<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 22, 2000
REGISTRATION NO. 333-95473
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
NEXTEL PARTNERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4813 91-1930918
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
------------------------------
4500 CARILLON POINT, KIRKLAND, WASHINGTON 98033, (425) 828-1713
(Address, including zip code, and telephone number, including area code, of
the Registrant's principal executive offices)
------------------------------
DONALD MANNING, ESQ.
4500 CARILLON POINT
KIRKLAND, WASHINGTON 98033
(425) 828-1713
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES OF ALL COMMUNICATIONS TO BE SENT TO:
<TABLE>
<S> <C>
Karen A. Andersen, Esq. Steven Della Rocca, Esq.
Laura A. Bertin, Esq. Peter M. Labonski, Esq.
Mark F. Worthington, Esq. Kashif Z. Sheikh, Esq.
Neil I. Chang, Esq. Latham & Watkins
Summit Law Group, PLLC 885 Third Avenue, Suite 1000
1505 Westlake Avenue North, Suite 300 New York, NY 10022
Seattle, WA 98109 (212) 906-1200
(206) 281-9881
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-78459
Subject to Completion. Dated February 22, 2000.
23,500,000 Shares
[LOGO]
Class A Common Stock
------------------
This is an initial public offering of shares of Class A common stock of
Nextel Partners, Inc. This prospectus relates to an offering of shares in
the United States. In addition, shares are being offered outside the
United States in an international offering. All of the 23,500,000 shares of
Class A common stock are being sold by Nextel Partners.
Prior to this offering, there has been no public market for the Class A
common stock. It is currently estimated that the initial public offering price
per share will be between $16.00 and $18.00. The Class A common stock has been
approved for quotation on the Nasdaq National Market under the symbol "NXTP".
SEE "RISK FACTORS" BEGINNING ON PAGE 9 TO READ ABOUT CERTAIN FACTORS YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF THE CLASS A COMMON STOCK.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------- ---------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts...................................... $ $
Proceeds, before expenses, to Nextel Partners............... $ $
</TABLE>
To the extent that the U.S. underwriters sell more than shares of
Class A common stock, the U.S. underwriters have the option to purchase up to an
additional shares from Nextel Partners at the initial public
offering price less the underwriting discount. The international underwriters
may similarly purchase up to an additional shares.
------------------------
The underwriters expect to deliver the shares against payment in New York,
New York on February , 2000.
GOLDMAN, SACHS & CO. DONALDSON, LUFKIN & JENRETTE
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANC ALEX. BROWN
FIRST UNION SECURITIES, INC.
MORGAN STANLEY DEAN WITTER
DLJDIRECT INC.
------------------
Prospectus dated February , 2000.
<PAGE>
MAP DEPICTING THE FOLLOWING:
- OUR TERRITORY
- OUR OPTION TERRITORY
- NEXTEL'S TERRITORY
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS BUT DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER
BEFORE INVESTING IN OUR CLASS A COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, ESPECIALLY "RISK FACTORS" BEGINNING ON PAGE 9. AS USED IN
THIS PROSPECTUS, "WE," "US" AND "OUR" REFER TO NEXTEL PARTNERS, INC., "NEXTEL"
REFERS TO NEXTEL COMMUNICATIONS, INC. (AND/OR, WHERE APPROPRIATE, ITS
SUBSIDIARIES), AND "NEXTEL WIP" REFERS TO NEXTEL WIP CORP., AN INDIRECT WHOLLY
OWNED SUBSIDIARY OF NEXTEL.
NEXTEL PARTNERS
We provide digital wireless communications services in mid-sized and smaller
markets throughout the United States. We hold or have the right to use broadband
wireless frequencies that cover 40 million persons, or Pops, in 46 markets. We
are licensed to operate in 12 of the top 100 metropolitan statistical areas in
the United States ranked by population and 51 of the top 200 metropolitan
statistical areas. We also have the option, under certain circumstances, to
acquire from a subsidiary of Nextel frequencies that cover an additional
13 million Pops, of which we currently intend to acquire frequencies covering
2.3 million Pops. In January 1999, we entered into an affiliation with Nextel,
whose wholly owned subsidiary owns 36.5% of our common stock prior to this
offering and is our largest stockholder. This affiliation was created to
accelerate the build-out of the Nextel digital mobile network by granting us the
exclusive right to offer wireless communications services under the Nextel brand
in selected mid-sized and smaller markets.
The Nextel digital mobile network utilizes a single digital transmission
technology called integrated digital enhanced network, or iDEN, which was
developed by Motorola, Inc. This network constitutes one of the largest
fully-integrated wireless communications systems in the United States. By the
end of 2000, we and Nextel together plan to provide service in all of the top
100 metropolitan statistical areas in the United States. We offer a
differentiated package of services under the Nextel brand name targeted to
business users. We currently offer the following fully-integrated services
accessible through a single wireless telephone:
- digital mobile, or interconnect, telephone service;
- Nextel Direct Connect service that allows users to contact co-workers
instantly, on private one-to-one calls or on a group call; and
- the ability to receive pages and short-text messages.
In addition, Nextel has announced its plan to offer users access to digital
two-way mobile data and Internet connectivity services, expected to be
commercially available in mid-2000. As part of our agreements with Nextel WIP,
we expect to offer these same data services in our markets after their
commercial implementation by Nextel.
Our senior management team has substantial operating experience, averaging
over 15 years in the communications industry. Each member of senior management
has significant experience working at AT&T Wireless, McCaw Cellular and/or
Nextel. Our senior management and employees collectively own 6.7% of our common
stock on a fully diluted basis prior to this offering. Other key stockholders,
in addition to Nextel's subsidiary, include DLJ Merchant Banking Partners,
Madison Dearborn Capital Partners, Eagle River Investments, an investment
company controlled by Craig O. McCaw, and Motorola.
STRATEGIC ALLIANCE WITH NEXTEL
Our affiliation with Nextel is an integral part of our strategy. Nextel WIP
has contributed to us
3
<PAGE>
licenses and cash in exchange for an ownership stake in our company. Pursuant to
our agreements with Nextel WIP, we enjoy numerous important benefits, including
the following:
- NEXTEL BRAND AND DIFFERENTIATED MARKETING PROGRAMS. We have the exclusive
right to offer digital wireless communications services using the Nextel
brand in all of our markets. We believe the Nextel brand is among the most
recognized wireless brands in the United States. In particular, we believe
that the Nextel brand represents a differentiated and value-added product
in the wireless marketplace. In using the Nextel brand name, we also
benefit from Nextel's national marketing campaigns.
- INTEGRATED NATIONWIDE NETWORK. Our systems are operationally seamless with
those of Nextel, enabling customers of both companies to roam on each
other's portion of the Nextel digital mobile network. As customers
increasingly choose national rate plans, we believe that the ability to
offer national coverage is a competitive advantage. Additionally, we
believe that offering users a full digital interconnect feature set
wherever they travel within the Nextel digital mobile network
differentiates our service from the services of many of our competitors.
- EXCLUSIVE ROAMING PARTNERSHIP. Under our agreements with Nextel WIP, we
are the exclusive provider of wireless communication services to Nextel's
iDEN/800 MHz frequency customers who roam into our markets. We believe
this affiliation will continue to provide us with a consistent base of
recurring roaming services revenue and allow us to offer our customers
roaming services on Nextel's portion of the Nextel digital mobile network
in a cost-effective manner.
- INFRASTRUCTURE AND RELATIONSHIPS. In exchange for a fee, we have the right
to utilize Nextel's current infrastructure, including certain switching
facilities and network monitoring systems, until such time as our customer
volume indicates that we should build our own. While we have implemented
our own customer activation, billing and customer care systems, we use
Nextel's systems to offer our national account subscribers seamless
customer service. Additionally, we expect that Nextel's strong
relationships with its vendors and national account customers will allow
us in many cases to secure wireless equipment at competitive rates and
penetrate national accounts within our service area. For example, under
our agreement with Motorola, subject to certain exceptions, we purchase
wireless telephones and infrastructure equipment from Motorola at the same
prices as Motorola offers such equipment to Nextel.
