Incurred at the time it becomes such a Subsidiary.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution to by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise, or purchase or acquisition of Capital
Stock, bonds, notes, debentures or other securities or evidence of Debt issued
by, any other Person or the designation of a Subsidiary as an Unrestricted
Subsidiary; provided that a transaction will not be an Investment to the extent
it involves:
(1) the issuance or sale by Nextel Partners of its Capital Stock (other
than Redeemable Stock), including options, warrants or other rights to
acquire such Capital Stock (other than Redeemable Stock),
(2) a transfer, assignment or contribution by Nextel Partners of shares
of Capital Stock or any options, warrants or rights to acquire Capital
Stock, or all or substantially all of the assets of, any Unrestricted
Subsidiary of Nextel Partners to another Unrestricted Subsidiary of Nextel
Partners, or
(3) extensions of trade credit by Nextel Partners and its Restricted
Subsidiaries on commercially reasonable terms in the ordinary course of
business and consistent with their normal practice.
"Itemized Executive" means any of the following individuals:
(1) John Chapple;
(2) John Thompson;
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(3) David Thaler;
(4) David Aas;
(5) Perry Satterlee; and
(6) Mark Fanning.
"License Exchange" means:
(1) any exchange of Licenses between Nextel Partners and Nextel or any
Affiliates of Nextel which Nextel Partners' board of directors determines
in good faith, on the date of such exchange, are, in the aggregate, of at
least equivalent value; provided, however, that the aggregate value of all
such Licenses exchanged pursuant to this clause (1) shall not exceed $25.0
million, or
(2) any transaction pursuant to which Nextel Partners transfers certain
of its specialized mobile radio licenses to Nextel or any Affiliates of
Nextel in exchange for licenses from a third party, the purchase price for
which was funded by Nextel or any Affiliates of Nextel; provided, however,
that the aggregate value of all such licenses exchanged pursuant to this
clause (2) shall not exceed $25.0 million.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement, encumbrance, preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
on or with respect to such property or assets, including any conditional sale
or other title retention agreement having substantially the same economic
effect as any of the foregoing.
"Marketable Securities" means:
(1) securities either issued directly or fully guaranteed or insured by
the government of the United States of America or any agency or
instrumentality thereof having maturities of not more than one year;
(2) time deposits and certificates of deposit, having maturities of not
more than six months from the date of deposit, of any domestic commercial
bank having capital and surplus in excess of $500 million and having
outstanding long-term debt rated A or better or the equivalent thereof by
S&P or Aaa or better or the equivalent thereof by Moody's;
(3) commercial paper rated A-1 or the equivalent thereof by S&P or P-1 or
the equivalent thereof by Moody's, and in each case maturing within one
year;
(4) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above; and
(5) investments in money market funds substantially all of whose assets
comprise securities of the types described in clauses (1) through (4).
"Moody's" means Moody's Investors Service, Inc. or, if Moody's Investors
Service, Inc. shall cease rating debt securities having a maturity at original
issuance of at least one year and such ratings business shall have been
transferred to a successor Person, such successor Person; provided, however,
that if Moody's Investors Service, Inc. ceases rating debt securities having a
maturity at original issuance of at least one year and its ratings business
with respect thereto shall not have been transferred to any successor Person,
then "Moody's" shall mean any other national recognized rating agency other
than S&P that rates debt securities having a maturity at original issuance of
at least one year and that shall have been designated by Nextel Partners by a
written notice given to the trustee.
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"Net Proceeds" means the aggregate cash proceeds received by Nextel
Partners or any of its Restricted Subsidiaries in respect of any Asset Sale
including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale, net of:
(1) the direct costs relating to such Asset Sale including, without
limitation, legal, accounting, appraisal, investment banking fees, and
sales and brokerage commissions,
(2) any relocation expenses incurred as a result thereof,
(3) taxes paid or payable as a result thereof,
(4) amounts required to be applied to the repayment of Debt secured by a
Lien on the asset or assets that were the subject of such Asset Sale,
(5) amounts required to be paid in order to obtain a necessary consent to
such Asset Sale,
(6) distributions made to minority interest holders, based on their pro
rata ownership, in Subsidiaries or Permitted Joint Ventures of such Person
as a result of an Asset Sale by such Subsidiaries or Permitted Joint
Ventures, and
(7) appropriate amounts to be provided by such Person or any Subsidiary
thereof, as the case may be, as a reserve in accordance with generally
accepted accounting principles against any liabilities associated with such
assets that are the subject thereof, as the case may be, after such Asset
Sale, including liabilities under any indemnification obligations and
severance and other employee termination costs associated with such Asset
Sale, in each case, as conclusively determined by the board of directors of
such Person.
"New Credit Facility" means that certain credit agreement, dated as of
January 29, 1999, by and among Nextel Partners and or its Subsidiaries and a
syndicate of banks and other financial institutions led by Donaldson, Lufkin &
Jenrette Securities Corporation, as arranger, DLJ Capital Funding, as
syndication agent and Bank of Montreal, as administrative agent, governing a
$175.0 million term loan facility and $100.0 million revolving credit facility,
and Hedging Agreements with Persons that were lenders under the New Credit
Facility or were affiliates of such lenders at the time such Hedging Agreements
were entered into, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, as such
credit agreement, Hedging Agreements and/or related documents may be amended,
restated, supplemented, renewed, replaced or otherwise modified from time to
time whether or not with the same agent or lenders and irrespective of any
changes in the terms and conditions thereof.
"Operating Cash Flow" means, for any fiscal quarter:
(1) Nextel Partners' Consolidated Net Income (Loss) plus depreciation,
amortization and other non-cash charges in respect thereof for such fiscal
quarter, plus
(2) all amounts deducted in calculating Consolidated Net Income (Loss)
for such fiscal quarter in respect of Consolidated Interest Expense, and
all income taxes, whether or not deferred, applicable to such income
period, all as determined on a Consolidated basis in accordance with
generally accepted accounting principles.
For purposes of calculating Operating Cash Flow for the fiscal quarter
most recently completed for which financial statements are available prior to
any date on which an action is taken that requires a calculation of the
Operating Cash Flow to Consolidated Interest Expense Ratio or Consolidated Debt
to Annualized Cash Flow Ratio:
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(A) any Person that is a Restricted Subsidiary on such date, or
would become a Restricted Subsidiary in connection with the
transaction that requires the determination of such ratio, will be
deemed to have been a Restricted Subsidiary at all times during such
fiscal quarter,
(B) any Person that is not a Restricted Subsidiary on such date, or
would cease to be a Restricted Subsidiary in connection with the
transaction that requires the determination of such ratio, will be
deemed not to have been a Restricted Subsidiary at any time during
such fiscal quarter, and
(C) if Nextel Partners or any Restricted Subsidiary shall have in
any manner acquired, including through commencement of activities
constituting such operating business, or disposed, including through
termination or discontinuance of activities constituting such
operating business, of any operating business during or subsequent to
the most recently completed fiscal quarter, such calculation will be
made on a pro forma basis on the assumption that such acquisition or
disposition had been completed on the first day of such completed
fiscal quarter and may give effect to projected quantifiable
improvements in operating results on an annualized basis due to cost
reductions calculated in accordance with Regulation S-X of the
Securities Act and evidenced by:
(x) in the case of cost reductions of less than $10.0 million,
an officers' certificate delivered to the trustee, and
(y) in the case of cost reductions of $10.0 million or more, a
resolution of Nextel Partners' board of directors set forth in an
officers' certificate delivered to the trustee.
"Permitted Debt" means:
(1) any Debt, including Guarantees thereof, outstanding on January 29,
1999 (including the old notes and the new notes) and any accretion of
original issue discount and accrual of interest with respect to such Debt;
(2) any additional Debt outstanding under a Credit Facility in aggregate
principal amount at any one time outstanding under this clause (2) not to
exceed $325.0 million in the aggregate for all such credit facilities, less
permanent repayments of Debt under such Credit Facilities made by Nextel
Partners or any of its Restricted Subsidiaries pursuant to the covenant
described above under the caption "Asset Sales";
(3) any Vendor Financing Debt in an aggregate principal amount
outstanding at any time not to exceed $100.0 million;
(4) Debt to Nextel Partners or to any Restricted Subsidiary; provided
that any event which results in any such Restricted Subsidiary ceasing to
be a Restricted Subsidiary or any subsequent transfer of such Debt (other
than to Nextel Partners or another Restricted Subsidiary) will be deemed,
in each case, to constitute an Incurrence of such Debt not permitted by
this clause (4);
(5) Debt:
(a) in respect of performance, surety or appeal bonds or bankers'
acceptances provided in the ordinary course of business,
(b) under foreign currency hedge, foreign currency exchange, interest
rate swap or similar agreements; provided that such agreements:
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(A) are designed solely to protect Nextel Partners or its
Restricted Subsidiaries against fluctuations in foreign currency
exchange rates or interest rates and
(B) do not increase the Debt 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
Nextel Partners or any Restricted Subsidiary pursuant to such
agreements, in any case Incurred in connection with the disposition of
any business, assets or Restricted Subsidiary other than Guarantees of
Debt Incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing
such acquisition, in a principal amount not to exceed the gross proceeds
actually received by Nextel Partners or any Restricted Subsidiary in
connection with such disposition;
(6) renewals, refundings or extensions of any Debt referred to in clause
(1) or (3) above or Incurred pursuant to clause (2) under the caption
"Limitation on Consolidated Debt" and any renewals, refundings or
extensions thereof, plus:
(a) the amount of any premium reasonably determined by Nextel Partners
as necessary to accomplish such renewal, refunding or extension, and
(b) such other fees and expenses of Nextel Partners reasonably
incurred in connection with the renewal, refunding or extension,
provided that such renewal, refunding or extension shall constitute
Permitted Debt only:
(A) to the extent that it does not result in an increase in the
aggregate principal amount (or, if such Debt provides for an amount
less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, in an amount not
greater than such lesser amount) of such Debt (except as permitted by
paragraphs (a) or (b) above), and
(B) to the extent such renewed, refunded or extended Debt does not
have a mandatory redemption date prior to the mandatory redemption
date of the Debt being renewed, refunded or extended or have an
Average Life shorter than the remaining Average Life of the Debt
being renewed, refunded or extended;
(7) Debt payable solely in, or mandatorily convertible into, Capital
Stock (other than Redeemable Stock) of Nextel Partners;
(8) all new notes issued pursuant to the terms of the registration rights
agreement for the notes; and
(9) Debt (in addition to Debt permitted under clauses (1) through (8)
above) in an aggregate principal amount outstanding at any time not to
exceed $50.0 million.
In the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness specified in the above clauses (1) through
(9), Nextel Partners shall have the right, at any time in its sole discretion,
to classify such item as one of the types and shall only be required to include
such item under the clause permitting such Indebtedness as so classified.
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"Permitted Distribution" of a Person means:
(1) the exchange by such Person of Capital Stock (other than Redeemable
Stock) for outstanding Capital Stock, and
(2) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Debt of Nextel Partners that is subordinate in
right of payment to the notes,
in exchange for, including any such exchange pursuant to the exercise of a
conversion right or privilege in connection with which cash is paid in lieu of
the issuance of fractional shares or scrip, or out of the proceeds of a
substantially concurrent issue and sale other than to a Restricted Subsidiary
of, either:
(a) Capital Stock of Nextel Partners (other than Redeemable Stock) or
(b) Debt of Nextel Partners that is subordinate in right of payment to
the notes on subordination terms no less favorable to the holders of the
notes in their capacities as such than the subordination terms or other
arrangement applicable to the Debt that is redeemed, repurchased,
defeased or otherwise acquired or retired for value, provided that such
new Debt does not mature prior to the Stated Maturity or have a
mandatory redemption date prior to the mandatory redemption date of the
Debt being redeemed, repurchased, defeased or otherwise acquired or
retired for value or have an Average Life shorter than the remaining
Average Life of the Debt being redeemed, repurchased, defeased or
otherwise acquired or retired for value.
"Permitted Holder" means each of:
(1) Nextel Communications, Inc., and any entity or entities controlled
by, directly or indirectly, Nextel Communications, Inc.
(2) Craig O. McCaw and any entity or entities:
(A) controlled, directly or indirectly, by Craig O. McCaw or the
estate of Craig O. McCaw and
(B) a majority of the equity interests of which are owned, directly
or indirectly, by Craig O. McCaw and his family, his brothers and
estates of, or trusts for the primary benefit of, the foregoing
persons,
(3) Motorola, Inc.,
(4) DLJ Merchant Banking Partners II L.P. and its Affiliates, and any of
their respective Affiliates and the respective successors by merger,
consolidation, transfer or otherwise to all or substantially all of the
respective businesses and assets of any of the foregoing, and
(5) any "person" or "group" (as such terms are used in Section 13(d) and
14(d) of the Exchange Act) controlled by one or more persons identified in
clauses (1) through (4) of this definition.
"Permitted Investment" means any Investment in Marketable Securities or a
Permitted Joint Venture.
"Permitted Joint Venture" means any joint venture entered into by Nextel
Partners or any of its Restricted Subsidiaries with a third party:
(1) for the purpose of financing the acquisition or lease of
telecommunications towers for use in the Nextel Partners' markets; provided
that the aggregate value of all
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assets contributed by Nextel Partners or any of its Restricted Subsidiaries
to any joint venture pursuant to this clause (1) shall not exceed $15.0
million as determined in good faith by Nextel Partners' board of directors
or
(2) in which Nextel Partners or any of its Restricted Subsidiaries:
(a) is responsible for the managerial control of such joint venture
and
(b) owns at least 40% of the outstanding Capital Stock of such joint
venture;
provided that such joint venture, together with all other Permitted Joint
Ventures described in this clause (2), does not cover or service more than
10.0% of the population computed by including only a percentage of the total
population equal to Nextel Partners' percentage ownership in that joint venture
covered by Nextel Partners at the date of determination as determined in good
faith by the board of directors.