BUSINESS STRATEGY
Our goal is to become the leading provider of integrated digital wireless
communication services 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:
- PROVIDE DIFFERENTIATED PACKAGE OF WIRELESS SERVICES. We offer a package of
services and features that combines multiple wireless communications
options in a single wireless telephone. We will continue to emphasize the
differentiated features of iDEN technology and implement advancements in
this technology platform as they become available. In addition, we
maintain uniformity with Nextel by offering consistent rates to our
customers anywhere on the Nextel digital mobile network, billing based
upon the actual numbers of seconds of airtime after the first minute, and
rate plans that do not distinguish between "peak" and "off-peak" minutes.
- TARGET BUSINESS CUSTOMERS. We believe that our focus on business customers
will result in higher monthly average revenue per unit and lower average
monthly service cancellations or terminations. This is a market segment
for which we believe our product has high utility, and
4
<PAGE>
we further believe that we and Nextel are the only major U.S. wireless
carriers directing fully integrated, nationwide offerings to this segment.
- DEPLOY ROBUST NETWORK RAPIDLY. Our objective is to build robust wireless
systems that cover all key areas of a given market before we launch our
network in that market. We are deploying these systems rapidly to capture
the current and projected growth in wireless usage in the United States.
We are also building our customer care and internal systems to support
future anticipated demand.
- OPERATE IN MID-SIZED AND SMALLER MARKETS. We focus on mid-sized and
smaller markets with demographics we believe to be similar to those served
by Nextel. We believe that this strategy will allow us to rapidly increase
penetration within our targeted customer base, which we believe has
historically been underserved in these markets. We believe that this
focus, combined with our differentiated service offerings, will give us
the ability to sustain our pricing strategy.
MARKETS
As of January 15, 2000, we had commercial operations in markets with total
Pops of 9.9 million and the ability to offer service to, or cover, 7.7 million
Pops. These operational markets are in Hawaii, New York, Texas and Pennsylvania.
As of December 31, 1999, we had approximately 46,000 digital subscribers with a
covered market penetration of approximately 0.75%. We intend to be able to
provide service to over 21 million Pops by the end of 2000 and over 27 million
Pops by the end of 2001. The following table sets forth those markets with over
one million Pops in which we have launched or intend to launch digital wireless
service:
<TABLE>
<CAPTION>
MARKETS TOTAL POPS MARKET LAUNCH
- ------- ---------- --------------
<S> <C> <C>
Kentucky (Lexington-Fayette, Louisville).................... 2,543,523 1st Half 2000
Syracuse/Utica-Rome/Binghamton/Elmira, NY................... 2,308,433 Launched
Eastern Iowa (Waterloo, Dubuque, Davenport, Cedar Rapids,
Iowa City)................................................ 1,829,046 1st Half 2000
Arkansas (Fayetteville, Ft. Smith, Pine Bluff).............. 1,804,738 1st Half 2001
Central Illinois (Peoria, Springfield, Champaign,
Bloomington, Decatur)..................................... 1,757,899 1st Half 2000
Evansville/Owensboro, IN.................................... 1,652,709 1st Half 2001
Harrisburg/York/Lancaster, PA............................... 1,641,088 Launched
Shreveport/Monroe/Tyler/Longview, LA/TX..................... 1,597,763 2nd Half 2000
Green Bay/Fond du Lac/Appleton/Sheboygan, WI................ 1,435,451 1st Half 2001
Albany/Glens Falls, NY...................................... 1,407,264 Launched
Hattiesburg/Jackson, MS..................................... 1,390,583 1st Half 2001
Central Pennsylvania (Altoona, Williamsport, State
College).................................................. 1,366,464 2nd Half 2001
Buffalo, NY................................................. 1,282,387 Launched
Hawaii (all islands)........................................ 1,197,687 Launched
Roanoke/Lynchburg/Charlottesville, VA....................... 1,175,872 1st Half 2001
Rochester, NY............................................... 1,049,391 Launched
</TABLE>
We have calculated total Pops for a given market by utilizing the 1990
census data for each county within the market and extrapolating such data
through 1997 based on estimated population growth rates. Future launch schedules
for our markets are subject to the various factors discussed under the heading
"Risk Factors" in this prospectus.
We were incorporated in the State of Delaware in July 1998. Our principal
executive offices are located at 4500 Carillon Point, Kirkland, Washington
98033. Our telephone number is (425) 828-1713.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Total Class A common stock offered:
U.S. offering............................................. shares
International offering.................................... shares
Total Class A common stock to be outstanding after this
offering.................................................. 158,927,974 shares
Total Class A common stock and Class B common stock to be
outstanding after this offering........................... 236,710,600 shares
</TABLE>
<TABLE>
<S> <C>
Use of proceeds............... We expect to use the estimated $376.5 million in net
proceeds from this offering for our general corporate
purposes, including:
- capital expenditures in connection with the build-out
and expansion of our portion of the Nextel digital
mobile network, including build-out of the territories
for which we have an option and intend to acquire;
- future acquisition of additional frequencies; and
- introduction of new services, sales and marketing
activities and working capital.
</TABLE>
<TABLE>
<S> <C>
Nasdaq National Market Symbol............................... "NXTP"
</TABLE>
Except where otherwise indicated, all information in this prospectus:
- reflects the conversion of all outstanding Series A preferred stock into
shares of Class A common stock and the conversion of all outstanding
shares of Series C preferred stock and Series D preferred stock into
shares of Class B common stock upon the closing of this offering; our
Class B common stock is convertible on a one-for-one basis into shares of
our Class A common stock at any time, at the option of the holder, upon a
transfer to a person other than Nextel, a majority-owned Nextel subsidiary
or a person or entity controlling Nextel, and is substantially similar to
our Class A common stock; the holders of our Class A and Class B common
stock are entitled to one vote per share on all matters;
- gives effect to a six-for-one stock split to be effective prior to the
closing of this offering;
- excludes 5,049,600 shares of Class A common stock issuable upon exercise
of options outstanding as of January 15, 2000 at a weighted average
exercise price of $1.78 per share;
- excludes 2,434,260 shares of Class A common stock issuable upon exercise
of outstanding warrants at an exercise price of less than $0.01 per share;
and
- assumes no exercise of the underwriters' over-allotment options.
Please see "Capitalization" on page 23 for a more complete discussion
regarding the outstanding shares of Class A common stock and other related
matters.
------------------------
This prospectus contains registered trademarks and service marks of: Nextel,
including "Nextel," "Nextel Direct Connect" and "Nextel Online"; Motorola,
including "Motorola," "iDEN," "i1000 plus," "i500 plus," and "i700 plus"; and
other companies.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
You should read the following consolidated summary financial data together
with "Management's Discussion and Analysis" and our consolidated financial
statements and the related notes, all of which appear elsewhere in this
prospectus. Our historical financial results discussed throughout this
prospectus include the operations we acquired from Nextel WIP on January 29,
1999 in connection with our initial capitalization, which operations had
previously been managed by Nextel. See Note 1 of our audited consolidated
financial statements for a discussion of our formation, capitalization and basis
of presentation. The as adjusted balance sheet information set forth below
reflects:
- the receipt of estimated net proceeds from this offering; and
- the reclassification of the Series B preferred stock, plus accrued
dividends, from stockholders' equity to the section of the balance sheet
between liabilities and stockholders' equity.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
-------------- --------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Operating revenues:
Service revenues.......................................... $3,745 $28,136
Equipment revenues........................................ 1,564 4,584
------------- -------------
Total revenues.............................................. 5,309 32,720
------------- -------------
Operating expenses:
Cost of service revenues.................................. 6,108 18,807
Cost of equipment revenues................................ 2,935 10,742
Selling, general and administrative....................... 13,531 34,862
Stock-based compensation.................................. 447 27,256
Depreciation and amortization............................. 4,586 12,689
------------- -------------
Total operating expenses.................................... 27,607 104,356
------------- -------------
Operating loss.............................................. (22,298) (71,636)
------------- -------------
Other income (expense):
Interest expense, net..................................... -- (65,362)
Interest income........................................... -- 24,585
------------- -------------
Total other (expense)....................................... -- (40,777)
------------- -------------
Loss before income tax provision............................ (22,298) (112,413)
Income tax provision........................................ -- --
------------- -------------
Net loss.................................................... $(22,298) $(112,413)
============= =============
Basic and diluted net loss per common share(1).............. $(38.18)
=============
Weighted average common shares outstanding(1)............... 2,944,218
Pro forma basic and diluted net loss per common
share(1)(2)............................................... $(0.66)
=============
Pro forma weighted average common shares outstanding(1)..... 170,107,513
</TABLE>
- --------------------------
(1) Weighted average common shares outstanding above were calculated assuming
that the shares of Class A and Class B common stock were issued and split on
January 29, 1999, the date of the initial capitalization transactions. Pro
forma weighted average common shares outstanding above were calculated
assuming that the shares of Series A preferred stock were converted into
shares of Class A common stock and shares of Series C and Series D preferred
stock were converted into shares of Class B common stock, after giving
effect to the six-for-one stock split, on January 29, 1999. Per share
information is not included for periods prior to 1999 because the
capitalization transactions that occurred on January 29, 1999 substantially
altered our capital structure.