"Permitted Liens" means:
(1) Liens securing Debt or other monetary obligations under a Credit
Facility to the extent the principal amount of such obligations was
permitted by the terms of the indenture to be Incurred;
(2) Liens in favor of Nextel Partners or a Wholly Owned Restricted
Subsidiary;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with Nextel Partners or any Subsidiary
of Nextel Partners; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with
Nextel Partners;
(4) Liens on property existing at the time of acquisition thereof by
Nextel Partners or any Subsidiary of Nextel Partners, provided that such
Liens were in existence prior to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure Indebtedness including Capital Lease Obligations
permitted by clause (3) of the definition of "Permitted Debt";
(7) Liens existing on the date of the indenture;
(8) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as will be
required to be in conformity with generally accepted accounting principles
shall have been made therefor;
(9) Liens, including zoning restrictions, servitudes, easements and
rights-of-way, incurred in the ordinary course of business of Nextel
Partners or its Subsidiary that:
(a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit other than trade credit in the ordinary
course of business, and
(b) do not in the aggregate materially detract from the value of the
property or materially impair the use thereof in the operation of
business by Nextel Partners or such Subsidiary;
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(10) Liens of a lessor under a lease, other than a capitalized lease;
(11) Liens not otherwise permitted by the foregoing clauses (1) through
(7) securing Debt in an aggregate amount not to exceed 5% of Nextel
Partners' consolidated tangible assets; and
(12) Liens to secure Debt incurred to refinance, in whole or in part,
Debt secured by any Lien referred to in the foregoing clauses (1), (3),
(4), (5) or this clause (12) so long as such Lien does not extend to any
other property other than improvements and accessions to the original
property and the principal amount of Debt so secured is not increased
except as otherwise permitted by the indenture.
"Permitted Transaction" means:
(1) any transaction pursuant to written agreements existing on January
29, 1999 and described in or incorporated by reference into this
prospectus,
(2) any transaction or transactions with any vendor or vendors, other
than Motorola, of property or materials used in the telecommunications
business including related activities and services of Nextel Partners or
any Restricted Subsidiary, provided such transactions are in the ordinary
course of business and such vendor does not beneficially own more than 10%
of the voting power of the Voting Stock of Nextel Partners,
(3) any amendment, modification or other change to the purchase agreement
between Nextel Partners and Motorola, dated as of January 29, 1999, or any
other similar agreement with Motorola that has been approved by a majority
of the Disinterested Directors of Nextel Partners,
(4) agreements and transactions contemplated by the joint venture
agreement entered into by and among Nextel Partners and Nextel and their
respective Subsidiaries as of January 29, 1999,
(5) any License Exchange, and
(6) any issuance of equity by Nextel Partners (other than Redeemable
Stock).
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Capital Stock," as applied to the Capital Stock of any Person,
means Capital Stock of such Person of any class or classes that ranks prior, as
to the payment of dividends or as to the distribution of assets upon any
voluntary or involuntary liquidation, dissolution or winding up of such Person,
to shares of Capital Stock of any other class of such Person.
"Preferred Stock" means each of Nextel Partners' Series A convertible
preferred stock, Series B redeemable preferred stock, Series C convertible
preferred stock, and Series D convertible preferred stock.
"Redeemable Stock" of any Person means any Capital Stock of such Person
that by its terms or otherwise is:
(1) required to be redeemed prior to the Stated Maturity of the notes,
(2) redeemable at the option of the holder thereof at any time prior to
the Stated Maturity of the notes, or
(3) convertible into or exchangeable for Capital Stock referred to in
clause (1) or (2) above or Debt having a scheduled maturity prior to the
Stated Maturity of the notes;
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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 a "change of
control" occurring prior to the Stated Maturity of the notes shall not
constitute Redeemable Stock if the "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 the "Change of Control" covenant described
herein and such Capital Stock specifically provides that such Person will not
repurchase or redeem any such stock pursuant to such provision prior to Nextel
Partners' repurchase of such notes as are required to be repurchased pursuant
to the covenant described under the caption "Change of Control".
"Required Consent" means except as otherwise expressly provided in the
indenture with respect to matters requiring the consent of each holder of notes
affected thereby, the consent of holders of not less than a majority in
aggregate principal amount at Stated Maturity of the notes.
"Restricted Subsidiary" means any Subsidiary of Nextel Partners, whether
existing on January 29, 1999 or created subsequent thereto, designated from
time to time by the board of directors as, or otherwise deemed to be, a
"Restricted Subsidiary" in accordance with the covenant described under the
caption "Restricted Subsidiaries".
"S&P" means Standard & Poor's Ratings Services or, if Standard & Poor's
Ratings Services shall cease rating debt securities having a maturity at
original issuance of at least one year and such ratings business shall have
been transferred to a successor Person, such successor Person; provided,
however, that if Standard & Poor's Ratings Services ceases rating debt
securities having a maturity at original issuance of at least one year and its
ratings business with respect thereto will not have been transferred to any
successor Person, then "S&P" will mean any other nationally recognized rating
agency, other than Moody's, that rates debt securities having a maturity at
original issuance of at least one year and that will have been designated by
Nextel Partners by a written notice given to the trustee.
"Stated Maturity", when used with respect to any Debt security or any
installment of interest thereon, means the date specified in such Debt security
as the fixed date on which the principal of such Debt security or such
installment of interest is due and payable.
"Subsidiary" of any Person means:
(1) a corporation more than 50% of the outstanding Voting Stock of which
is owned, directly or indirectly, by such Person or by one or more other
Subsidiaries of such Person or by such Person and one or more Subsidiaries
thereof or
(2) any other Person (other than a corporation) in which such Person, or
one or more other Subsidiaries of such Person or such Person and one or
more other Subsidiaries thereof, directly or indirectly, has at least a
majority ownership and power to direct the policies, management and affairs
thereof.
"Total Common Equity" of any Person means, as of any day of determination
and as modified for purposes of the definition of "Change of Control", the
product of:
(1) the aggregate number of outstanding primary shares of Common Stock of
such Person on such day which will not include any options or warrants on,
or securities convertible or exchangeable into, shares of Common Stock of
such Person and
(2) the average Closing Price of such Common Stock over the 20
consecutive Trading Days immediately preceding such day.
If no such Closing Price exists with respect to shares of any such class,
the value of such shares for purposes of clause (2) of the preceding sentence
shall be determined by Nextel Partners' board of directors in good faith and
evidenced by a board resolution.
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"Total Invested Capital" means at any time of determination, the sum of,
without duplication:
(1) the total amount of equity contributed to Nextel Partners as of
January 29, 1999, plus
(2) the aggregate net cash proceeds received by Nextel Partners from
capital contributions or the issuance or sale of Capital Stock, other than
Redeemable Stock but including Capital Stock issued upon the conversion of
convertible Debt or from the exercise of options, warrants or rights to
purchase Capital Stock, other than Redeemable Stock, including cash
payments under the Committed Capital Contribution, subsequent to January
29, 1999, other than to a Restricted Subsidiary, plus
(3) the aggregate net cash proceeds received by Nextel Partners or any
Restricted Subsidiary from the sale, disposition or repayment of any
Investment made after January 29, 1999 and constituting a Restricted
Payment in an amount equal to the lesser of:
(a) the return of capital with respect to such Investment and
(b) the initial amount of such Investment, in either case, less the
cost of the disposition of such Investment, plus
(4) an amount equal to the Consolidated net Investment as of the date of
determination Nextel Partners and/or any of its Restricted Subsidiaries has
made in any Subsidiary that has been designated as an Unrestricted
Subsidiary after January 29, 1999 upon its redesignation as a Restricted
Subsidiary in accordance with the covenant described above under the
caption "Restricted Subsidiaries", plus
(5) Consolidated Debt,
minus
(6) the aggregate amount of all Restricted Payments declared or made on
or after January 29, 1999.
"Trading Day" with respect to a securities exchange or automated quotation
system means a day on which such exchange or system is open for a full day of
trading.
"U.S. Government Obligation" means:
(1) any security which is:
(a) a direct obligation of the United States of America for the
payment of which the full faith and credit of the United States of
America is pledged or
(b) an obligation 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 of the United States of America, which, in either
case, is not callable or redeemable at the option of the issuer thereof,
and
(2) any depository receipt issued by a bank as custodian with respect to
any U.S. Government Obligation and held by such bank for the account of the
holder of such depository receipt, or with respect to any specific payment
of principal of or interest on any U.S. Government Obligation which is so
specified and held, provided that, except as 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 principal or interest evidenced by such depository receipt.
"Unrestricted Subsidiary" means any Subsidiary that is not a Restricted
Subsidiary and includes any Restricted Subsidiary that becomes an Unrestricted
Subsidiary in accordance with the covenant described above under the caption
"Restricted Subsidiaries."
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"Vendor Financing Debt" means any Debt owed to:
(1) a vendor or supplier of any property or materials used by Nextel
Partners or its Restricted Subsidiaries in their telecommunications
business,
(2) any Affiliate of such a vendor or supplier,
(3) any assignee of such a vendor, supplier or Affiliate of such a
vendor or supplier, or
(4) a bank or other financial institution that has financed or refinanced
the purchase of such property or materials from such a vendor, supplier,
Affiliate of such a vendor or supplier or assignee of such a vendor or
supplier; provided that the aggregate amount of such Debt does not exceed
the sum of:
(a) the purchase price of such property or materials, including
transportation, installation, warranty and testing charges, as well as
applicable taxes paid, in respect of such property or materials,
(b) the cost of design, development, site acquisition and
construction,
(c) any interest or other financing costs accruing or otherwise
payable in respect of the foregoing, and
(d) the cost of any services provided by such vendor, supplier or
Affiliate of such vendor or supplier.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors of such Person,
whether at all times or only so long as no senior class of securities has such
voting power by reason of any contingency.
"Wholly Owned Restricted Subsidiary" of Nextel Partners means a Restricted
Subsidiary all of the outstanding Capital Stock of which, other than directors'
qualifying shares, is at the time owned by Nextel Partners or by one or more
Wholly Owned Restricted Subsidiaries or by Nextel Partners and one or more
Wholly Owned Restricted Subsidiaries.
EVENTS OF DEFAULT
The following are events of default under the indenture:
(1) failure to pay principal of (or premium, if any, on) any note when
due;
(2) failure to pay any interest on any note when due, such failure
continuing for 30 days;
(3) default in the payment of principal and interest on notes required to
be purchased pursuant to an offer to purchase the notes in accordance with
the indenture as described under "Covenants--Change of Control" when due
and payable;
(4) failure to perform or comply with the provisions described under
"Mergers, Sales of Assets, Etc.";
(5) failure to perform any other covenant or agreement of Nextel Partners
under the indenture or the notes continued for 60 days after written notice
to Nextel Partners by the trustee or holders of at least 25% in aggregate
principal amount at maturity of the outstanding notes;
(6) failure to pay when due the principal of, or acceleration of, any
Debt of Nextel Partners or any Restricted Subsidiary having an outstanding
principal amount of at least $25 million, individually or in the aggregate;
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(7) the rendering of a final judgment or judgments for the payment of
money against Nextel Partners or any Restricted Subsidiary in an aggregate
amount in excess of $25 million which remains undischarged or unstayed for
a period of 60 days after the date on which the right to appeal all such
judgments has expired; and
(8) certain events of bankruptcy, insolvency or reorganization affecting
Nextel Partners or any Restricted Subsidiary. (Section 5.01)
Subject to the provisions of the indenture relating to the duties of the
trustee in case an event of default occurs and is continuing, the trustee will
be under no obligation to exercise any of its rights or powers under the
indenture at the request or direction of any of the holders, unless such
holders shall have offered to the trustee reasonable indemnity. (Section 6.03)
Subject to such provisions for the indemnification of the trustee, the holders
of a majority in aggregate principal amount at maturity of the outstanding
notes will have the right to 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. The trustee may refuse, however, to follow
any direction that the trustee, in its sole discretion, determines may be
unduly prejudicial to the rights of another holder or that may subject the
trustee to any liability or expense if the trustee determines, in its sole
discretion, that it lacks indemnification against such loss or expense.
(Section 5.12)
If an event of default, other than as described in clause (8) above,
occurs and is continuing, either the trustee or the holders of at least 25% in
aggregate principal amount of the outstanding notes at maturity may accelerate
the maturity of all notes; provided, however, that after such acceleration, but
before a judgment or decree based on acceleration, the holders of a majority in
aggregate principal amount at maturity of outstanding notes may, under certain
circumstances, rescind and annul such acceleration if all events of default,
other than the nonpayment of accelerated principal, have been cured or waived
as provided in the indenture. If an event of default specified in clause (8)
above occurs, the outstanding notes will ipso facto become immediately due and
payable without any declaration or other act on the part of the trustee or any
holder. (Section 5.02) For information as to waiver of defaults, see
"Modification and Waiver."
No holder of any note will have any right to institute any proceeding with
respect to the indenture or for any remedy thereunder, unless such holder has
previously given to the trustee written notice of a continuing event of default
and the holders of at least 25% in aggregate principal amount at maturity of
the outstanding notes have made written request, and offered reasonable
indemnity, to the trustee to institute such proceeding as trustee, and the
trustee will not have received from the holders of a majority in aggregate
principal amount at maturity of the outstanding notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. (Section 5.07) However, such limitations do not apply to a suit
instituted by a holder of a note for enforcement of payment of the principal of
and premium, if any, or interest on such note on or after the respective due
dates expressed in such note. (Section 5.08)
The indenture provides that if a default occurs and is continuing,
generally the trustee must, within 90 days after the occurrence of such
default, give to the holders notice of such default. The trustee may withhold
from holders of the notes notice of any continuing default or event of default
(except a default or event of default relating to the payment of principal of,
premium, if any or interest) if it determines that withholding notice is in
their interest; provided, however, that in the case of any default of a
character specified in clause (5) above, no such notice to holders shall be
given until at least 30 days after the occurrence thereof. (Section 6.02)
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Nextel Partners will be required to furnish to the trustee annually a
statement as to the performance by Nextel Partners of certain of its
obligations under the indenture and Nextel Partners is required upon becoming
aware of any default or event of default to deliver to the trustee a statement
specifying such default or event of default. (Section 10.17)
SATISFACTION AND DISCHARGE OF THE INDENTURE
The indenture will cease to be of further effect as to all outstanding
notes except as to:
(1) rights of registration of transfer and exchange and Nextel
Partners' right of optional redemption,
(2) substitution of apparently mutilated, defaced, destroyed, lost or
stolen notes,
(3) rights of holders to receive payment of principal of and premium,
if any, and interest on the notes,
(4) rights, obligations and immunities of the trustee under the
indenture, and
(5) rights of the holders of the notes as beneficiaries of the
indenture with respect to any property deposited with the trustee payable
to all or any of them, if:
(a) Nextel Partners will have paid or caused to be paid the
principal of and premium, if any, and interest on the notes as and
when the same will have become due and payable or
(b) all outstanding notes (except lost, stolen or destroyed notes
which have been replaced or paid) have been delivered to the trustee
for cancellation. (Section 4.01)
DEFEASANCE
The indenture will provide that, at the option of Nextel Partners:
(1) if applicable, Nextel Partners will be discharged from any and all
obligations in respect of the outstanding notes, or
(2) if applicable, Nextel Partners may omit to comply with certain
restrictive covenants, and that such omission shall not be deemed to be an
event of default under the indenture and the notes,
upon irrevocable deposit with the trustee, in trust, of money and/or U.S.
government obligations which will provide money in an amount sufficient in the
opinion of a nationally recognized firm of independent certified public
accountants to pay the principal of each installment of interest, if any, on
the outstanding notes at maturity. With respect to clause (2), the obligations
under the indenture other than with respect to such covenants and the events of
default other than those relating to such covenants shall remain in full force
and effect. Such trust may only be established if, among other things:
(a) with respect to clause (1), Nextel Partners has received from, or
there has been published by, the Internal Revenue Service a ruling or there
has been a change in law, which in the opinion of counsel provides that
holders of the notes will not recognize gain or loss for Federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such deposit, defeasance
and discharge were not to occur; or, with respect to clause (2), Nextel
Partners has delivered to the trustee an opinion of counsel to the effect
that the holders of the notes
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will not recognize gain or loss for Federal income tax purposes as a result
of such deposit and defeasance and will be subject to Federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such deposit and defeasance were not to occur;
(b) no default or event of default will have occurred or be continuing;
(c) the deposit shall not cause the trustee or the trust so created to be
subject to the Investment Company Act of 1940, as amended; and
(d) certain other customary conditions precedent are satisfied.