7
<PAGE>
(2) Pro forma basic and diluted net loss per common share was calculated
assuming a $2,551 accrued dividend on the Series B preferred stock. Upon
consummation of this offering, the Series B preferred stock becomes subject
to mandatory redemption in February 2010. This accrued dividend increases
the net loss attributable to common stockholders to $114,964.
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, DECEMBER 31, 1999
1998 -------------------------
ACTUAL ACTUAL AS ADJUSTED
-------------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents, short-term investments and
restricted cash(1)....................................... $16 $ 568,729 $945,257
Plant, property and equipment, net......................... 107,948 252,223 252,223
FCC operating licenses, net................................ 133,180 151,056 151,056
Total assets............................................. 247,666 1,015,327 1,391,855
Current liabilities........................................ 8,995 58,503 58,503
Long-term debt............................................. -- 785,484 785,484
Series B redeemable preferred stock........................ -- -- 24,401
Total stockholders' equity................................. 238,671 170,616 522,743
Total liabilities and stockholders' equity........... $247,666 $1,015,327 $1,391,855
</TABLE>
- --------------------------
(1) Short-term investments include marketable debt securities and corporate
commercial paper with original purchase maturities greater than three
months. Restricted cash reflects the cash collateral account maintained
under our credit facility equal to borrowings outstanding under one of our
term loans, until the FCC approved Nextel WIP's transfer of the broadband
wireless licenses to us.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OTHER DATA:
Covered Pops (end of period) (millions)..................... 6.1
Subscribers (end of period)................................. 46,083
EBITDA as adjusted (1)...................................... $(17,265) $(31,691)
Capital expenditures (2).................................... $104,334 $133,210
</TABLE>
- --------------------------
(1) Earnings Before Interest, Taxes, Depreciation and Amortization, or EBITDA as
adjusted, represents net loss before interest expense, interest income,
depreciation, amortization and stock-based 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, as calculated above, EBITDA as
adjusted may not be comparable to similarly titled measures reported by
other companies.
(2) Capital expenditures are expenditures (exclusive of $22 million Motorola
vender credits and non-cash capitalized interest) 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.
8
<PAGE>
RISK FACTORS
INVESTING IN SHARES OF OUR CLASS A COMMON STOCK INVOLVES A HIGH DEGREE OF
RISK. YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW AS WELL AS ALL THE
OTHER INFORMATION IN THIS PROSPECTUS--INCLUDING OUR CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES--BEFORE INVESTING IN OUR CLASS A COMMON STOCK. OUR
BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION COULD BE SERIOUSLY HARMED
DUE TO ANY OF THE FOLLOWING RISKS. THE TRADING PRICE OF OUR CLASS A COMMON STOCK
COULD DECLINE DUE TO ANY OF THESE RISKS, AND YOU COULD LOSE ALL OR PART OF YOUR
INVESTMENT.
RISK FACTORS RELATING TO NEXTEL PARTNERS
WE HAVE A HISTORY OF OPERATING LOSSES, EXPECT TO CONTINUE TO INCUR SUBSTANTIAL
OPERATING LOSSES AND MAY NOT BE ABLE TO GENERATE THE EARNINGS NECESSARY TO FUND
OUR OPERATIONS, SUSTAIN THE CONTINUED GROWTH OF OUR BUSINESS OR REPAY OUR DEBT
OBLIGATIONS.
We did not commence commercial operations until January 29, 1999, and the
portion of the Nextel digital mobile network we acquired on that date only had a
few months of operating history. Since then, we have had a history of operating
losses and, as of December 31, 1999, we had incurred operating losses of
approximately $71.6 million. We expect to continue to incur substantial
operating losses and to generate negative cash flow from operating activities
through 2003. We cannot assure you that we will become profitable or sustain
profitability in the future. If we fail to complete the commercial launch of our
portion of the Nextel 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 to fund our current operations,
sustain the continued growth of our business or repay our debt obligations. Our
failure to fund our operations or continued growth would have an adverse impact
on our financial condition and our failure to make any required payments would
result in defaults under all our debt agreements, which could result in the
cessation of our business.
WE MUST COMPLETE OUR PORTION OF THE NEXTEL DIGITAL MOBILE NETWORK BY SET
DEADLINES, OFFER CERTAIN SERVICES AND MEET PERFORMANCE REQUIREMENTS OR RISK
TERMINATION OF OUR AGREEMENTS WITH NEXTEL WIP, WHICH WOULD ELIMINATE OUR ABILITY
TO CARRY OUT OUR CURRENT BUSINESS PLAN AND STRATEGY.
Our operating agreements with Nextel WIP require us to construct our portion
of the Nextel digital mobile network to specific standards and by set deadlines,
offer certain services and meet performance requirements. Our failure to meet
any of these requirements could constitute a material default under the
operating agreements that would give Nextel WIP the right to terminate these
agreements, including the right to use the Nextel brand. The non-renewal or
termination of the Nextel WIP operating agreements would eliminate our ability
to carry out our current business plan and strategy and adversely affect our
financial condition. In addition, as described below, in certain circumstances,
upon a termination of the agreements by Nextel WIP, Nextel WIP could acquire all
of our outstanding stock, including shares of Class A common stock purchased in
this offering.
UNDER CERTAIN CIRCUMSTANCES, NEXTEL WIP HAS THE ABILITY TO PURCHASE, AND THE
MAJORITY OF OUR CLASS A STOCKHOLDERS CAN CAUSE NEXTEL WIP TO PURCHASE, ALL OF
OUR OUTSTANDING STOCK, INCLUDING THE CLASS A COMMON STOCK SOLD IN THIS OFFERING.
Under our restated certificate of incorporation and our operating
agreements, in certain circumstances and subject to certain limitations, Nextel
WIP has the ability to purchase, or to cause and fund a redemption by us, of all
of the outstanding shares of our Class A common stock, including shares sold in
this offering. In addition, under the provisions of our restated certificate of
incorporation, upon the occurrence of certain events, the holders of a majority
of our outstanding Class A common stock can require Nextel WIP to purchase, or
to cause and fund a redemption by
9
<PAGE>
us of, all of the outstanding shares of our Class A common stock, including the
shares sold in this offering. For a description of these provisions of our
restated certificate of incorporation, see "Description of Capital
Stock--Certain Obligations Under Our Charter."
NEXTEL WIP HAS APPROVAL RIGHTS THAT ALLOW IT TO EXERT SIGNIFICANT INFLUENCE OVER
OUR OPERATIONS AND IT CAN ACQUIRE ADDITIONAL SHARES OF OUR STOCK, WHICH COULD
ALLOW IT TO PROMOTE INTERESTS THAT MAY CONFLICT WITH THOSE OF OUR OTHER
STOCKHOLDERS.
Pursuant to our shareholders' agreement and operating agreements, the
approval of the director designated by Nextel WIP, and/or Nextel WIP itself, is
required in order for us to:
- make a material change in our technology;
- modify our business objectives in any way that is inconsistent with our
objectives under our material agreements, including our operating
agreements with Nextel WIP;
- dispose of all or substantially all of our assets;
- make a material change in or broaden the scope of our business beyond our
current business objectives; or
- enter into any agreement the terms of which would be materially altered in
the event that Nextel WIP either exercises or declines to exercise its
rights to acquire additional shares of our stock under the terms of the
shareholders' agreement or our restated certificate of incorporation.
These approvals rights relate to significant transactions, and decisions by the
Nextel WIP-designated director could conflict with those of our other directors,
including our independent directors.
The shareholders' agreement does not prohibit Nextel WIP or any of our other
stockholders or any of their respective affiliates from purchasing shares of our
Class A common stock in the open market. Any such purchases would increase the
voting power and influence of the purchasing stockholder, and could result in a
change of control of us. Additionally, if we experience a change of control,
Nextel WIP could purchase all of our broadband licenses for $1.00, provided that
it enters into a royalty-free agreement with us to allow us to use the licenses
in our territory for as long as our operating agreements with Nextel WIP remain
in effect. Such an agreement would be subject to approval by the Federal
Communications Commission, or FCC.
OUR SUCCESS IS DEPENDENT, IN PART, ON NEXTEL COMPLETING ITS PORTION OF THE
NEXTEL DIGITAL MOBILE NETWORK AND CONTINUING TO BUILD AND SUSTAIN CUSTOMER
SUPPORT OF ITS BRAND AND THE MOTOROLA IDEN TECHNOLOGY, AND IF NEXTEL EXPERIENCES
FINANCIAL OR OPERATIONAL DIFFICULTIES OUR BUSINESS WOULD BE ADVERSELY AFFECTED.
Our business plan depends, in part, on Nextel completing its portion of the
Nextel digital mobile network on schedule and continuing to build and sustain
customer support of its brand and the Motorola iDEN technology. If Nextel
encounters financial problems or operating difficulties relating to its portion
of the Nextel digital mobile network or experiences a significant decline in
customer acceptance of its products or the Motorola iDEN technology, our
affiliation with and dependence on Nextel may adversely affect our business,
including the quality of our services, the ability of our customers to roam in
the entire network and our ability to attract and retain new customers.
Additional information regarding Nextel and its domestic digital mobile network
business can be found in Nextel's Annual Report on Form 10-K for the year ended
December 31, 1998 and Nextel's other filings made under the Securities Act of
1933 and the Securities Exchange Act of 1934 under SEC file number 0-19656. You
should read these filings to more fully understand the
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risks presented by our affiliation with Nextel. For a description of where this
information can be obtained, see "Where You Can Find More Information."
OUR BUSINESS STRATEGY DEPENDS ON THE SUCCESSFUL AND CONTINUED INTEGRATION OF OUR
PORTION OF THE DIGITAL MOBILE NETWORK WITH NEXTEL'S PORTION.
Pursuant to our operating agreements with Nextel WIP, Nextel WIP provides us
with important services and assistance, including a license to use the Nextel
brand name and the sharing of switches that direct calls to their destinations.
These services are critical to the successful integration of our portion of the
Nextel digital mobile network with Nextel's portion, which is essential to the
overall success of our business.
Moreover, our business plan depends on our ability to implement an
integrated customer service, network management and billing system with Nextel's
systems to allow our respective portions of the Nextel digital mobile network to
operate together, and 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 results of operations.
DIFFICULTIES IN CONSTRUCTING AND OPERATING OUR PORTION OF THE NEXTEL DIGITAL
MOBILE NETWORK COULD INCREASE THE ESTIMATED COSTS AND DELAY THE SCHEDULED
COMPLETION OF THE NETWORK, THEREBY ADVERSELY AFFECTING OUR ABILITY TO GENERATE
REVENUE.
The development and operation of our portion of the Nextel digital mobile
network involves a high degree of risk. Before we are in a position to commence
operations in our undeveloped markets, we will need to:
- select and acquire appropriate sites for our transmission equipment, or
cell sites;
- purchase and install low-power transmitters, receivers and control
equipment, or base radio equipment;
- build out the physical infrastructure;
- obtain interconnection services from local telephone service carriers on a
timely basis; and
- test the network.
Our ability to perform these necessary steps successfully may be hindered
by, among other things, any failure:
- to lease or obtain rights to sites for the location of our base radio
equipment;
- to obtain necessary zoning and other local approvals with respect to the
placement, construction and modification of our facilities;
- to acquire additional necessary radio frequencies from third parties or to
exchange radio frequency licenses with Nextel WIP;
- 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 land use regulatory approvals and approval
from the Federal Aviation Administration with respect to the transmission
towers that we will be using.
Before fully implementing our portion of the Nextel digital mobile network
in a new market area or expanding coverage in an existing market area, we must
complete systems design work, find appropriate sites and construct necessary
transmission structures, receive regulatory approvals, free
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up frequency channels now devoted to non-digital transmissions and begin systems
optimization. These processes may take weeks or months to complete, and may be
hindered or delayed by many factors, including unavailability of antenna sites
at optimal locations, land use and zoning controversies and limitations of
available frequencies. 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 Nextel 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.
Moreover, 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 build-out date, we
could be in default of our operating agreements with Nextel WIP, which would
impede our ability to execute our business plan and potentially give Nextel WIP
the right to purchase all of our outstanding stock for a price per share equal
to 80% of the average closing price of our stock for the 20 trading days prior
to the default. See "Description of Capital Stock--Certain Obligations Under Our
Charter."
WE MAY BE REQUIRED TO IMPLEMENT MATERIAL CHANGES TO OUR BUSINESS OPERATIONS TO
THE EXTENT THESE CHANGES ARE ADOPTED BY NEXTEL, WHICH MAY NOT BE BENEFICIAL TO
OUR BUSINESS.
If Nextel adopts material changes to its operations, including the adoption
of new technology, our operating agreements with Nextel WIP give it the right to
require similar changes to our operations. The failure to implement required
changes could, under certain circumstances, trigger the ability of Nextel WIP to
terminate its operating agreements with us. Even if the required 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.
OUR HIGHLY LEVERAGED CAPITAL STRUCTURE LIMITS OUR ABILITY TO OBTAIN ADDITIONAL
FINANCING AND COULD ADVERSELY AFFECT OUR BUSINESS IN SEVERAL OTHER WAYS.
The level of our outstanding debt greatly exceeds the level of our revenues
and stockholders' equity. As of December 31, 1999, we had $785 million of total
indebtedness outstanding, including $325 million outstanding under our credit
facility and $460 million of senior discount notes outstanding at their accreted
value. This indebtedness represented approximately 82% of our total
capitalization at that date. As of December 31, 1999, we also had $24.4 million
of mandatorily redeemable preferred stock outstanding, including accrued
dividends.
Our large amount of indebtedness could significantly impact our business for
the following reasons:
- it limits our ability to obtain additional financing, if needed, to
complete the build-out of our portion of the Nextel digital mobile
network, to cover our cash flow deficit or for working capital, other
capital expenditures, debt service requirements or other purposes;
- it means that we will need to dedicate a substantial portion of our
operating cash flow to fund interest expense on our credit facility and
other indebtedness, thereby reducing funds available for our build-out,
operations or other purposes;
- it makes us vulnerable to interest rate fluctuations because our credit
facility term loan bears interest at variable rates;
- it limits our ability to compete with competitors who are not as highly
leveraged, especially those who may be able to price their service
packages at levels below that which we can or are willing to match; and
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- it limits our ability to react to changing market conditions, changes in
our industry and economic downturns.
OUR EXISTING DEBT INCLUDES RESTRICTIVE AND FINANCIAL COVENANTS THAT LIMIT OUR
OPERATING FLEXIBILITY.