(Section 12.04)
MODIFICATION AND WAIVER
Modifications and amendments of the indenture may be made by Nextel
Partners and the trustee with the consent of the holders of a majority in
aggregate principal amount at maturity of the outstanding notes; provided,
however, that no such modification or amendment may, without the consent of the
holder of each outstanding note affected thereby:
(1) change the due date of the principal of, or any installment of
interest on, any note;
(2) reduce the principal amount at maturity of, or the premium or
interest on, any note;
(3) change the place or currency of payment of principal of, or premium
or interest on, any note;
(4) impair the right to institute suit for the enforcement of any payment
on or with respect to any note;
(5) waive a default in the payment of, or the premium or interest on,
any note;
(6) reduce the above stated percentage of outstanding notes necessary to
modify or amend the indenture;
(7) reduce the percentage of the aggregate principal amount at maturity
of outstanding notes necessary for waiver of compliance with certain
provisions of the indenture or for waiver of certain defaults;
(8) modify any provisions of the indenture relating to the calculation of
the accreted value of the notes; or
(9) following the mailing of any offer to purchase the notes in
accordance with the indenture and until the expiration date of that offer
to purchase, modify any offer to purchase for the notes required under the
"Limitation on Asset Dispositions" and the "Change of Control" covenants
contained in the indenture in a manner materially adverse to the holders of
the notes. (Section 9.02)
Notwithstanding the foregoing, without the consent of any holder of notes,
Nextel Partners and the trustee may amend or supplement the indenture or the
notes to:
o cure any ambiguity, defect or inconsistency,
o provide for uncertificated notes in addition to or in place of
certificated notes,
o provide for the assumption of Nextel Partners' obligations to holders
of notes in the case of a merger or consolidation,
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o make any change that would provide any additional rights or benefits to
holders of notes or that does not adversely affect the legal rights under
the indenture of any such holder, or
o comply with requirements of the SEC in order to maintain the
qualification of the indenture under the Trust Indenture Act.
(Section 9.01)
The holders of a majority in aggregate principal amount at maturity of the
outstanding notes, on behalf of all holders of notes, may waive compliance by
Nextel Partners with certain restrictive provisions of the indenture.
(Section 10.18) Subject to certain rights of the trustee, as provided in the
indenture, the holders of a majority in aggregate principal amount at maturity
of the outstanding notes, on behalf of all holders of notes, may waive any past
default under the indenture, except a default in the payment of principal,
premium or interest or a default arising from failure to purchase any note
tendered pursuant to an offer to purchase the notes in accordance with the
indenture. (Section 5.13)
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Nextel
Partners, as such, will have any liability for any obligations of Nextel
Partners 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 of notes
by accepting a note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the notes. Such waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the SEC that such waiver is against public policy.
GOVERNING LAW
The indenture and the notes will be governed by the laws of the State of
New York.
THE TRUSTEE
The indenture provides that, except during the continuance of an event of
default, the trustee will perform only such duties as are specifically set
forth in the indenture. During the existence of an event of default, the
trustee will exercise such rights and powers vested in it under the indenture
and 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. (Section 6.01)
The indenture and provisions of the Trust Indenture Act, incorporated by
reference in the indenture, contain limitations on the rights of the trustee
should it become a creditor of Nextel Partners, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of
any such claim as security or otherwise. The trustee is permitted to engage in
other transactions with Nextel Partners or any affiliate, provided, however,
that if it acquires any conflicting interest, it must eliminate such conflict
or resign. (Sections 6.08 and 6.13)
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BOOK-ENTRY; DELIVERY AND FORM
The new notes initially will be represented by one or more permanent
global certificates in definitive, fully registered form. This global note will
be deposited upon issuance with The Depository Trust Company, New York, New
York and registered in the name of a nominee of The Depository Trust Company.
The Global Note. We expect that pursuant to procedures established by The
Depository Trust Company:
(1) upon the issuance of the global note, The Depository Trust Company or
its custodian will credit, on its internal system, the principal
amount at maturity of the individual beneficial interests represented
by the global note to the respective accounts of persons who have
accounts with such depositary, and
(2) ownership of beneficial interests in the global note will be shown on,
and the transfer of ownership will be effected only through, records
maintained by The Depository Trust Company or its nominee, with
respect to interests of participants, and the records of participants,
with respect to interests of persons other than participants.
Ownership of beneficial interests in the global notes will be limited to
persons who have accounts with The Depository Trust Company or persons who hold
interests through participants.
So long as The Depository Trust Company or its nominee is the registered
owner or holder of the new notes, The Depository Trust Company or its nominee
will be considered the sole owner or holder of the new notes represented by the
global note for all purposes under the indenture. No beneficial owner of an
interest in the global note will be able to transfer that interest except in
accordance with The Depository Trust Company's procedures.
Payments of interest, principal and other amounts due on the global note
will be made to The Depository Trust Company or its nominee as the registered
owner. None of Nextel Partners, the trustee or any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global note
or for maintaining, supervising or reviewing any records relating to this
beneficial ownership interest.
We expect that The Depository Trust Company or its nominee, upon receipt
of any payment of interest, principal or other amounts due on the global note,
will credit participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the global note as shown on the
records of The Depository Trust Company. We also expect that payments by
participants to owners of beneficial interests in the global note held through
such participants will be governed by standing instructions and customary
practice, as is the case with securities held for the accounts of customers
registered in the names of nominees for those customers. These payments will be
the responsibility of the participants.
Transfers between participants in The Depository Trust Company will be
effected in the ordinary way through The Depository Trust Company's settlement
system in accordance with The Depository Trust Company rules and will be
settled in same day funds.
The Depository Trust Company has advised us that it will take any action
permitted to be taken by a holder of new notes, including the presentation of
new notes for exchange as described below, only at the direction of a
participant to whose account The Depository
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Trust Company interests in the global note are credited. Further, The
Depository Trust Company will take action only as to such portion of the notes
as to which the participant has given such direction. However, if there is an
event of default under the indenture, the Depository Trust Company will
exchange the global note for certificated notes, which it will distribute to
its participants.
The Depository Trust Company has advised us as follows: The Depository
Trust Company is a limited purpose trust company organized under the laws of
the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a "Clearing
Agency" registered under the provisions of Section 17A of the Exchange Act. The
Depository Trust Company was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and certain other organizations. Indirect
access to The Depository Trust Company system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Although The Depository Trust Company has agreed to the foregoing
procedures in order to facilitate transfers of interests in the global note
among participants of The Depository Trust Company, it is under no obligation
to perform those procedures, and those procedures may be discontinued at any
time. Neither Nextel Partners nor the trustee will have any responsibility of
the performance by The Depository Trust Company or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If The Depository Trust Company is at any time
unwilling or unable to continue as a depositary for the global note and a
successor depositary is not appointed by Nextel Partners within 90 days,
certificated notes will be issued in exchange for the global note.
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DESCRIPTION OF CREDIT FACILITY
Nextel Partners Operating Corp., a wholly owned subsidiary of Nextel
Partners, entered into a credit facility dated as of January 29, 1999 with a
syndicate of banks and other financial institutions led by Donaldson, Lufkin &
Jenrette Securities Corporation, as arranger, DLJ Capital Funding, as
syndication agent, and Bank of Montreal, as administrative agent. The credit
facility includes a $175.0 million term loan facility and a $100.0 million
reducing revolving credit facility. Subject to the borrower's right in the
future to seek an increase of up to $50.0 million, the credit facility will not
exceed $275.0 million. The term loan facility has a maturity of nine years. The
revolving credit facility will terminate eight years after the date of initial
funding of the credit facility.
On January 29, 1999, Nextel Partners Operating Corp. borrowed the full
amount of the term loan facility and established an account which maintains a
balance equal to the lesser of:
(x) $275.0 million or
(y) the aggregate outstanding principal amount borrowed under the credit
facility,
until the earlier of FCC approval of the transfer applications for
licenses being transferred from Nextel or 395 days after the initial borrowings
under the credit facility. The failure of the FCC to approve the transfer
within 365 days after the initial borrowings under the credit facility
constitutes an event of default under the credit facility.
Interest. At the borrower's option, the term loan facility bears interest
at reserve-adjusted LIBOR plus 4.75% or at the administrative agent's alternate
base rate plus 3.75%. The revolving credit facility bears interest at LIBOR
plus 4.25% or the base rate plus 3.25% until consolidated EBITDA as adjusted is
positive at which time the applicable margin will be initially 4.0% over LIBOR
and 3.0% over the base rate and thereafter will be determined on the basis of
the ratio of total debt to annualized EBITDA as adjusted and will range between
2.25% and 3.75% over LIBOR and between 1.25% and 2.75% over the base rate.
Fees. The borrower pays a commitment fee calculated at a rate equal to the
lower of:
(x) 2.00% per annum and
(y) one-half of the applicable margin for LIBOR loans,
in each case, calculated on the daily average unused commitment under the
revolving credit facility (whether or not then available). Such fee is payable
quarterly in arrears. The commitment fee is subject to reduction based on
utilization of the revolving credit facility.
Reduction of Commitments. Beginning on the fifth anniversary of the
closing of the credit facility, commitments under the revolving credit facility
automatically reduce in quarterly installments. The term loan facility
amortizes in quarterly installments aggregating in the percentage outlined in
the following schedule:
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<TABLE>
<CAPTION>
% OF TERM LOAN
YEAR FACILITY
- ------ ---------------
<S> <C>
1 --
2 --
3 --
4 --
5 1%
6 1%
7 1%
8 1%
9 96%
</TABLE>
Prepayments. The term loan facility is subject to mandatory prepayment:
(1) with 100% of the net cash proceeds from the issuance of debt, subject
to exceptions,
(2) with 100% of the net cash proceeds of asset sales, subject to
exceptions,
(3) after December 31, 2002, with 50% of the borrower's excess earnings
over interest expense, taxes, capital expenditures, payments made in
connection with the credit facility, and other adjustments, and
(4) after the fifth anniversary of the closing of the credit facility,
with 50% of the net cash proceeds from the issuance of equity, subject
to exceptions.
Security; Guarantees. The borrower's obligations under the credit facility
is secured by:
(1) a first-priority lien on all property and assets, tangible and
intangible, of the borrower and its subsidiaries, including accounts
receivable, inventory, equipment, intellectual property, general
intangibles, cash and proceeds of the foregoing, and
(2) a first-priority pledge of the capital stock of the borrower and its
current and future subsidiaries, including the subsidiary holding the
FCC licenses after the FCC approves the transfer of control.
Nextel Partners and the borrower's subsidiaries have guaranteed, and will
cause future subsidiaries to guarantee, the obligations of the borrower under
the credit facility. In its guarantee, Nextel Partners agreed to certain
restrictions, including among others, restrictions that limit its ability to:
o incur additional debt, other than unsecured debt in the ordinary
course of business;
o engage in any business activity other than in connection with its
ownership of the capital stock of, and the holding of permitted
investments in, the borrower; or
o merge or consolidate with any person.
Covenants. The credit facility contains customary covenants and
restrictions on the borrower's ability to engage in certain activities,
including but not limited to:
o limitations on the incurrence of liens and indebtedness;
o restrictions on sale lease-back transactions, consolidations, mergers,
sale of assets, capital expenditures, transactions with affiliates and
investments; and
o restrictions on dividends and distributions on, and redemptions and
repurchases of, capital stock, and other similar distributions.
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In addition, the borrower is required to comply with specified financial
ratios and tests, including minimum interest coverage ratios, maximum leverage
ratios, minimum service revenues, minimum subscriber units and covered
populations, minimum EBITDA as adjusted requirements and minimum fixed charge
coverage ratios.
Events of Default. The credit facility contains customary events of
default, including defaults relating to payments, breach of representations,
warranties and covenants, cross-defaults and cross-acceleration to other
indebtedness, bankruptcy and insolvency, judgments, and actual or asserted
invalidity of security, as well as, among others, events of default relating
to:
o the change of control of Nextel Partners or the borrower;
o the failure to obtain approval by the FCC of the transfer of control
of licenses from Nextel to Nextel Partners;
o the early termination of Nextel Partner's right to use the Nextel
brand name or right to acquire equipment incorporating iDEN
technology;
o the termination of, revocation of, or failure to renew by the FCC
licenses material to the borrower's business;
o the early termination of or failure to renew operating agreements with
Nextel, certain material breaches of obligations under these operating
agreements or default by Nextel of certain obligations to provide
agreed upon services; or
o the failure of shareholders to make funding or contribution
obligations in accordance with the subscription and contribution
agreement.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Willkie Farr & Gallagher has acted as our counsel in rendering an opinion
as to all material federal income tax consequences of the exchange and the
holding of the new notes. This section constitutes the opinion of our counsel.
Prospective holders of notes should consult their own tax advisors with
regard to the application of the tax considerations discussed below to their
particular situations as well as the application of any state, local, foreign
or other tax laws, including gift and estate tax laws.