Our credit facility and the indenture relating to our senior discount notes
contain covenants that, among other things, restrict our ability to take
specific actions even if we believe them to be in our best interest. These
include restrictions on our ability to:
- incur additional debt;
- pay dividends or distributions on, or redeem or repurchase, capital stock;
- create liens on assets;
- make investments, loans or advances;
- issue or sell capital stock of certain of our subsidiaries;
- enter into transactions with affiliates;
- enter into sale and leaseback transactions;
- enter into a merger, consolidation or sale of assets; or
- engage in any 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 Pops, minimum EBITDA
requirements and minimum fixed charge coverage ratios. We cannot assure you that
we will be able to meet these requirements or satisfy these covenants in the
future and if we fail to do so, our debts could become immediately payable at a
time when we are unable to pay them, which could adversely affect our ability to
carry out our business plan and would have a negative impact on our financial
condition.
IF AN EVENT CONSTITUTING A CHANGE OF CONTROL OCCURS, WE MAY BE REQUIRED TO
REDEEM ALL OF OUR OUTSTANDING NOTES EVEN IF OUR CREDIT FACILITY PROHIBITS SUCH A
REDEMPTION OR WE LACK THE RESOURCES TO MAKE SUCH A REDEMPTION.
Upon the occurrence of a defined change of control under the indenture
relating to our senior discount notes, other than a change of control involving
certain of our existing stockholders, we could be required to redeem all
outstanding notes. Our credit facility prohibits us from redeeming any of our
notes before their stated maturity. In the event we become subject to a change
of control at a time when we are prohibited from redeeming the notes, our
failure to redeem the tendered notes would constitute an event of default under
the indenture, which would in turn result in a default under the credit
facility. Any default under our indenture or credit facility would harm our
financial condition and could adversely impact our ability to effectuate our
business plan. Moreover, even if we obtained consent under our credit facility,
we cannot assure you that we would have sufficient resources to redeem the notes
and still have sufficient funds available to successfully pursue our business
plan.
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OUR FUTURE PERFORMANCE WILL DEPEND ON OUR AND NEXTEL'S ABILITY TO SUCCEED IN THE
HIGHLY COMPETITIVE WIRELESS COMMUNICATIONS TRANSMISSION INDUSTRY.
Our ability to compete effectively with established and prospective wireless
communications service providers depends on many factors, including:
- If the wireless communications technology used by Nextel and us does not
perform in a manner that meets customer expectations, we will be unable to
attract and retain customers, which would adversely affect your
investment. Customer acceptance of the services we offer is and will
continue to be affected by technology-based differences and by the
operational performance and reliability of system transmissions on the
Nextel digital mobile network. If we are unable to address and resolve
satisfactorily, performance or other transmission quality issues as they
arise, including transmission quality issues on Nextel's portion of the
Nextel digital mobile network, or if these issues limit our ability to
expand our network coverage or capacity as currently planned, or place
either Nextel or us at a competitive disadvantage to other wireless
service providers in our markets, we may have difficulty attracting and
retaining customers, which would adversely affect our revenues and have a
negative impact on the value of the Class A common stock.
- If we or Nextel cannot expand, provide and maintain our respective system
coverage on a nationwide basis in the United States, then our growth and
operations, and the value of your investment, would be adversely affected.
We will not be able to provide roaming system coverage comparable to that
currently available through roaming arrangements from cellular and some
personal communication services operators, unless and until we and Nextel
substantially complete a nationwide digital mobile network. This places us
at a competitive disadvantage, as some other providers currently have
roaming agreements that provide coverage of each other's markets
throughout the United States, including areas where our portion and/or
Nextel's portion of the Nextel digital mobile network has not been or will
not be built. In addition, some of our competitors provide their customers
with subscriber units with both digital and analog capability, which
expands their coverage, while we and Nextel have only digital capability.
We cannot assure you that we will be able to achieve sufficient system
coverage or that a sufficient number of customers or potential customers
will be willing to accept system coverage limitations as a trade-off for
the enhanced multi-function wireless communications package we provide on
our portion and Nextel's portion of the Nextel digital mobile network.
- Neither we nor Nextel have the extensive direct and indirect channels of
distribution for the Nextel digital mobile network products and services
that are available to some of our competitors. The lack of this
distribution channel could adversely affect our operating results and have
a negative impact on the value of your investment. Many of our competitors
have established extensive networks of retail locations and multiple
distribution channels, and so enjoy a competitive advantage over us in
these areas. We have increased the proportion of our digital mobile
network customers that we obtain through our indirect distributor network,
and we currently anticipate that we will rely more heavily on indirect
distribution channels to achieve greater market penetration for our
digital wireless service offerings. However, as we expand our retail
subscriber base through increased reliance on indirect distribution
channels and as price competition in the wireless industry intensifies,
our average revenue per digital subscriber unit may decrease and our
customer retention may be adversely affected.
- If we cannot offer pricing packages attractive to customers, our operating
results may be adversely affected, which could adversely affect the value
of your investment.
- If our competitors provide two-way radio dispatch services, we will lose a
competitive advantage. Our two-way radio dispatch services are currently
not available through traditional
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cellular or personal communication services providers; however, if either
personal communication services or cellular operators provide two-way
radio dispatch or comparable services in the future, our competitive
advantage may be impaired, which could have an adverse effect on our
revenue.
WE MAY FACE PRESSURE TO REDUCE OUR PRICES, WHICH WOULD ADVERSELY AFFECT OUR
OPERATING RESULTS AND THE VALUE OF YOUR INVESTMENT.
We expect that as the number of wireless communications providers in our
market areas increases, including providers of both digital and analog services,
our competitors' prices in these markets will decrease. We may encounter further
market pressures to:
- reduce our digital mobile network service offering prices;
- restructure our digital mobile network service offering packages to offer
more value; or
- respond to particular short-term, market-specific situations, for example,
special introductory pricing or packages that may be offered by new
providers launching their service in a particular market.
OUR EQUIPMENT IS MORE EXPENSIVE THAN THE EQUIPMENT OF SOME OF OUR COMPETITORS,
WHICH MAY ADVERSELY AFFECT OUR GROWTH AND OPERATING RESULTS.
We currently market multi-function digital wireless telephones, providing
mobile telephone and private and group dispatch service, in addition to paging
and alphanumeric short-text messaging. Our mobile telephones are, and are likely
to remain, significantly more expensive than mobile analog telephones and are,
and are likely to remain, somewhat more expensive than digital cellular or
personal communication services telephones that do not incorporate a comparable
multi-function capability. Although we believe that our multi-function wireless
telephones currently are competitively priced compared to multi-function digital
cellular and personal communication services telephones, the higher cost of our
equipment may make it more difficult or less profitable to attract customers who
do not place a high value on our unique multi-service offering. This may reduce
our growth opportunities or profitability and may adversely affect the value of
your investment.
OUR NETWORK MUST HAVE SUFFICIENT CAPACITY TO SUPPORT OUR ANTICIPATED CUSTOMER
GROWTH.
Our business plan depends on assuring that our portion of the Nextel digital
mobile network has adequate capacity to accommodate anticipated new customers
and the related increase in usage of our network. This plan relies on:
- the ability to obtain additional radio spectrum when and where required;
- the availability of wireless telephones of the appropriate model and type
to meet the demands and preferences of our customers; and
- the ability to obtain additional cell sites and other infrastructure
equipment.
We cannot assure you that we will not experience unanticipated difficulties
in obtaining these items which could adversely affect our ability to build our
network.
WE HAVE POTENTIAL SYSTEMS LIMITATIONS ON ADDING CUSTOMERS, WHICH MAY ADVERSELY
AFFECT OUR GROWTH AND PERFORMANCE.
Critical to our business plan is our success in attracting and retaining
large numbers of customers to our portion of the Nextel 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 basis, we may encounter
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other factors that could adversely affect our ability to successfully add
customers to our portion of the Nextel digital mobile network, including:
- inadequate or inefficient information systems, business processes and
related support functions, especially as related to customer service and
accounts receivable collection; and
- an inappropriately long length of time between a customer's order and
activation of service for that customer, especially since the current
activation time is longer than that of some of our competitors.
Customer reliance on our customer service functions may increase as we add
new customers. Our inability to timely and efficiently meet the demands for
services could decrease or postpone subscriber growth, or delay or otherwise
impede billing and collection of amounts owed, which would adversely affect our
revenues.
WE ARE DEPENDENT ON OUR CURRENT KEY PERSONNEL AND OUR SUCCESS DEPENDS UPON OUR
CONTINUED ABILITY TO ATTRACT, TRAIN AND RETAIN ADDITIONAL QUALIFIED PERSONNEL.
The loss of one or more key officers could impair our ability to
successfully build out and operate our portion of the Nextel digital mobile
network. We believe that our future success will also depend on our continued
ability to attract and retain highly qualified technical and management
personnel. We believe that there is and will continue to be intense competition
for qualified personnel in the wireless communications industry. We may not be
successful in retaining our key personnel or in attracting and retaining other
highly qualified technical and management personnel.
THE TRANSMISSION TECHNOLOGY USED IN THE NEXTEL 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 Nextel 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 carriers only when Motorola developed a
proprietary technology it calls "iDEN." We and Nextel are currently the only
major U.S. wireless service providers utilizing iDEN technology on a nationwide
basis, and iDEN phones are not currently designed to roam onto other wireless
networks.
Our operating agreements with Nextel WIP require us to use the iDEN
technology in our system and prevent us from adopting any new communications
technology without Nextel WIP's consent. 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, because
of the restrictive provisions in our agreements, we will be less able to compete
effectively and could lose customers to our competitors.
WE ARE DEPENDENT ON MOTOROLA FOR TELECOMMUNICATIONS EQUIPMENT NECESSARY FOR THE
OPERATION OF OUR BUSINESS AND ANY FAILURE OF MOTOROLA TO PERFORM WOULD ADVERSELY
AFFECT OUR OPERATING RESULTS AND THE VALUE OF YOUR INVESTMENT.
Motorola is currently our sole-source supplier of transmitters used in our
network and wireless telephone equipment used by our customers and we rely, and
expect to continue to rely, on Motorola to manufacture a substantial portion of
the equipment necessary to construct our portion of the Nextel digital mobile
network. We expect that for the next few years, Motorola, and competing
manufacturers who are licensed by Motorola, will be the only manufacturers of
wireless telephones that are compatible with the Nextel digital mobile network.
If Motorola becomes unable
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to deliver such equipment, or refuses to do so on reasonable terms, then we may
not be able to service our existing subscribers or add new subscribers and our
business would be adversely affected. Motorola and its affiliates engage in
wireless communications businesses and may in the future engage in additional
businesses that do or may compete with some or all of the services we offer. We
cannot assure you that any potential conflict of interest between us and
Motorola will not adversely affect our ability to receive equipment in the
future. In addition, the failure by Motorola to deliver necessary technology
improvements and enhancements and system infrastructure and subscriber equipment
on a timely, cost-effective basis would have an adverse effect on our growth and
operations and would adversely affect your investment. We generally have been
able to obtain adequate quantities of base radios and other system
infrastructure equipment from Motorola, and adequate volumes and mix of wireless
telephones and related accessories from Motorola, to meet subscriber and system
loading rates, but we cannot assure you that quantities will be sufficient in
the future. Additionally, in the event of shortages of that equipment, our
agreements with Nextel WIP provide that available supplies of this equipment
would be allocated proportionately among Nextel and us.
RISK FACTORS RELATING TO OUR INDUSTRY
CONCERNS THAT THE USE OF WIRELESS TELEPHONES MAY POSE HEALTH AND SAFETY RISKS
MAY DISCOURAGE THE USE OF OUR WIRELESS TELEPHONES.
Media reports have suggested that, and studies are currently being
undertaken to determine whether, radio frequency emissions from enhanced
specialized mobile radio, or ESMR, cellular and personal communications service,
or PCS, wireless telephones may be linked with health risks, including cancer,
and may interfere with various electronic medical devices, including hearing
aids and pacemakers. The actual or perceived risk of portable telephones could
adversely affect us through a reduced subscriber growth rate, a reduction in
subscribers, reduced network usage per subscriber or through reduced financing
available to the mobile communications industry.
Some state and local legislatures have passed or are considering legislation
that would restrict the use of wireless telephones while driving automobiles due
to safety concerns. The passage or proliferation of this type of legislation
could decrease demand for our services.
REGULATORY AUTHORITIES EXERCISE CONSIDERABLE POWER OVER OUR OPERATIONS, WHICH
COULD BE EXERCISED AGAINST OUR INTERESTS AND IMPOSE ADDITIONAL UNANTICIPATED
COSTS.
The FCC and 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. The Telecommunications Act of
1996 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 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. FCC regulation may also
have the effect of adding new entrants into the telecommunications market as a
result of anticipated assignments of spectrum space.
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.
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RISK FACTORS RELATING TO OUR CAPITAL STRUCTURE AND COMMON STOCK
CERTAIN SIGNIFICANT STOCKHOLDERS REPRESENTED ON OUR BOARD OF DIRECTORS CAN EXERT
SIGNIFICANT INFLUENCE OVER US AND MAY HAVE INTERESTS THAT CONFLICT WITH THOSE OF
OTHER STOCKHOLDERS, INCLUDING PURCHASERS IN THIS OFFERING.
After this offering, our officers, directors and greater than 5%
stockholders will together control approximately 79.3% of our outstanding common
stock. As a result, these stockholders, if they act together, will be able to
control the management and affairs of our company and all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. This concentration of ownership may have the
effect of delaying or preventing a change in control of our company and might
affect the market price of our common stock.
In addition, under our amended shareholders' agreement, Nextel WIP, Madison
Dearborn Partners and Eagle River each have the right to designate a member to
our six-member board of directors. We cannot be certain that any conflicts that
arise between the interests of our company and those of these stockholders will
always be resolved in our favor. Moreover, as described above, Nextel WIP has
certain approval rights that allow it to exert significant influence over our
operations.
DLJ Merchant Banking, Madison Dearborn Partners and Eagle River each own
significant amounts of our capital stock and each currently has a representative
on our board of directors. Each of these entities or their affiliates has
significant investments in other telecommunications businesses, some of which
may compete with us currently or in the future. We do not have a noncompetition
agreement with any of our stockholders, and thus their or their affiliates'
current and future investments could create conflicts of interest.
ANTI-TAKEOVER PROVISIONS AFFECTING US COULD PREVENT OR DELAY A CHANGE OF CONTROL
THAT YOU MAY FAVOR.
Provisions of our organizational documents, amended shareholders' agreement,
operating agreements and Delaware law may discourage, delay or prevent a merger
or other change of control that stockholders may consider favorable. We have
authorized the issuance of "blank check" preferred stock and have imposed
certain restrictions on the calling of special meetings of stockholders. If we
experience a change of control, Nextel WIP could purchase all of our broadband
licenses for $1.00, provided that it enters into a royalty-free agreement with
us to allow us to use the frequencies in our territory for as long as our
operating agreements remain in effect. Such an agreement would be subject to
approval by the FCC. Moreover, a change of control of us could trigger an event
of default under provisions in our credit facility and the indenture with
respect to our senior discount notes. These provisions could have the effect of
delaying, deferring or preventing a change of control in our company, discourage
bids for our Class A common stock at a premium over the market price, lower the
market price of, and the voting and other rights of the holders of, our Class A
common stock, or impede the ability of the holders of our Class A common stock
to change our management. See "Related-Party Transactions," "Description of
Certain Indebtedness" and "Description of Capital Stock--Selected Anti-Takeover
Matters."
OUR RESTATED CERTIFICATE OF INCORPORATION CONTAINS PROVISIONS THAT ALLOW US TO
REDEEM SHARES OF OUR SECURITIES IN ORDER TO MAINTAIN COMPLIANCE WITH APPLICABLE
FEDERAL AND STATE TELECOMMUNICATIONS LAWS AND REGULATIONS.