This section discusses the rules applicable to U.S. holders only. A U.S.
holder is any of the following:
o citizens and residents of the United States for U.S. federal income
tax purposes;
o corporations, partnerships, and other entities created or organized
in or under the laws of the United States or any political subdivision
thereof;
o estates, if the income of the estate is subject to U.S. federal
income taxation regardless of its source, and trusts, if a U.S. court
can exercise primary supervision over the administration of the trust
and one or more U.S. persons have the authority to control all
substantial decisions of the trust; and
o other persons whose worldwide income or gain is otherwise subject to
U.S. federal income taxation on a net income basis.
Non-U.S. holders are subject to substantially different rules. Because the
new notes are not being offered to non-U.S. holders, the rules applicable to
non-U.S. holders are not described here. Non-U.S. holders should consult their
own tax advisors.
The Exchange Offer
It is counsel's opinion that the exchange of old notes for new notes under
the exchange offer will be treated as a continuation of the corresponding old
notes because the terms of the new notes are substantially the same as the
terms of the old notes. Accordingly, it is counsel's opinion that the exchange
will not constitute a taxable event to holders and, therefore:
o no gain or loss will be realized by holders upon receipt of a new
note;
o the holding period of the new note will include the holding period of
the old note; and
o the adjusted tax basis of the new note will be the same as the
adjusted tax basis of the old note immediately before the exchange.
Original Issue Discount on the Notes
It is counsel's opinion that the notes will be issued with original issue
discount. Holding notes will result in taxable ordinary interest income in an
amount equal to the original issue discount that accrues during each accrual
period. Original issue discount is defined as the excess of:
(x) the stated redemption price at maturity of a note over
(y) its issue price.
129
<PAGE>
The "stated redemption price at maturity" of a note is the sum of all
payments, including cash interest, provided by the note. The "issue price" of a
note is the first price at which a substantial amount of the notes are sold to
the public for cash, excluding sales to bond houses, brokers or similar persons
or organizations acting in the capacity as underwriters, placement agents or
wholesalers.
A holder is required to include original issue discount in income as
ordinary interest as it accrues under the constant yield method in advance of
receipt of the cash payments attributable to such income, regardless of the
holder's regular method of accounting. Because the calculation of the amount of
original issue discount takes the cash interest payments into account as part
of the stated redemption price at maturity, the cash interest payments need not
be reported separately as taxable income when received.
In general, the amount of original issue discount included in income by
the holder of a note is the sum of the daily portions of original issue
discount for each day during the taxable year or portion of the taxable year on
which such holder held such note. The "daily portion" is determined by
allocating the original issue discount for the actual period ratably to each
day in that accrual period. The "accrual period" for a note may be of any
length and may vary in length over the term of a note, provided that each
accrual period is no longer than one year and each scheduled payment of
principal or interest occurs either on the first or final day of an accrual
period.
The amount of original issue discount for an accrual period is generally
equal to the product of the note's adjusted issue price at the beginning of
such accrual period and its yield to maturity. The "adjusted issue price" of a
note at the beginning of any accrual period is the sum of the issue price of
the note plus the amount of original issue discount allocable to all prior
accrual periods minus the amount of any prior payments on the note, such as the
cash interest payments. Under the constant yield method of determining original
issue discount, a holder will have to include increasingly greater amounts of
original issue discount in income in successive accrual periods.
Sale, Exchange and Retirement of Notes
A holder will recognize gain or loss upon the sale, retirement or other
taxable disposition of a note. Such gain or loss will equal the difference
between:
(x) the amount of cash and the fair market value of property received for
the note, other than amounts representing accrued but unpaid stated
interest, and
(y) the holder's adjusted tax basis in the note.
A holder's adjusted tax basis in notes will equal the holder's purchase
price, increased by any accrued original issue discount, and reduced by any
cash payments on the notes. Gain or loss will be capital gain or loss and will
be long-term capital gain or loss if the holder has held such notes for more
than one year. Long-term capital gain of a non-corporate holder is subject to a
maximum tax rate of 20%. There are limits on the deductibility of capital
losses. Any amounts paid with respect to accrued but unpaid stated interest
will be taxable as ordinary interest income. Gain or loss realized on the sale,
retirement or other taxable disposition of a note derived by a holder will be
treated as U.S. source income or loss for foreign tax credit purposes.
Backup Withholding and Information Reporting
Information reporting requirements will apply to certain payments of
principal, premium, if any, and interest. They will also apply to the proceeds
of sale of a note made to
130
<PAGE>
holders other than exempt recipients, such as corporations. Backup withholding
and information reporting will not apply to payments of principal, premium, if
any, and interest on notes made outside the United States, other than payments
made to an address in the United States or by transfer to an account maintained
by the holder with a bank in the United States, by us or any paying agent,
acting in its capacity as such, to a holder. A 31% backup withholding tax may
apply to such payments if a U.S. holder fails to provide a taxpayer
identification number or certification of foreign or other exempt status or is
notified by the Internal Revenue Service that it has failed to report its full
dividend and interest income.
This opinion is based on the tax law as it exists today, but the law could
change at any time, and any change could be applied retroactively in a manner
that could adversely affect a holder of the notes. This opinion does not
address the special rules applicable to holders such as insurance companies and
other financial institutions, dealers in securities, tax-exempt organizations
and persons holding the notes as part of a "straddle," "hedge" or "conversion
transaction," and deals only with notes held as "capital assets" within the
meaning of Section 1221 of the Internal Revenue Code.
131
<PAGE>
PLAN OF DISTRIBUTION
Each holder desiring to participate in the exchange offer will be required
to represent, among other things, that:
(1) it is not an "affiliate" (as defined in Rule 405 of the Securities
Act) of Nextel Partners,
(2) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the new notes, and
(3) it is acquiring the new notes in the ordinary course of its business.
A holder unable to make the above representations is referred to as a
restricted holder. A restricted holder will not be able to participate in the
exchange offer, and may only sell its old notes pursuant to a registration
statement containing the selling securityholder information required by Item
507 of Regulation S-K of the Securities Act, or pursuant to an exemption from
the registration requirement of the Securities Act.
Each participating broker-dealer is required to acknowledge in the letter
of transmittal that it acquired the old notes as a result of market-making
activities or other trading activities and that it will deliver a prospectus in
connection with the resale of such new notes. Based upon interpretations by the
staff of the SEC, Nextel Partners believes that new notes issued through the
exchange offer to participating broker-dealers may be offered for resale,
resold, and otherwise transferred by a participating broker-dealer upon
compliance with the prospectus delivery requirements, but without compliance
with the registration requirements, of the Securities Act. Nextel Partners has
agreed that for a period of one year following consummation of the exchange
offer, it will make this prospectus available to participating broker-dealers
for use in connection with any such resale. During such period of time,
delivery of this prospectus, as it may be amended or supplemented, will satisfy
the prospectus delivery requirements of a participating broker-dealer engaged
in market-making or other trading activities.
Based upon interpretations by the staff of the SEC, Nextel Partners
believes that new notes issued pursuant to the exchange offer may be offered
for resale, resold and otherwise transferred by their holder, other than a
participating broker-dealer, without compliance with the registration and
prospectus delivery requirements of the Securities Act.
Nextel Partners will not receive any proceeds from any sale of new notes
by broker-dealers. New notes received by participating 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, through the writing of options on the new notes or a combination
of such methods of resale, at market prices prevailing at the time of resale,
at prices related to such prevailing market prices or at 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 participating broker-dealer and/or the purchasers of any such new
notes. Any participating broker-dealer that resells new notes that were
received by it for its own account through the exchange offer and any broker or
dealer that participates in a distribution of such new notes may be deemed to
be an "underwriter" within the meaning of the Securities Act and any profit on
any such resale of new notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The
132
<PAGE>
letter of transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a participating broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
Nextel Partners has agreed to pay all expenses incidental to the exchange
offer other than commissions and concessions of any brokers or dealers and will
indemnify holders of the notes, including any broker-dealers, against certain
liabilities, including liabilities under the Securities Act, as set forth in
the registration rights agreement.
LEGAL MATTERS
The validity of the new notes will be passed upon for Nextel Partners by
Willkie Farr & Gallagher, New York, New York.
EXPERTS
The consolidated financial statements of Nextel Partners, Inc. and
Subsidiaries as of and for the year ended December 31, 1998 included in this
prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
133
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants ..................................... F-2
Consolidated Balance Sheets as of March 31, 1999 (unaudited) and as of
December 31, 1998 ........................................................... F-3
Consolidated Statements of Operations for the three month periods ended March
31, 1999 and 1998 (unaudited) and for the year ended December 31, 1998 ...... F-5
Consolidated Statements of Changes in Stockholders' Equity for the three month
period ended March 31, 1999 (unaudited) and for the year ended December 31,
1998 ........................................................................ F-6
Consolidated Statements of Cash Flows for the three month periods ended March
31, 1999 and 1998 (unaudited) and for the year ended December 31, 1998 ...... F-7
Notes to Consolidated Financial Statements ................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Nextel Partners, Inc.:
We have audited the accompanying consolidated balance sheet of Nextel
Partners, Inc. (a Delaware corporation) and Subsidiaries as of December 31,
1998 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the year then ended. 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 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 Nextel Partners, Inc. and
Subsidiaries as of December 31, 1998, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Seattle, Washington,
May 13, 1999
F-2
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ....................................... $300,812 $ 16
Accounts receivable, net of $346 and $254, respectively ......... 2,369 1,546
Subscriber equipment inventory .................................. 1,047 1,353
Other current assets ............................................ 2,979 325
Restricted cash ................................................. 175,000 --
-------- --------
Total current assets ........................................... 482,207 3,240
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost ........................... 119,749 112,334
Less-accumulated depreciation ................................... 6,799 4,386
-------- --------
Property, plant and equipment, net ............................. 112,950 107,948
-------- --------
OTHER NON-CURRENT ASSETS:
FCC operating licenses, net of accumulated amortization of
$332 and $200, respectively .................................... 133,048 133,180
Debt issuance costs and other assets ............................ 20,143 3,298
Receivable from officer ......................................... 2,200 --
-------- --------
Total non-current assets ....................................... 155,391 136,478
-------- --------
TOTAL ASSETS ..................................................... $750,548 $247,666
======== ========
</TABLE>
F-3
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT'D)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable ................................................. $ 219 $ 1,043
Accrued expenses ................................................. 5,592 4,554
Due to Nextel and Eagle River .................................... 12,950 3,398
---------- ---------
Total current liabilities ......................................... 18,761 8,995
---------- ---------
LONG-TERM DEBT
Credit facility .................................................. 175,000 --
14% Senior discount notes, due 2009 .............................. 416,178 --
---------- ---------
Total long-term debt ............................................ 591,178 --
---------- ---------
Total liabilities ................................................. 609,939 --
---------- ---------
COMMITMENTS AND CONTINGENCIES (See Notes)
STOCKHOLDERS' EQUITY:
Preferred stock, Series A convertible, par value $.001 per share,
17,479,971 shares issued and outstanding at January 29, 1999 ..... 17 --
Preferred stock, Series B redeemable or convertible to
Series C preferred stock 2010, par value $.001 per share, 12%
cumulative annual dividend; 2,185,000 shares issued and
outstanding at January 29, 1999 .................................. 2 --
Preferred stock, Series C convertible, par value $.001 per share,
8,740,000 shares issued and outstanding at January 29, 1999 ...... 9 --
Preferred stock, Series D convertible, par value $.001 per share,
2,185,000 shares issued and outstanding at January 29, 1999 ...... 2 --
Common stock, Class A, par value $.001 per share, 1,588,888
shares issued and outstanding, and paid-in capital ............... 6,733 1,604
Warrants outstanding .............................................. 3,847 --
Common stock, Class B, par value $.001 per share, convertible...... -- --
Other paid-in capital ............................................. 298,259 260,761
Accumulated deficit ............................................... (39,976) (22,553)
Subscriptions receivable from stockholders ........................ (122,655) --
Deferred compensation ............................................. (5,629) (1,141)
---------- ---------
Total stockholders' equity ...................................... 140,609 238,671
---------- ---------
$ 750,548 $ 247,666
========== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-4
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
----------------------------- -------------
1999 1998 1998
------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Service revenues ............................ $ 3,493 $ 153 $ 3,745
Equipment revenues .......................... 811 -- 1,564
--------- -------- ---------
Total revenues ............................. 4,304 153 5,309
--------- -------- ---------
OPERATING EXPENSES:
Cost of service revenues .................... 3,106 301 6,108
Cost of equipment revenues .................. 1,718 -- 2,935
Selling, general and administrative ......... 5,231 713 13,531
Deferred compensation ....................... 641 -- 447
Depreciation and amortization ............... 2,515 229 4,586
--------- -------- ---------
Total operating expenses .................. 13,211 1,243 27,607
--------- -------- ---------
LOSS FROM OPERATIONS ......................... (8,907) (1,090) (22,298)
--------- -------- ---------
Interest expense, net ....................... (12,529) -- --
--------- -------- ---------
Interest income ............................. 4,013 -- --
--------- -------- ---------
LOSS BEFORE INCOME TAX PROVISION ............. (17,423) (1,090) (22,298)
Income tax provision ........................ -- -- --
--------- -------- ---------
Net loss ................................... $ (17,423) $ (1,090) $ (22,298)
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK AND
PAID-IN CAPITAL PREFERRED STOCK
--------------------- ---------------------- OTHER
PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------ -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE,
January 1, 1998 .......................... -- $ -- -- $ -- $ 8,255
Equity contributions ..................... -- -- -- -- 252,506
Issuance of common stock under
restricted stock purchase plan .......... 1,588,888 1,604 -- -- --
Vesting of deferred compensation ......... -- -- -- -- --
Net loss ................................. -- -- -- -- --
--------- ------ -- ----- --------
BALANCE,
December 31, 1998 ........................ 1,588,888 1,604 -- -- 260,761
Issuance of Series A preferred stock ..... -- -- 17,479,971 17 170,935
Issuance of warrants ..................... -- -- -- -- --
Subscriptions receivable from
stockholders ............................ -- -- -- -- --
Reclass of other paid-in capital to
Preferred Series B, C and D ............. -- -- -- -- (133,180)
Issuance of Series B preferred stock ..... -- -- 2,185,000 2 21,848
Issuance of Series C preferred stock ..... -- -- 8,740,000 9 89,055
Issuance of Series D preferred stock ..... -- -- 2,185,000 2 22,264
Return of capital to Nextel .............. -- -- -- -- (130,900)
Deferred compensation .................... -- 5,129 -- -- --
Vesting of deferred compensation ......... -- -- -- -- --
Net loss ................................. -- -- -- -- --
Equity issuance costs .................... -- -- -- -- (2,524)
--------- ------ ---------- ----- --------
BALANCE,
March 31, 1999 (unaudited) ............... 1,588,888 $6,733 30,589,971 $ 30 $298,259
========= ====== ========== ===== ========
<CAPTION>
WARRANTS SUBSCRIPTIONS ACCUMULATED DEFERRED
OUTSTANDING RECEIVABLE DEFICIT COMPENSATION TOTALS
------------- --------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE,
January 1, 1998 .......................... $ -- $ -- $ (255) $ -- $ 8,000
Equity contributions ..................... -- -- -- -- 252,506
Issuance of common stock under
restricted stock purchase plan .......... -- -- -- (1,588) 16
Vesting of deferred compensation ......... -- -- -- 447 447
Net loss ................................. -- -- (22,298) -- (22,298)
------ ---------- --------- -------- --------
BALANCE,
December 31, 1998 ........................ -- -- (22,553) (1,141) 238,671
Issuance of Series A preferred stock ..... -- -- -- -- 170,952
Issuance of warrants ..................... 3,847 -- -- -- 3,847
Subscriptions receivable from
stockholders ............................ -- (122,655) -- -- (122,655)
Reclass of other paid-in capital to
Preferred Series B, C and D ............. -- -- -- -- (133,180)
Issuance of Series B preferred stock ..... -- -- -- -- 21,850
Issuance of Series C preferred stock ..... -- -- -- -- 89,064
Issuance of Series D preferred stock ..... -- -- -- -- 22,266
Return of capital to Nextel .............. -- -- -- -- (130,900)
Deferred compensation .................... -- -- -- (5,129) --
Vesting of deferred compensation ......... -- -- -- 641 641
Net loss ................................. -- -- (17,423) -- (17,423)
Equity issuance costs .................... -- -- -- -- (2,524)
------ ---------- --------- -------- --------
BALANCE,
March 31, 1999 (unaudited) ............... $3,847 $ (122,655) $ (39,976) $ (5,629) $140,609
====== ========== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED
MARCH 31, YEAR ENDED
-------------------------- DECEMBER 31,
1999 1998 1998
------------- ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................. $ (17,423) $ (1,090) $(22,298)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities
Depreciation and amortization ........................... 2,515 229 4,586
Amortization debt issuance costs ........................ 356 -- --
Interest accretion for senior discount notes ............ 9,802 -- --
Deferred compensation ................................... 641 -- 447
Allowance for doubtful accounts ......................... 92 -- 254
Change in current assets and liabilities:
Accounts receivable .................................... (915) -- (1,800)
Subscriber equipment inventory ......................... 306 -- (1,353)
Other current assets ................................... (2,654) (327) (325)
Accounts payable and accrued expenses .................. 3,512 1,661 2,300
Operating advances from Nextel and Eagle River ......... 9,495 -- 3,398
---------- --------- --------
Net cash provided by (used in) operating activities ..... 5,727 473 (14,791)
---------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan to officer .......................................... (2,200) -- --
Capital expenditures ..................................... (7,385) (45,476) (104,334)
---------- --------- --------
Net cash used in investing activities ................... (9,585) (45,476) (104,334)
---------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock ................................. -- -- 16
Equity contributions from Nextel ......................... -- 45,003 119,125
Proceeds from borrowings ................................. 581,376 -- --
Restricted cash transfer ................................. (175,000) -- --
Proceeds from equity contributions ....................... 52,144 -- --
Return of capital to Nextel .............................. (130,900) -- --
Equity costs ............................................. (2,524) -- --
Debt issuance costs ...................................... (20,442) -- --
---------- --------- --------
Net cash provided by financing activities ............... 304,654 45,003 119,141
---------- --------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................. 300,796 -- 16
CASH AND CASH EQUIVALENTS, beginning of period ............ 16 -- --
---------- --------- --------
CASH AND CASH EQUIVALENTS, end of period .................. $ 300,812 $ -- $ 16
========== ========= ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
TRANSACTIONS
Contribution of FCC licenses from Nextel Communications,
Inc. ..................................................... $ -- $ -- $133,380
========== ========= ========
Accrued debt and equity issuance costs .................... $ -- $ -- $ 3,298
========== ========= ========
Cash paid for interest .................................... $ -- $ -- $ --
========== ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
(AMOUNTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998 ARE UNAUDITED)
1. FORMATION, CAPITALIZATION AND BASIS OF PRESENTATION
Formation
Nextel Partners, Inc., which together with its subsidiaries is referred to as
"Partners" or the "Company," was formed as a shell corporation on July 8, 1998,
solely to facilitate the Capitalization Transactions discussed below. From July
8, 1998 to January 29, 1999, the activities of Partners were solely focused on
this objective. These activities were funded by Nextel Communications, Inc.
through its subsidiary ("Nextel") and Eagle River Investments LLC ("Eagle
River") through intercompany advances amounting to $3.4 million at December 31,
1998, a majority of which were repaid by using proceeds from the Capitalization
Transactions. The only common stock issuances of the Partners shell entity in
1998 consisted of issuances of restricted stock to key employees of the
Partners shell entity as part of its compensation plan (see Note 8) and to
Eagle River.
Prior to January 29, 1999, Nextel formed and began to operate the digital
wireless communications service business described in Note 2, which is referred
to as the Nextel Carve-Out. The unincorporated operations of the Nextel
Carve-Out constitute the Company's business and were contributed to the Company
in the Capitalization Transactions.
Capitalization Transactions
On January 29, 1999, Nextel contributed the Nextel Carve-Out to the Company in
exchange for 2,185,000 shares of Series B Preferred Stock, 8,740,000 shares of
Series C Preferred Stock, 2,185,000 shares of Series D Preferred Stock and cash
of $130.9 million. Simultaneously, the Company sold equity securities in the
amount of $174.8 million and debt securities in the aggregate principal amount
at maturity of $800 million. The equity securities sold consisted of 17,479,971
shares of Series A Preferred Stock (valued at $170.9 million) and warrants to
purchase 405,710 shares of Class A Common Stock for an exercise price of $.001
per share (valued at $3.8 million). The equity securities were sold in exchange
for cash of $52.1 million, an irrevocable cash equity commitment of $104.3
million to be received over the subsequent two-year period, and a vendor credit
from Motorola, Inc. ("Motorola") of $18.4 million towards the purchase of
infrastructure equipment, which the Company expects to utilize during 1999. See
Note 7, Capital Stock and Stock Rights, for a description of the equity
securities issued in the Capitalization Transactions and Note 4, Long-Term
Debt, for a description of the debt securities sold.
Some of the principal assets used in the Nextel Carve-Out are Federal
Communications Commission ("FCC") licenses. To effect the contribution of the
business of the Nextel Carve-Out to the Company, Nextel transferred all the
rights to the use of and benefits of these licenses to the Company. These
rights were transferred pursuant to a frequency management agreement (the
"Frequency Management Agreement") between the Company and a wholly owned
subsidiary of Nextel described further in Note 9. Nextel has applied to the FCC
for approval of the transfer of the FCC licenses to the Company. The Company
expects to receive that approval and transfer legal ownership of the FCC
licenses during 1999.
F-8
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
(AMOUNTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998 ARE UNAUDITED)
The following summarizes the dollar amount and number of shares issued as part
of the Capitalization Transactions described above.
<TABLE>
<CAPTION>
EQUITY
SHARES ISSUED CONTRIBUTIONS
--------------- -----------------
<S> <C> <C>
Series A Preferred Stock .................................... 17,479,971 $ 170,952,810
Series B Preferred Stock .................................... 2,185,000 21,850,000
Series C Preferred Stock .................................... 8,740,000 89,064,000
Series D Preferred Stock .................................... 2,185,000 22,266,000
Subscription Receivable ..................................... (122,655,000)
Warrants to purchase Class A Common Stock issued for purchase
price of $.001 per share.................................... 405,710 3,846,900
</TABLE>
Approximately $2.5 million of issuance costs were charged to equity as part of
the Capitalization Transactions.
The following chart reflects ownership by major shareholders after the
Capitalization Transactions. Prior to the Capitalization Transactions, the
Company had only Class A Common Stock outstanding. This stock was owned by
management employees, subject to restrictions, and Eagle River. The Company had
no preferred stock outstanding.
<TABLE>
<CAPTION>
MAJOR SHAREHOLDER CLASS OF STOCK VOTING % EQUITY %
- --------------------------------------- --------------------------------- ---------- ---------
<S> <C> <C> <C>
Nextel Preferred--Series B Redeemable 0.00% 6.31%
or Convertible
Nextel Preferred--Series C Convertible 30.98% 25.23%
Nextel Preferred--Series D Convertible 0.00% 6.31%
----- -----
Subtotal--Nextel 30.98% 37.85%
===== =====
DLJ Merchant Banking Partners II, L.P.
and affiliates ("DLJ Merchant
Banking") Preferred--Series A Convertible 14.20% 11.56%
===== =====
Madison Dearborn Capital
Partners II, L.P. Preferred--Series A Convertible 13.55% 11.04%
===== =====
Eagle River Common--Class A 0.45% 0.36%
Eagle River Preferred--Series A Convertible 9.29% 7.57%
----- -----
Subtotal--Eagle River 9.74% 7.93%
===== =====
Motorola Preferred--Series A Convertible 6.51% 5.30%
===== =====
Management Common--Class A 5.18% 4.22%
===== =====
</TABLE>
Basis of Presentation
In substance, the Capitalization Transactions constituted (1) the incorporation
of the Nextel Carve-Out, (2) the formal assumption by the Nextel Carve-Out of
Partners' liabilities, (3) a
F-9
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
(AMOUNTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998 ARE UNAUDITED)
$130.9 million distribution to Nextel, and (4) sales of Nextel Carve-Out
securities to outsiders. Accordingly, the accompanying financial statements
reflect the accounts of the Nextel Carve-Out at Nextel's historical cost basis
for all periods presented. These accounts include Nextel's cost basis in the
FCC licenses discussed above, as all of the rights to the use of and the
benefits of ownership of the FCC licenses were held by the Nextel Carve-Out
prior to the Capitalization Transactions. In the Capitalization Transactions,
the rights to the use of and the benefits of the FCC licenses were transferred
to the Company through the Frequency Management Agreement in exchange for the
issuance of preferred stock to Nextel for $133.2 million. Since the Frequency
Management Agreement is analogous to a capital lease, the cost basis of the FCC
licenses continue to be reflected in the Company's accounts in a manner similar
to the accounting for a capital lease under Statement of Financial Accounting
Standards ("SFAS") No. 13 "Accounting for Leases." The accompanying financial
statements also include the accounts of Partners prior to the Capitalization
Transactions, as Nextel funded the operations of Partners and they were
incurred for the benefit of the Nextel Carve-Out, and Partners had no substance
apart from the Nextel Carve-Out. The distribution and sale of securities
transactions have been reflected in the accompanying financial statements on
January 29, 1999.
The operations of the Nextel Carve-Out generally began in 1998. Prior to
January 1, 1998, the most significant activity associated with the Nextel
Carve-Out operations was fixed asset purchases of approximately $8 million.
Revenues, operating expenses and net loss related to the operations of the
Nextel Carve-Out for the period from inception through December 31, 1997, are
estimated to be $195,000, $450,000 and $255,000, respectively. Because these
operating results are not material, financial statements for periods prior to
January 1, 1998 have not been presented.
2. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
Description of Business
The Company provides a wide array of digital wireless communications services
throughout the United States, primarily to business users, utilizing
frequencies licensed by the FCC. Partners' operations are primarily conducted
by Nextel Partners Operating Corp. ("OPCO"), a wholly owned subsidiary of
Partners.
Partners' digital network ("Digital Mobile Network") has been developed with
advanced mobile communication systems employing digital technology with a
multi-site configuration permitting frequency reuse utilizing digital
technology developed by Motorola (such technology is referred to as the
"integrated Digital Enhanced Network" or "iDEN" (Trade Mark) ). Partners'
principal business objective is to offer high-capacity, high-quality, advanced
communication services in its territory throughout the United States targeted
towards mid-sized and smaller markets. Various operating agreements entered
into by subsidiaries of the Company and Nextel (See Note 9) provide for support
services to be provided by Nextel. Additionally, the Company plans to use
Nextel's back-office systems initially to support customer activation, billing
and customer care as well as other services during a transition period.
F-10
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
(AMOUNTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998 ARE UNAUDITED)
Interim Financial Statement Presentation
The financial statements as of and for the three month periods ended March 31,
1999 and 1998 have been prepared without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements and notes thereto.
The financial information included herein reflects all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary to a fair presentation of the results of the interim periods. The
results of operations for the three month period ended March 31, 1999 are not
necessarily indicative of the results to be expected for the full year.
Concentration of Risk
The Company believes that the geographic and industry diversity of its customer
base minimizes the risk of incurring material losses due to concentration of
credit risk.
The Company is a party to certain equipment purchase agreements with Motorola
(see Notes 2 and 9). For the foreseeable future the Company expects that it
will need to rely on Motorola for the manufacture of a substantial portion of
the infrastructure equipment necessary to construct and make operational its
Digital Mobile Network as well as for the provision of digital subscriber
handsets and accessories.
As previously discussed, the Company is reliant on Nextel for the provision of
certain services. For the foreseeable future, the Company will need to rely on
Nextel for the provision of these services as the Company will not have the
infrastructure to support those services.
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 disclosure 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.
Principles of Consolidation
The consolidated financial statements include the accounts of Partners and its
wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Cash and Cash Equivalents
Cash equivalents include time deposits and highly liquid investments with
remaining maturities of three months or less at the time of purchase.
F-11
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
(AMOUNTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998 ARE UNAUDITED)
Subscriber Equipment Inventory
Subscriber equipment is valued at the lower of cost or market. Cost is
determined by the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment, including improvements that extend useful lives,
are recorded at cost, while maintenance and repairs are charged to operations
as incurred. Depreciation and amortization are computed using the straight-line
method based on estimated useful lives of three to ten years for equipment and
three to seven years for furniture and fixtures. Leasehold improvements are
amortized over the shorter of the respective lives of the leases or the useful
lives of the improvements.
Construction in progress includes labor, material, transmission and related
equipment, engineering, site design, interest and other costs relating to the
construction of the Digital Mobile Network.