Our business is subject to regulation by the FCC and state regulatory
commissions or similar state regulatory agencies in the states in which we
operate. This regulation may prevent some investors from owning our securities,
even if that ownership may be favorable to us. The FCC and some states have
statutes or regulations that would require an investor who acquires a specified
percentage of our securities or the securities of one of our subsidiaries to
obtain approval to own
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those securities from the FCC or the applicable state commission. Moreover, our
restated certificate of incorporation allows us to redeem shares of our stock
from any stockholder in order to maintain compliance with applicable federal and
state telecommunications laws and regulations.
OUR SERIES B PREFERRED STOCK HAS A PREFERENCE IN A LIQUIDATION TO OUR COMMON
STOCK, CAN BE REDEEMED BY US AT ANY TIME AND MUST BE REDEEMED FOR CASH IN 2010.
Upon any liquidation of our company, holders of our Series B preferred stock
would be entitled to receive, prior to receipt of any funds by the holders of
our common stock, an aggregate liquidation preference equal to $21,850,000, plus
dividends accrued on such amount from the date of issuance up to the liquidation
date equal to 12% per year, compounded quarterly. As of December 31, 1999, we
had $24.4 million of Series B preferred stock outstanding, including accrued
dividends. In addition, we can redeem all of our Series B preferred stock at any
time upon payment of the accreted liquidation preference. We must redeem all
such shares in February 2010, and we cannot guarantee that we will have
sufficient cash from operations at that time to make such redemption.
OUR STOCK PRICE IS LIKELY TO BE VOLATILE.
Prior to this offering, you could not buy or sell our Class A common stock
publicly. The market price of our Class A common stock is likely to be volatile
and could be subject to wide fluctuations in response to factors such as the
following, some of which are beyond our control:
- quarterly variations in our or Nextel's operating results;
- variations in our or Nextel's operating results from the expectations of
securities analysts and investors;
- changes in expectations as to our or Nextel's future financial
performance, including financial estimates by securities analysts and
investors;
- changes in laws and regulations affecting the telecommunications industry;
- announcements by third parties or us of significant claims or proceedings
against us;
- changes in market valuations of Nextel or other telecommunications
companies;
- announcements of technological innovations or new services by us, Nextel
or our competitors;
- announcements by us, Nextel or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- additions or departures of key personnel;
- future sales of our Class A common stock; and
- stock market price and volume fluctuations.
ADDITIONAL SHARES OF OUR CLASS A COMMON STOCK WILL BE ELIGIBLE FOR PUBLIC SALE
IN THE FUTURE AND MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR CLASS A COMMON
STOCK.
Sales of a substantial number of shares of our Class A common stock in the
public market following this offering could adversely affect the market price of
our Class A common stock. After this offering, we will have 158,927,974 shares
of Class A common stock outstanding, and 236,710,600 shares of Class A and
Class B common stock outstanding. Our Class B common stock is substantially
similar to our Class A common stock and is convertible at any time into Class A
common stock on a one-for-one basis upon a transfer to a person other than
Nextel, a majority-owned Nextel subsidiary or a person or entity controlling
Nextel. All of our Class B
19
<PAGE>
common stock is held by Nextel WIP and is subject to restrictions on its
transfer contained in the shareholders' agreement.
The following table shows the timing of when the shares of Class A common
stock outstanding as of January 15, 2000 may be eligible for resale in the
public market, assuming that certain contractual "lock-up" agreements are not
amended or waived to permit an earlier sale:
<TABLE>
<CAPTION>
SHARES OF CLASS A COMMON
DATE STOCK FIRST ELIGIBLE FOR RESALE COMMENT
- ---------------------------------------- ------------------------------- ------------------------
<S> <C> <C>
- - Upon effectiveness.................... 23,500,000 - Freely tradable shares
sold in this offering
- - 181 days after date of this 11,152,780 - Shares eligible for
prospectus............................ sale under Rule 144
- - September 9, 2000..................... 2,081,278 - Shares eligible for
sale under Rule 144
- - December 21, 2000..................... 11,152,780 - Shares eligible for
sale under Rule 144
- - 18 months after date of this 67,155,600 - Shares eligible for
prospectus............................ sale under Rule 144,
subject to certain
restrictions
- - September 9, 2001..................... 6,299,446 - Shares eligible for
sale under Rule 144,
subject to certain
restrictions
- - December 31, 2001..................... 31,286,644 - Shares eligible for
sale under Rule 144,
subject to certain
restrictions
- - September 9, 2002..................... 6,299,446 - Shares eligible for
sale under Rule 144,
subject to certain
restrictions
</TABLE>
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
We expect the initial public offering price will be substantially higher
than the net tangible book value of each outstanding share of Class A common
stock. Purchasers of Class A common stock in this offering will suffer immediate
and substantial dilution. The dilution will be $15.42 per share in the net
tangible book value of the Class A common stock issued in the initial public
offering assuming an initial public offering price of $17.00 per share.
OUR FORWARD-LOOKING STATEMENTS ARE SUBJECT TO A VARIETY OF FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM CURRENT BELIEFS.
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 other comparable words,
or by discussions of strategy that involve risks and uncertainties. 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 as a result of a variety of factors, including those set
forth under "Risk Factors." Such forward-looking statements include, but are not
limited to, statements with respect to the following:
- our plan for meeting our scheduled build-out for commercial launch of
markets within our portion of the Nextel digital mobile network;
20
<PAGE>
- our business plan, its advantages and our strategy for implementing our
plan;
- general economic conditions in the geographic areas and occupational
markets that we are targeting in our portion of the Nextel digital mobile
network;
- our expectation regarding the continued successful performance and market
acceptance of the technology we use;
- our ability to attract and retain sufficient subscribers;
- our anticipated capital expenditures and funding requirements, including
our ability to access sufficient debt or equity capital to meet operating
and financing needs;
- the availability of adequate quantities of system infrastructure and
subscriber equipment and components to meet our service deployment,
marketing plans and customer demand;
- the ability to achieve and maintain market penetration and average
subscriber revenue levels sufficient to provide financial viability;
- our ability to timely and successfully accomplish required scale-up of our
billing, collection, customer care and similar back-office operations to
keep pace with customer growth, increased system usage rates and growth in
levels of accounts receivables;
- the quality and price of similar or comparable wireless communications
services offered or to be offered by our competitors, including providers
of PCS and cellular services;
- future legislation or regulatory actions relating to specialized mobile
radio services, other wireless communications services or
telecommunications services generally; and
- other risks and uncertainties described from time to time in our reports
filed with the SEC.
21
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of Class A
common stock in this offering will be approximately $376.5 million after
deducting the underwriting discounts and estimated offering expenses. If the
underwriters exercise in full their options to purchase additional shares, we
estimate that our net proceeds in this offering will be approximately
$433.2 million.
We expect to use the net proceeds of this offering for our general corporate
purposes, including:
- capital expenditures in connection with the build-out and expansion of our
portion of the Nextel digital mobile network, including build-out of the
territories for which we intend to exercise our option;
- future acquisition of additional frequencies; and
- introduction of new services, sales and marketing activities and working
capital.
Pending these uses, the net proceeds of this offering will be invested in
short-term, interest-bearing government or investment grade securities.
DIVIDEND POLICY
We have never paid cash dividends on any of our capital stock, including our
Class A common stock. We currently intend to retain any future earnings to fund
the development and growth of our business. Therefore, we do not currently
anticipate paying any cash dividends on our Class A common stock in the
foreseeable future. In addition, our credit facility prohibits us from paying
dividends without our lender's consent, and the indenture pursuant to which our
senior discount notes were issued prohibits us from paying dividends without the
consent of the trustee. We will, however, be required, in a liquidation or upon
mandatory redemption in 2010, to pay dividends on our Series B preferred stock.
See "Description of Capital Stock."