The Company periodically reviews the carrying value of its long-lived assets
(including property, plant and equipment and operating licenses) whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. If the estimated future cash inflows attributable to the asset,
less estimated future cash outflows is less than the carrying amount, an
impairment loss will be recognized.
Capitalized Interest
The Company's wireless communications systems and FCC operating licenses
represent qualifying assets pursuant to SFAS No. 34, "Capitalization of
Interest Cost." The Company capitalized interest of approximately $6.3 million
for the year ended December 31, 1998.
FCC Operating Licenses
FCC operating licenses are recorded at historical cost and are amortized using
the straight-line method based on estimated useful lives of 40 years. The
Company's FCC licenses and the requirements to maintain the licenses are
similar to other licenses granted by the FCC, including PCS and cellular
licenses in that they are subject to renewal after the initial 10-year term.
Historically, the renewal process associated with these FCC licenses has been
perfunctory. The accounting for these licenses has historically not been
constrained by the renewal and operational requirements.
Amortization begins with the commencement of service to customers in a
particular market. During the second half of 1998, the Upstate New York and
Hawaii markets became operational. Amortization expense of $178,000 and
$22,000, respectively was recorded in relation to these markets for the year
ended December 31, 1998.
Interest Rate Risk Management
The Company intends to use derivative financial instruments consisting of
interest rate swap and interest rate protection agreements in the management of
its interest rate exposures.
F-12
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
(AMOUNTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998 ARE UNAUDITED)
These interest rate swap agreements will have the effect of converting certain
of the Company's variable rate obligations to fixed or other variable rate
obligations. Amounts to be paid or received under interest rate swap agreements
will be accrued as interest rates change and will be recognized over the life
of the swap agreements as an adjustment to interest expense. The fair value of
the swap agreements will not be recognized in the consolidated financial
statements, since the swap agreements will meet the criteria for matched swap
accounting.
The Company will not use financial instruments for trading or other speculative
purposes, nor will it be a party to any leveraged derivative instrument. The
use of derivative financial instruments will be monitored through regular
communication with senior management. The Company will be exposed to credit
loss in the event of nonperformance by the counterparties. This credit risk is
minimized by dealing with a group of major financial institutions with which
the Company has other financial relationships. The Company does not anticipate
nonperformance by these counterparties. As of December 31, 1998 and March 31,
1999, the Company did not hold any derivative financial instruments.
Revenue Recognition
Revenue net of customer discounts and rebates is recognized for airtime and
other services over the period earned and for sales of equipment when
delivered.
Certain of the Company's digital equipment sales are made through independent
distributors under agreements allowing rights of return on merchandise unsold
by the distributors. The Company defers recognition of such sales until the
merchandise is sold by the distributors.
Advertising Costs
Costs related to advertising and other promotional expenditures are expensed as
incurred. Advertising costs totaled approximately $1.5 million for the year
ended December 31, 1998.
Debt Issuance Costs
In relation to the issuance of long-term debt discussed in Note 4, the Company
has incurred a total of $20.4 million ($1.3 million had been incurred as of
December 31, 1998) in deferred financing costs related to the issuances of the
Notes and the bank credit facility. These debt issuance costs will be amortized
over the terms of the underlying obligation using the effective interest
method. For the three month period ended March 31, 1999, $356,000 of
amortization on debt issuance costs was included in interest expense.
Stock Based Compensation
As allowed by SFAS No. 123, "Accounting for Stock Based Compensation" ("SFAS
123"), the Company has chosen to account for compensation cost associated with
its stock compensation plans in accordance with APB Opinion No. 25, "Accounting
for Stock Issued to Employees" and related interpretations. For the year ended
December 31, 1998, compensation expense under SFAS 123 and APB Opinion No. 25
were identical. In the
F-13
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
(AMOUNTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998 ARE UNAUDITED)
future, the Company will disclose pro forma net loss as if compensation expense
costs had been determined consistent with SFAS 123. The Company had no stock
options outstanding as of December 31, 1998.
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, such as net
operating loss carryforwards, are recognized to the extent that realization of
such benefits is considered to be more likely than not. Net operating losses
incurred by the Nextel Carve-Out prior to the closing of the Capitalization
Transactions will be retained by Nextel.
Segment Reporting
The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information" ("SFAS 131") during 1998. SFAS 131 requires companies
to disclose certain information about operating segments. Based on the criteria
within SFAS 131, the Company has determined that it has one reportable segment,
wireless services.
Recently Issued Accounting Pronouncements
Software Costs -- In March 1998, the American Institute of Certified Public
Accountants (the "AICPA") issued Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use." This
statement became effective for the Company on January 1, 1999 and established
accounting standards for costs incurred in the acquisition or development and
implementation of computer software. These new standards require the
capitalization of certain software implementation costs relating to software
acquired or developed and implemented for the Company's use. The adoption of
this statement will not have a significant effect on the Company's financial
position or results of operations.
Accounting for Start-Up Activities -- In April 1998, the AICPA issued Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities." This
statement became effective on January 1, 1999 and required that costs of
start-up activities and organization costs be expensed as incurred. This
statement will not have a significant effect on the Company's financial
position or results of operations.
Accounting for Derivative Instrument and Hedging Activities -- In June 1998,
the Financial Accounting Standards Board ("FASB") issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which establishes accounting and reporting standards for derivative instruments
and for hedging activities by requiring that all derivatives be recognized in
the balance sheet and measured at fair value. SFAS 133 is effective for fiscal
years beginning after June 15, 1999. The Company has not evaluated the effects
of this change on its financial position or results of operations.
F-14
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
(AMOUNTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998 ARE UNAUDITED)
3. PROPERTY AND EQUIPMENT (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31,
1998
-------------
<S> <C>
Building and improvements .............................. $ 998
Equipment .............................................. 87,523
Furniture and fixtures ................................. 2,248
Less-accumulated depreciation and amortization ......... (4,386)
--------
86,383
--------
Construction in progress ............................... 21,565
--------
$107,948
========
</TABLE>
4. LONG-TERM DEBT (IN THOUSANDS):
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, DECEMBER 31,
1999 1998
----------- -------------
<S> <C> <C>
14% Senior Redeemable Discount Notes 2009, net of
unamortized discount of $383.8 million ...................... $416,178 $ --
Bank Credit Facility, interest at Company's option, calculated
on Administrative Agent's alternate base rate or
reserve-adjusted London Interbank Offered Rate
("LIBOR") ................................................... 175,000 --
-------- ------
$591,178 $ --
======== ======
</TABLE>
Senior Redeemable Discount Notes
On January 29, 1999, the Company completed the issuance of Senior Redeemable
Discount Notes due 2009 (the "Notes"). The aggregate accreted value of the
Notes will increase from $406.4 million at issuance at a rate of 14%,
compounded semi-annually to a final accreted value equal to a principal amount
at maturity of $800 million. Thereafter, the Notes bear interest at a rate of
14% per annum payable semi-annually in arrears.
The Notes represent senior unsecured obligations of the Company, and rank
equally in right of payment to all existing and future senior unsecured
indebtedness of the Company and senior in right of payment to all existing and
future subordinated indebtedness of the Company. The Notes are effectively
subordinated to (i) all secured obligations of the Company, including
borrowings under the bank credit facility, to the extent of assets securing
such obligations and (ii) all indebtedness including borrowings under the bank
credit facility and trade payables of OPCO.
The indenture contains certain covenants that limit, among other things, the
ability of the Company to: (i) pay dividends, redeem capital stock or make
certain other restricted payments or investments, (ii) incur additional
indebtedness or issue preferred equity interests, (iii) merge, consolidate or
sell all or substantially of its assets, (iv) create liens on assets, and (v)
enter into certain transactions with affiliates or related persons. As of March
31, 1999, the Company was in compliance with applicable covenants.
F-15
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
(AMOUNTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998 ARE UNAUDITED)
The Notes are redeemable at the option of the Company, in whole or in part, any
time on or after February 1, 2004 in cash at the redemption price on that date,
plus accrued and unpaid interest and liquidated damages if any, at the date of
liquidation. In addition, prior to February 1, 2002, the Company may on one or
more occasions redeem up to 35% of the aggregate principal amount at maturity
of Notes originally issued at a redemption price equal to 114% of the accreted
value at that date, plus accrued and unpaid interest and liquidated damages if
any, with the net cash proceeds of one or more public equity offerings;
provided that at least 65% of the aggregate principal amount at maturity of
Notes originally issued remain outstanding immediately after the occurrence of
such redemption.
Bank Credit Facility
On January 29, 1999, the Company, through OPCO, entered into a credit facility
(the "Facility") with a syndicate of banks and other financial institutions led
by Donaldson, Lufkin and Jenrette Securities Corporation, as arranger
)"DLJSC"), and DLJ Capital Funding, Inc., as syndication agent ("DLJ Capital").
The Facility includes a $175 million term loan facility and initially, a $100
million revolving credit facility. The term loan facility has a maturity of
nine years. The revolving credit facility terminates eight years from the
initial funding of the Facility.
The Facility bears interest, at the option of the Company, at the
Administrative Agent's alternate base rate or reserve-adjusted LIBOR plus, in
each case, applicable margins. The applicable margin for the term loan facility
is 4.75% over LIBOR and 3.75% over the base rate. For the revolving credit
facility, the initial applicable margin is 4.25% over LIBOR and 3.25% over the
base rate until consolidated EBITDA as adjusted is positive at which time the
applicable margin will be initially 4.0% over LIBOR and 3.0% over the base rate
and thereafter will be determined on the basis of the ratio of total debt to
annualized EBITDA as adjusted and will range between 2.25% and 3.75% over LIBOR
and between 1.25% and 2.75% over the base rate.
The Company pays a commitment fee calculated at a rate equal to 2.00% per
annum, calculated on the daily average unused commitment under the revolving
credit facility (whether or not then available). Such fee will be payable
quarterly in arrears. The commitment fee is subject to reduction based on
utilization of the revolving credit facility.
Prior to the date on which the Company's portion of the Digital Mobile Network
is substantially complete and operations and services are offered to customers
over a minimum coverage area, loans under the revolving credit facility will be
made subject to satisfaction of certain financial covenants and certain
build-out covenants.
The term loan facility is subject to mandatory prepayment: (i) with 100% of the
net cash proceeds from the issuance of debt, subject to certain exceptions,
(ii) with 100% of net cash proceeds of asset sales, subject to certain
exceptions, (iii) with 50% of the Company's excess cash flow (as defined), and
(iv) with 50% of the net cash proceeds from the issuance of equity.
The Company's obligations under the Facility are secured by a first-priority
perfected lien on all property and assets, tangible and intangible, of the
Company's subsidiaries including a
F-16
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
(AMOUNTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998 ARE UNAUDITED)
pledge of the capital stock of all the Company's subsidiaries. The Company and
its subsidiaries guarantee the obligations of OPCO under the Facility. Such
guarantee will only be recourse to the Company's pledge of all of the
outstanding capital stock of the Company's subsidiaries to secure the
obligations of the Company under the Facility.
The Facility contains covenants and restrictions on the ability of the Company
to engage in certain activities, including but not limited to: (i) limitations
on the incurrence of liens and indebtedness, (ii) restrictions on sale
lease-back transactions, consolidations, mergers, sale of assets, capital
expenditures, transactions with affiliates and investments, and (iii) severe
restrictions on dividends, and other similar distributions.
Additionally, the Facility also contains financial covenants requiring the
Company to maintain (i) certain defined ratios of senior debt and total debt to
EBITDA as adjusted, (ii) a minimum interest coverage ratio, (iii) a minimum
fixed charge coverage ratio, (iv) a maximum leverage ratio, and (v) minimum
service revenues, subscriber units and covered population equivalents. As of
March 31, 1999, the Company was in compliance with all of its required
covenants.
Future Maturities of Long-Term Debt
Based on the debt issued on January 29, 1999, as discussed above, for the years
subsequent to December 31, 1998, scheduled annual maturities of long-term debt
outstanding as of December 31, 1998, under existing long-term debt agreements
are as follows (in thousands):
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1998
-------------
<S> <C>
1999 ............................... $ --
2000 ............................... --
2001 ............................... --
2002 ............................... --
2003 ............................... 1,312
Thereafter ......................... 973,688
----------
975,000
Less--Unamortized discount ......... (393,624)
----------
$ 581,376
==========
</TABLE>
F-17
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
(AMOUNTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998 ARE UNAUDITED)
5. INCOME TAXES:
Deferred tax assets and liabilities consist of the following and are presented
as if Nextel Partners holding company, which was incorporated in 1998 to serve
as the parent company of the Nextel Carve-Out, had conducted operations in 1998
(in thousands):
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1998
------------------
<S> <C>
Deferred tax assets:
Operating loss carryforwards .......... $ 14,731
Valuation allowance ................... (8,182)
--------
6,549
--------
Deferred tax liabilities:
Property, plant and equipment ......... (6,097)
Other ................................. (452)
--------
(6,549)
--------
Net deferred tax liability ............. $ --
========
</TABLE>
At December 31, 1998, the Company would have had approximately $39.8 million of
consolidated net operating loss ("NOL") carryforwards for federal income tax
purposes expiring through 2018. The Company would have recorded a valuation
allowance of approximately $8.2 million for 1998 because available objective
evidence would have created sufficient uncertainty regarding the realization of
the net deferred tax assets. Such factors primarily would have included
anticipated recurring operating losses resulting from the development of the
Company's business. On a stand-alone Company basis, ignoring the tax effects of
the Nextel Carve-Out whose tax impacts will be included in the consolidated tax
return of Nextel for the year ended December 31, 1998 and for the period
through January 29, 1999, and given that the Company had no actual operations
in 1998, the Company would have reported a deferred tax asset of $1.5 million,
a deferred tax liability of $400,000 off set by a valuation allowance on the
net deferred tax asset of $1.1 million. The Company prior to January 29, 1999,
had no operations on a stand-alone basis. As a result, the Company capitalized
and amortized over future periods for tax purposes costs incurred by the
Company prior to January 29, 1999, which were expensed for financial reporting
purposes resulting in the deferred tax asset. The Company, on a stand-alone
basis, did not generate any NOL for the year ended December 31, 1998.
The difference between the statutory tax rate of approximately 37% (35% federal
and 2% state, net of federal benefits) and the tax benefit of zero disclosed
above by the Company is primarily due to the Company's full valuation allowance
against the net deferred tax assets. The Company's ability to utilize the NOL
in any given year may be limited by certain events, including a significant
change in ownership interest.
F-18
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
(AMOUNTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998 ARE UNAUDITED)
6. COMMITMENTS AND CONTINGENCIES:
Operating Lease Commitments
The Company leases various equipment and office facilities under operating
leases. Leases for antenna sites are typically five years with renewal options.
Office facilities and equipment other than antenna sites are leased under
agreements with terms ranging from month to month to 20 years. The leases
normally provide for the payment of minimum annual rentals and certain leases
include provisions for renewal options of up to five years.
For years subsequent to December 31, 1998, future minimum payments for all
operating lease obligations that have initial noncancellable lease terms
exceeding one year are as follows (in thousands):
<TABLE>
<S> <C>
1999 .................... $ 5,798
2000 .................... 5,850
2001 .................... 5,618
2002 .................... 4,976
2003 .................... 2,551
Thereafter .............. 5,271
-------
$30,064
=======
</TABLE>
Total rental expense was approximately $3 million for the year ended December
31, 1998.
Regulatory Matters
The FCC issues Specialized Mobile Radio ("SMR") licenses on both a
site-specific and wide-area basis. Each license enables SMR carriers to provide
service either on a site-specific basis, in specific 800 MHz Economic Areas
("EA") or 900 MHz Metropolitan Trading Areas ("MTA") in the U.S. Currently, SMR
licenses are issued for a period of 10 years, and are subject to certain
construction and operational requirements.
Pursuant to the Facility, until FCC approval of the ownership transfer, the
Company has established a cash collateral account in which it maintains a
balance equal to amounts outstanding under the Facility. Failure of the Company
to obtain such FCC approval prior to January 29, 2000, would constitute an
event of default under the Facility and any indebtedness outstanding thereunder
may be accelerated. The FCC has routinely granted license renewals providing
the licensees have complied with applicable rules, policies and the
Communications Act of 1934, as amended. The Company believes that it has met
and will continue to meet all requirements necessary to secure the retention
and renewal of its SMR licenses subsequent to the FCC approved transfer of the
licenses from Nextel.
7. CAPITAL STOCK AND STOCK RIGHTS:
Pursuant to the Restated Certificate of Incorporation, the Company has the
authority to issue 170 million shares of capital stock, divided into six
classes as follows: (i) 75 million
F-19
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
(AMOUNTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998 ARE UNAUDITED)
shares of Class A Common Stock, par value $.001 per share ("Class A Common
Stock"); (ii) 25 million shares of Class B Convertible Common Stock, par value
$.001 per share ("Class B Common Stock"); (iii) 25 million shares of Series A
Convertible Preferred Stock, par value $.001 per share ("Series A Preferred
Stock"); (iv) 25 million shares of Series B Redeemable or Convertible Preferred
Stock, par value $.001 per share ("Series B Preferred Stock"); (v) 15 million
shares of Series C Convertible Preferred Stock, par value $.001 per share
("Series C Preferred Stock"); and (vi) 5 million shares of Series D Convertible
Preferred Stock, par value $.001 per share ("Series D Preferred Stock").
The following is a summary description of the Company's capital stock.
Common Stock
The holders of Common Stock are entitled to one vote per share on all matters
submitted for action by the shareholders. There is no provision for cumulative
voting with respect to the election of directors. Holders of Common Stock are
entitled to share equally, share for share, if dividends are declared on Common
Stock, whether payable in cash, property or securities.
Class A Common Stock -- Under certain circumstances, shares of Class A Common
Stock and securities convertible into Class B Common Stock (other than Class B
Common Stock) are callable at the option of Nextel or may be put to Nextel at
the option of the holders.
Under the Joint Venture Agreement (as defined in Note 9), the Company has the
right to extend its build-out of the Digital Mobile Network to include option
markets within a specified time period. If the Company does not elect to
construct option markets covering a specified number of people prior to the
expiration of such period, or upon its earlier merger or consolidation with
another entity or sale of all or substantially all of the Company's assets, the
Company is obligated to purchase from Eagle River and each of the management
shareholders, and Eagle River and each of the management shareholders is
obligated to sell, at $0.01 per share, up to 200,200 shares of Class A Common
Stock, representing 12.6% of the shares that Eagle River and such management
shareholders purchased from the Company on November 20, 1998.
Class B Common Stock -- Shares of Class B Common Stock are convertible at any
time at the option of the holder into an equal number of shares of Class A
Common Stock.
Preferred Stock
Ranking -- With respect to rights on liquidation, dissolution or winding up the
order of preference is as follows:
1. the Series B Preferred Stock;
2. the Series A Preferred Stock;
3. the Series C and Series D Preferred Stock; and
4. the Class A and Class B Common Stock
The holders of the Series A and Series C Preferred Stock are entitled to vote
on an as converted basis on all matters submitted for action by the
shareholders. Series B and
F-20
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
(AMOUNTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998 ARE UNAUDITED)
Series D Preferred Stock have limited voting rights, including rights to
approve mergers or consolidations adverse to the rights of holders of such
securities. The holders of Series A, Series C and Series D Preferred Stock are
entitled to share equally, share for share, on an as converted basis, if
dividends are declared on Common Stock, whether payable in cash, property or
securities.
Series A Preferred Stock -- Each share of Series A Preferred Stock is
convertible into one share of Class A Common Stock at any time at the option of
the holder.
Series B Preferred Stock -- The Series B Preferred Stock is subject to
mandatory redemption by the Company 375 days after the stated maturity of the
Notes. The price for redemption will be the liquidation value, which accretes
at an annual rate of 12% from the date of issuance. The Company may elect under
certain circumstances to pay the redemption price by issuing Series C Preferred
Stock for each share of Series B Preferred Stock so redeemed as long as an IPO
has not occurred. The Series B Preferred Stock is subject to voluntary
redemption. The Series B Preferred Stock is subject to voluntary redemption for
cash at the Company's option at any time at its then current liquidation value.
Series C Preferred Stock and Series D Preferred Stock -- Each share of Series C
and Series D Preferred Stock is convertible into one share of Class B Common
Stock at any time at the option of the holder.
Common Stock Reserved for Issuance
As of the closing of the Capitalization Transactions, the Company had reserved
Common Stock for future issuance as detailed below.
<TABLE>
<S> <C>
Preferred Stock conversion rights .......... 30,589,971
Warrants outstanding ....................... 405,710
Employee options outstanding ............... 262,000
Employee options available for grant ....... 1,795,222
----------
Total ...................................... 33,052,903
==========
</TABLE>
8. STOCK AND EMPLOYEE BENEFIT PLANS:
Restricted Stock Purchase Plan
Pursuant to the Company's Restricted Stock Purchase Plan (the "Plan"), in 1998,
the Company issued 1,462,499 shares of Class A Common Stock, to senior managers
of the Company and 126,389 shares of Class A Common Stock to Eagle River at
$.01 per share. Pursuant to the Plan, the shares issued to senior managers vest
over a four-year period based on the passing of time and based on certain
Company performance goals related to revenue, EBITDA as adjusted and the
successful build-out of the Digital Mobile Network. As of December 31, 1998,
446,547 shares were considered fully vested, including the 126,389 shares
issued to Eagle River which vested immediately upon issuance. Compensation
expense recognized by the Company, which accounts for the Plan using variable
accounting, for the three month period ended March 31, 1999 and for the year
ended December 31, 1998 was approximately $641,000 and $447,000, respectively.
F-21
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
(AMOUNTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998 ARE UNAUDITED)
Stock Option Grant
On January 29, 1999, pursuant to an employment agreement entered into by the
Company and an officer of the Company, the Company issued 35,000 options for
the Company's unrestricted Class A Common Stock with an exercise price of
$10.00 per share which was more than the estimated fair value at that time of
$7.50 per share. These options vested immediately. The agreement provides that
the Company will be required to purchase the unexercised options on the fourth
anniversary for an aggregate purchase price of $500,000 if directed to do so by
the officer. Beginning with the period after January 29, 1999, the date of
issuance of these shares, the Company will recognize compensation expense on a
straight-line basis over the four year life of the put contract (up to a
maximum of $500,000) adjusted for actual exercises, if any, by the officer.
Officer Note Receivable
On January 29, 1999, the Company advanced $2.2 million to an officer of the
Company. The note does not bear interest and is collateralized by proceeds of
the loan and the restricted stock of the officer and is due on January 29,
2003. The advance was made to the same officer to whom the stock option grant
discussed in the previous paragraph was made. The advance was a separate
arrangement not related to the stock option grant discussed above.
Employee Benefit Plan
The Company has a defined contribution plan pursuant to Section 401(k) of the
Internal Revenue Code covering all eligible officers and employees. The Company
provides a matching contribution of $0.50 for every $1.00 contributed by the
employee up to 4% of each employee's salary. Such contributions were
approximately $50,000 for the year ended December 31, 1998. At December 31,
1998, the Company had no other pension or postemployment benefit plans.
9. RELATED PARTY TRANSACTIONS:
Prior to January 29, 1999, Nextel and Eagle River funded the operations of the
Company and accordingly all transactions were considered to be related party
transactions. On January 29, 1999, the Company reimbursed Nextel and Eagle
River $1.5 million and $1.2 million for operating advances previously made to
the Company. Additionally, the Company made a return of capital payment to
Nextel of $130.9 million representing the reimbursement of net operating
expenses of $15.1 million and capital expenditures of $115.8 million incurred
by the Nextel Carve-Out operations prior to January 29, 1999. As of December
31, 1998, total amounts owed to Nextel as a return of capital and for
reimbursement of net operating expenses and operating advances was $130.9
million. As of December 31, 1998, total amounts owed to Eagle River for
operating advances made to the Company was $1.0 million.
Motorola Purchase Agreements
Pursuant to the equipment purchase agreements between Partners and Motorola,
and prior to the Capitalization Transactions, purchase agreements between
Nextel and Motorola dated
F-22
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
(AMOUNTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998 ARE UNAUDITED)
January 29, 1999, Motorola provided the iDEN infrastructure and subscriber
handset equipment to Partners throughout its markets (such equipment purchase
agreements, are referred to herein as the "Equipment Purchase Agreements"). The
Company expects to rely on Motorola for the manufacture of a substantial
portion of the equipment necessary to construct its Digital Mobile Network and
handset equipment for the foreseeable future. The Equipment Purchase Agreements
govern Partners' rights and obligations regarding purchases of system
infrastructure equipment manufactured by Motorola and others.
For the three month period ended March 31, 1999 and the year ended December 31,
1998, the Company purchased approximately $1.7 million and $47.5 million,
respectively, of infrastructure and other equipment, handsets, warranties and
services from Motorola. As of December 31, 1998 and March 31, 1999, the Company
did not owe any amounts to Motorola for the purchase of equipment.
The Joint Venture Agreement
The Company, OPCO and a wholly owned subsidiary of Nextel ("Nextel Sub")
entered into a joint venture agreement (the "Joint Venture Agreement") dated
January 29, 1999. Summarized below are several of the important terms of the
Joint Venture Agreement.
Build-Out -- The Company is bound to certain operational obligations, including
meeting the construction requirements set forth in an agreed-upon minimum
build-out plan, ensuring compatibility of the Company's systems with the Nextel
Digital Mobile Network, offering certain core service features with respect to
its systems (including upgrading its system to comply with future Nextel
standards) and causing the Company's systems to comply with Nextel's iDEN
quality standards.
Acquisition of Licenses -- Nextel has transferred SMR licenses to Nextel WIP
License Corp. (a Delaware corporation and currently a wholly owned subsidiary
of Nextel). Upon approval of the FCC, Nextel will transfer the stock of Nextel
WIP License Corp. to Partners. These licenses will allow the Company to provide
wireless communication service to customers in 39 mid-sized and smaller markets
throughout the United States.
Nextel Vendor Relationships -- If requested by the Company, Nextel Sub has
agreed to use reasonable efforts to assist the Company in obtaining access to
many of the goods and services available through Nextel's vendors with whom the
Company is negotiating for the purpose of obtaining equipment as well as
advertising, media buying, telemarketing and related services.
Nextel Approval Rights -- Subject to Nextel maintaining a certain percentage
ownership in Partners, and without the approval of Nextel Sub, the Company may
not (i) make a material change in the technology used in its business, (ii)
dispose of all or substantially all of its assets or (iii) prior to the
occurrence of certain specified events, broaden the scope of its business
beyond the limits provided for in the Joint Venture Agreement.
Exclusivity -- Nextel Sub has agreed, on behalf of Nextel and its affiliates,
that during the term of the Joint Venture Agreement, Nextel and its affiliates
will not provide digital
F-23
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
(AMOUNTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998 ARE UNAUDITED)
wireless communication services within the Company's territory (the
"Territory") using 800 MHz frequencies. Nextel and its affiliates may continue
to provide analog 800 MHz service in the Territory provided that such analog
service is not offered under any of the trademarks licensed to the Company
under the parties Trademark License Agreement. In addition, Nextel and its
affiliates may offer digital services (other than cellular-like service) in the
Territory using non-800 MHz frequencies provided that these services are not
offered under the licensed trademarks and do not involve the use of iDEN or
other digital transmission technology. Nextel may engage in national
advertising (including print, television, radio and Internet), promotions and
sponsorships to promote Nextel service, but will coordinate with the Company to
ensure that customers in the Company service areas adjacent to Nextel service
areas do not switch between Nextel and the Company's territories. Nextel may
continue to service national accounts, accounts with virtual private networks
and national indirect distributors within the Territory.
Standard of Care -- Nextel Sub (on behalf of Nextel and its affiliates) has
agreed to provide services to the Company at the same level that such services
are provided to subsidiaries of Nextel and not to discriminate between the
Company and subsidiaries of Nextel with respect to providing such services. In
the event that Nextel Sub (on behalf of Nextel and its affiliates) has agreed
to provide services to the Company that are not provided to subsidiaries of
Nextel, Nextel Sub will only be liable in cases of gross negligence or willful
misconduct in the provision of such services.
Marketing, Advertising, Pricing, etc. -- The Company is generally required to
adhere to Nextel standards for pricing structure, advertising, promotions,
customer care, telemarketing and related activities.
Back Office/MIS Services -- Nextel provides the Company access to certain back
office and information systems platforms on an ongoing basis, as more fully
described in the Joint Venture Agreement. The Company pays to Nextel a fee,
based on Nextel's cost, for these services. For the three month period ended
March 31, 1999, the Company was charged approximately $45,000 for these
services.
Trademark License Agreement -- Pursuant to a trademark license agreement (the
"Trademark License Agreement"), Nextel Sub has granted OPCO a non-exclusive
license to use certain trademarks and other intellectual property (the
"Licensed Marks") that are now or in the future may be used by or licensed to
Nextel.
The Trademark License Agreement allows OPCO to sublicense the Licensed Marks
solely to its wholly owned subsidiaries and to authorized dealers of OPCO in
connection with the marketing, promotion and sale of OPCO services, and the
marketing, promotion and sale of certain equipment to be used by OPCOs
customers. OPCO is obligated to pay royalties to Nextel Sub for its use of the
Licensed Marks, beginning on a date (the "Royalty Commencement Date") that is
the later of January 1, 2002 or the first day of the month after the Company
has achieved two consecutive fiscal quarters of positive EBITDA as adjusted.
After the Royalty Commencement Date and through December 31, 2004, the royalty
will be equal to 0.5% of gross monthly service revenues, and will equal 1% of
the gross monthly service revenues from January 1, 2005 and thereafter.
F-24
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
(AMOUNTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998 ARE UNAUDITED)
Either OPCO or Nextel Sub is allowed to, at any time upon or following the
termination of the Joint Venture Agreement, terminate the Trademark License
Agreement, and Nextel Sub is entitled to seek to terminate the Trademark
License Agreement upon the occurrence of certain material defaults under the
Joint Venture Agreement, even if the Joint Venture Agreement and other
Operating Agreements remain in effect. Termination of the Trademark License
Agreement requires, among other things, that OPCO discontinue use of the
Licensed Marks as part of its corporate, assumed or trade name.
Roaming Agreement -- Pursuant to a roaming agreement (the "Roaming Agreement")
entered into between Nextel Sub and OPCO, Nextel Sub and OPCO provide ESMR
service to subscribers of the other (in either case, the "Home Service
Provider") while such subscribers are out of the Home Service Provider's
territory and roaming in the territory of the other (in either case, the
"Remote Service Provider"). Under the Roaming Agreement, each Home Service
Provider is responsible for billing its own subscribers and designated users
for roaming usage in accordance with its own subscriber plans and service
agreements. The Roaming Agreement provides that each party pays the other's
monthly roaming fees in an amount based on the actual system minutes generated
by the respective subscribers of each Home Service Provider operating as
authorized roamers in the Remote Service Provider's territory. For the three
month period ended March 31, 1999, the Company earned approximately $7,500 from
Nextel customers roaming on the Company's system and was charged approximately
$3,300 for the Company's customers roaming on Nextel's system.
Frequency Management Agreement -- Pending FCC approval of the Company's
acquisition of SMR licenses from Nextel, its right to utilize those frequencies
are governed by the Frequency Management Agreement. The Frequency Management
Agreement entitles the Company to utilize those licenses without the payment of
a management fee or other charge throughout the term of the Frequency
Management Agreement. The Frequency Management Agreement obligates the Company
to, among other things, comply with all applicable FCC rules and regulations
governing the licenses underlying the managed frequencies and with various
standards and criteria established by Nextel relating to the construction,
implementation and operation of the Digital Mobile Network. Pending FCC
approval of the license transfer, Nextel Sub will represent the Company before
the FCC with respect to any matters relating to the managed frequencies. The
Frequency Management Agreement will terminate upon FCC approval of the license
transfer.
Master Site Lease Agreement -- OPCO leases from Nextel Sub, under a master site
lease agreement entered into between them (the "Master Site Lease"),
telecommunications towers and sites and space on telecommunications towers,
which are owned or leased by affiliates of Nextel Sub in the Territory.
Pursuant to the Master Site Lease, as the network build-out progresses,
additional sites will become subject to the Master Site Lease. OPCO pays Nextel
Sub monthly rental payments based on the number of telecommunication towers
leased by OPCO. For the three month period ended March 31, 1999, the Company
was charged approximately $94,000 by Nextel under these arrangements.
The Master Site Lease, and each site lease thereunder, has an initial term of
five years, renewable at OPCO's option for up to nine additional terms of five
years. Either OPCO or
F-25
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
(AMOUNTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998 ARE UNAUDITED)
Nextel Sub is allowed to, at any time upon or following the termination of the
Joint Venture Agreement, terminate the Master Site Lease. Neither party is
permitted to assign or transfer the Master Site Lease or any of its rights or
obligations thereunder without the consent of the other, except that Nextel Sub
will be entitled to assign or transfer the Master Site Lease to any affiliate
or any tower aggregator.
Transition Services Agreement -- Nextel Sub, through its affiliates, provides
certain services to OPCO for a limited period under a transition services
agreement entered into between OPCO and Nextel (the "Transition Services
Agreement"). Under the Transition Services Agreement, certain accounting,
payroll, customer care, purchasing, human resources and billing functions are
made available to OPCO. In return for the services received through Nextel,
OPCO pays monthly fees to Nextel based on Nextel's cost. For the three month
period ended March 31, 1999, the Company was charged approximately $327,000 for
these services.
The services provided under the Transition Services Agreement have different
variable terms agreed to by OPCO and Nextel Sub. OPCO has the sole discretion
to terminate its use of any services covered by the Transition Services
Agreement before the end of any term of service. The parties contemplate that
in the event OPCO desires to purchase any services from Nextel Sub following
the expiration of the Transition Services Agreement, Nextel Sub may, at its
election, agree to provide certain services to OPCO on an arm's length basis,
at prices to be agreed upon.
Switch Sharing Agreement -- Nextel, through its affiliates, provides certain
telecommunications switching services to OPCO pursuant to a switch sharing
agreement entered into between Nextel Sub and OPCO (the "Switch Sharing
Agreement"). The Switch Sharing Agreement permits OPCO to link cell sites to
and electronically access certain switching equipment used and maintained by
affiliates of Nextel in the operation of Nextel's Digital Mobile Network, which
facilitates OPCO provision of ESMR service to the Company's subscribers. Under
the Switch Sharing Agreement, OPCO pays Nextel Sub monthly switching fees based
on a pricing formula agreed to by the parties based on Nextel's cost of
providing such services in the year 2001. For the three month period ended
March 31, 1999, the Company was charged approximately $224,000 for these
services.
Agreement Limiting Liability and Recourse to Nextel -- Pursuant to the terms of
an agreement (the "Limitation on Liability and Recourse Agreement") entered
into by Nextel and the Company, the maximum cumulative, aggregate cash
liability of Nextel and its controlled affiliates (other than Nextel Sub) for
any and all actual or alleged claims or causes of action arising in connection
with any aspect of the agreements governing or otherwise relating to the
operating agreements will be capped at $200 million. The cap amount will be
reduced, dollar for dollar, by the cumulative, aggregate amount that Nextel and
its controlled affiliates have advanced, expended or otherwise provided to or
for the benefit of Nextel Sub to enable Nextel Sub to perform its obligations
relating to the Operating Agreements. Among other things, the Limitation on
Liability and Recourse Agreement also provides that Nextel will have no
obligation to pay any sum to the Company if the Company has not
F-26
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
(AMOUNTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998 ARE UNAUDITED)
pursued and exhausted all remedies available to the Company in connection with
any relevant claim or cause of action. The Limitation on Liability and Recourse
Agreement will survive the expiration or termination of any and all of the
agreements governing or otherwise relating to the operating agreements.
DLJMB Affiliation with Initial Purchaser/Bank Syndicate -- DLJ Capital, an
affiliate of DLJ Merchant Banking, has received customary fees and
reimbursement of expenses in connection with the arrangement and syndication of
the Facility and as a lender thereunder. Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJSC"), which is also an affiliate of DLJ Merchant
Banking, has acted as a financial advisor to the Company, as an arranger under
the Facility and as an initial purchaser in the Notes offering. The aggregate
amount of all fees paid to the DLJ entities in connection with the
Capitalization Transactions was approximately $14.7 million. The Company and
its affiliates may from time to time enter into other investment banking
relationships with DLJSC or one of its affiliates pursuant to which DLJSC or
its affiliate will receive customary fees and will be entitled to reimbursement
of reasonable disbursements and out-of-pocket expenses incurred in connection
therewith. The Company expects that any such arrangement will include
provisions for the indemnification of DLJSC against certain liability,
including liabilities under the federal securities laws.
Payable to Nextel and Eagle River
Prior to the Capitalization Transactions discussed in Note 2, the Company had
limited financial resources. As a result, to fund the operations of the Company
prior to the Capitalization Transactions, Nextel and Eagle River advanced the
Company $3.4 million (as of December 31, 1998) to cover its costs during the
period. These advances did not bear interest and were repaid in majority on
January 29, 1999. As of March 31, 1999 the Company owed Nextel and Eagle River
$12.9 million under the same terms discussed above.
10: VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS):
<TABLE>
<CAPTION>
BALANCE
BEGINNING COSTS AND AT
OF PERIOD EXPENSES WRITE-OFFS END OF PERIOD
----------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Year ended December 31, 1998
Allowance for doubtful accounts ......... $ -- $254 $-- $254
==== ==== === ====
</TABLE>
F-27
<PAGE>
INDEX TO PRO FORMA UNAUDITED CONSOLIDATED
FINANCIAL STATEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Pro Forma Unaudited Consolidated Statement of Operations for
the three month period ended March 31, 1999 and for the year
ended December 31, 1998 .......................................... P-3
Notes to Pro Forma Unaudited Consolidated Statement of
Operations for the three month period ended March 31, 1999 and for
the year ended December 31, 1998 ................................. P-4
</TABLE>
P-1
<PAGE>
PRO FORMA UNAUDITED CONSOLIDATED
FINANCIAL STATEMENT
The Pro Forma Unaudited Consolidated Statement of Operations for the three
month period ended March 31, 1999 and for the year ended December 31, 1998
gives effect to the issuance of the senior discount notes and the application
of $130.9 million of the net proceeds therefrom representing the return of
capital dividend payment made to Nextel on January 29, 1999 as if they had
occurred on the first day of such period. The Company raised approximately
$633.5 million in gross cash proceeds on January 29, 1999 through cash equity
investments of $52.1 million, borrowings on the bank credit facility of $175.0
million and the issuance of senior discount notes of approximately $406.4
million. Since cash is not fungible, the Company was not able to determine
which source of cash actually paid the dividend for purposes of the preparation
of this Pro Forma Unaudited Consolidated Financial Statement. Therefore, the
Company has assumed that the proceeds of the senior discount notes were
utilized, as this source of funds carries the highest interest rate currently.
The Pro Forma Unaudited Consolidated Financial Statement has not been
audited by the independent auditors of the Company and is intended for
informational purposes only and is not necessarily indicative of the future
financial position or future results of operations of the Company or of the
financial position or the results of operations of the Company that would have
been realized had the issuance of the preferred stock, the bank credit
facility, issuance of the senior discount notes, and the application of the net
proceeds therefrom occurred as of the dates presented.
P-2
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
PRO FORMA UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED MARCH 31, 1999 YEAR ENDED DECEMBER 31, 1998
------------------------------------------------ ------------------------------------------------
NEXTEL PRO FORMA NEXTEL PRO FORMA
PARTNERS, INC. ADJUSTMENTS TOTALS PARTNERS, INC. ADJUSTMENTS TOTALS
---------------- ----------------- ------------- ---------------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Service revenues ........... $ 3,493 $ -- $ 3,493 $ 3,745 $ -- $ 3,745
Equipment revenues ......... 811 -- 811 1,564 -- 1,564
--------- --------- --------- --------- ---------- ---------
Total revenues ............... 4,304 -- 4,304 5,309 -- 5,309
--------- --------- --------- --------- ---------- ---------
Operating expenses:
Cost of service
revenues .................. 3,106 -- 3,106 6,108 -- 6,108
Cost of equipment
revenues .................. 1,718 -- 1,718 2,935 -- 2,935
Selling, general and
administrative ............ 5,231 -- 5,231 13,531 -- 13,531
Deferred
compensation .............. 641 -- 641 447 -- 447
Depreciation and
amortization .............. 2,515 -- 2,515 4,586 -- 4,586
--------- --------- --------- --------- ---------- ---------
Total operating
expenses ..................... 13,211 -- 13,211 27,607 -- 27,607
--------- --------- --------- --------- ---------- ---------
Loss from operations ......... (8,907) -- (8,907) (22,298) -- (22,298)
Interest expense ............. (12,529) (1,585)(3) (14,114) -- (20,020)(1) (20,020)
Interest income .............. 4,013 -- 4,013 -- -- --
--------- --------- --------- --------- ---------- ---------
Loss before income tax
provision .................... (17,423) (1,585) (19,008) (22,298) (20,020) (42,318)
Income tax provision ......... -- -- (2) -- -- -- (2) --
--------- --------- --------- --------- ---------- ---------
Net loss ..................... $ (17,423) $ (1,585) $ (19,008) $ (22,298) $ (20,020) $ (42,318)
========= ========= ========= ========= ========== =========
</TABLE>
See accompanying notes to pro forma unaudited consolidated financial statement.
P-3
<PAGE>
NOTES TO PRO FORMA UNAUDITED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1999 AND THE YEAR ENDED
DECEMBER 31, 1998
(1) To reflect (i) accretion of $19.6 million in non-cash interest expense
associated with the 14% Senior Discount Notes whose proceeds were assumed
to have been used to pay a return of capital dividend to Nextel of $130.9
million, and (ii) an estimated $0.5 million of amortization of deferred
financing costs associated with the 14% Senior Discount Notes.
(2) No benefit for income tax has been recorded as the Company has determined
that a full valuation allowance is required.
(3) To reflect (i) $1.5 million in non-cash interest on the accretion
associated with the 14% Senior Discount Notes and (ii) $0.1 million of
amortization of deferred financing costs.
P-4
<PAGE>
================================================================================
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION OR TO MAKE ANY
REPRESENTATION TO YOU THAT IS NOT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED. YOU SHOULD NOT UNDER ANY CIRCUMSTANCES ASSUME THAT THE INFORMATION
IN THIS PROSPECTUS IS CORRECT ON ANY DATE AFTER THE DATE OF THIS PROSPECTUS.
-----------------------------------
$800,000,000
Offer to Exchange
14% Senior Discount Notes
due 2009
that have been registered
under the
Securities Act of 1933
for outstanding
14% Senior Discount Notes
due 2009
--------------------------------------------
P R O S P E C T U S
DATED JULY 30, 1999
--------------------------------------------
[NEXTEL PARTNERS INC LOGO OMMITTED]
================================================================================