22
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis after giving effect to the conversion of all
outstanding shares of Series A preferred stock into shares of Class A
common stock and the conversion of the Series C and Series D preferred
stock into shares of Class B common stock; and
- on a pro forma basis as adjusted to show the effect of our receipt of the
net proceeds from the sale of 23,500,000 shares of Class A common stock at
an assumed initial public offering price of $17.00 per share in this
offering, the midpoint of the range set forth on the cover page of this
prospectus.
You should read this table in conjunction with our consolidated financial
statements and the related notes included elsewhere in this prospectus.
The outstanding share information excludes: 5,049,600 shares of Class A
common stock issuable upon exercise of options outstanding as of January 15,
2000 having a weighted average exercise price of $1.78 per share; and 2,434,260
shares of Class A common stock issuable upon the exercise of outstanding
warrants having an exercise price of less than $0.01 per share.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents, short-term investments and
restricted cash...................................... $ 568,729 $ 568,729 $ 945,257
========= ========= ==========
Debt:
Credit facility(1)................................... 325,000 325,000 325,000
14% senior discount notes due 2009(2)................ 460,484 460,484 460,484
--------- --------- ----------
Total long-term debt................................. 785,484 785,484 785,484
--------- --------- ----------
Series B redeemable preferred stock due 2010(3)........ -- 24,401 24,401
--------- --------- ----------
Stockholders' equity:
Series B redeemable or convertible preferred stock
due 2010(3)........................................ 2 -- --
Convertible preferred stock.......................... 34 -- --
Class A common stock and additional paid-in
capital............................................ 145,420 353,583 730,111
Class B common stock and additional paid-in
capital............................................ 127,051 127,051
Warrants outstanding................................. 3,847 3,847 3,847
Other paid-in capital................................ 357,028 -- --
Subscriptions receivable............................. (83,048) (83,048) (83,048)
Deferred compensation................................ (117,701) (117,701) (117,701)
Accumulated deficit.................................. (134,966) (137,517) (137,517)
--------- --------- ----------
Total stockholders' equity......................... 170,616 146,215 522,743
--------- --------- ----------
Total capitalization............................... $ 956,100 $ 956,100 $1,332,628
========= ========= ==========
</TABLE>
- ------------------------
(1) One of our subsidiaries, Nextel Partners Operating Corp., entered into a
$425 million credit facility and, as of December 31, 1999, had drawn down an
aggregate of $325 million in term loans. See "Description of Certain
Indebtedness."
(2) Represents the accreted value of the notes as of December 31, 1999.
(3) Relates to Series B preferred stock subject to mandatory redemption by us as
a result of this offering in February 2010. Upon the closing of this
offering we will record a charge to accumulated deficit with a credit to the
Series B preferred stock representing the 12% dividend from issuance to date
of effectiveness. Through December 31, 1999 this amounted to $2.6 million
and is reflected above. The Series B preferred stock, plus accrued
dividends, is being reclassified from stockholders' equity to the section of
the balance sheet between liabilities and stockholders' equity.
23
<PAGE>
DILUTION
If you invest in our Class A common stock, your interest will be diluted to
the extent of the difference between the public offering price per share of our
Class A common stock and the pro forma as adjusted net tangible book value per
share of our Class A common stock after this offering. We calculate net tangible
book value per share by dividing the net tangible book value, which equals total
assets less intangible assets and total liabilities, by the number of
outstanding shares of our Class A and Class B common stock. All of our Class B
common stock is owned by Nextel WIP, has substantially identical rights as the
Class A common stock and is convertible into Class A common stock at any time,
at the option of the holder, upon a transfer of such shares to a person other
than Nextel, a majority-owned Nextel subsidiary or a person or entity
controlling Nextel.
At December 31, 1999, our pro forma net tangible book value, after giving
effect to the automatic conversion of all outstanding shares of Series A,
Series C and Series D preferred stock into an aggregate of 203,617,272 shares of
common stock upon the closing of this offering, was $(2,990,000), or $(0.01) per
share of common stock. After giving effect to the sale of the 23,500,000 shares
of Class A common stock at an assumed initial public offering price of
$17.00 per share, less estimated underwriting discounts and commissions and
estimated expenses we expect to pay in connection with this offering, our pro
forma as adjusted net tangible book value at December 31, 1999 would have been
$373,538,000 or $1.58 per share. This represents an immediate increase in the as
adjusted pro forma net tangible book value of $1.59 per share to existing
stockholders and an immediate dilution of $15.42 per share to new investors, or
approximately 91% of the assumed offering price of $17.00 per share.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 17.00
----------
Pro forma net tangible book value per share at December 31,
1999...................................................... $ (0.01)
Increase per share attributable to new investors............ 1.59
---------
Pro forma as adjusted net tangible book value per share
after this offering....................................... 1.58
----------
Dilution per share to new investors......................... $ 15.42
==========
</TABLE>
The following table shows on a pro forma as adjusted basis at December 31,
1999, after giving effect to the automatic conversion of all outstanding shares
of Series A, Series C and Series D preferred stock into shares of common stock
upon the closing of this offering, the number of shares of common stock
purchased from us, the total consideration paid to us and the average price paid
per share by existing stockholders and by new investors purchasing Class A
common stock in this offering, before deducting underwriting discounts and
commissions and estimated offering expenses payable by us, at an assumed public
offering price of $17.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ -------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 213,210,600 90.1% $342,949,000 46.2% $ 1.61
New investors.................... 23,500,000 9.9 399,500,000 53.8 17.00
----------- ---- ------------ ----
Total.......................... 236,710,600 100% $742,449,000 100%
==== ====
</TABLE>
The number of shares outstanding excludes: 5,049,600 shares of Class A
common stock issuable upon exercise of options outstanding as of January 15,
2000 having a weighted average exercise price of $1.78 per share; and 2,434,260
shares of Class A common stock issuable upon the exercise of outstanding
warrants having an exercise price of less than $0.01 per share. To the extent
that any shares are issued upon exercise of these options or warrants, there
will be further dilution to new investors.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
We have summarized below our historical consolidated financial data as of
December 31, 1998 and 1999 and for the years ended December 31, 1998 and 1999.
The historical operating data presented below is derived from our records.
Our historical financial results discussed in this section and throughout
this prospectus include the operations we acquired from Nextel WIP on
January 29, 1999 in connection with our initial capitalization, which operations
had previously been managed by Nextel. See Note 1 of our audited consolidated
financial statements for a discussion of our formation, capitalization and basis
of presentation.
Please read this table together with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our audited consolidated
financial statements and the related notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
--------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Operating revenues:
Service revenues.......................................... $3,745 $28,136
Equipment revenues........................................ 1,564 4,584
------------- --------------
Total revenues.............................................. 5,309 32,720
------------- --------------
Operating expenses:
Cost of service revenues.................................. 6,108 18,807
Cost of equipment revenues................................ 2,935 10,742
Selling, general and administrative....................... 13,531 34,862
Stock-based compensation.................................. 447 27,256
Depreciation and amortization............................. 4,586 12,689
------------- --------------
Total operating expenses.................................... 27,607 104,356
------------- --------------
Operating loss.............................................. (22,298) (71,636)
------------- --------------
Other income (expense):
Interest expense.......................................... -- (65,362)
Interest income........................................... -- 24,585
------------- --------------
Total other (expense)....................................... -- (40,777)
------------- --------------
Loss before income tax provision............................ (22,298) (112,413)
Income tax provision........................................ -- --
------------- --------------
Net loss.................................................... $(22,298) $(112,413)
------------- --------------
Basic and diluted net loss per common share(1).............. $(38.18)
--------------
Weighted average common shares outstanding(1)............... 2,944,218
Pro forma basic and diluted net loss per common
share(1)(2)............................................... $(0.66)
--------------
Pro forma weighted average common shares outstanding(1)..... 170,107,513
</TABLE>
- ------------------------------
(1) Weighted average common shares outstanding above were calculated assuming
that the shares of Class A and Class B common stock were issued and split on
January 29, 1999, the date of the initial capitalization transactions. Pro
forma weighted average common shares outstanding were calculated assuming
that the shares of Series A preferred stock were converted into shares of
Class A common stock and the shares of Series C and Series D preferred stock
were converted into shares of Class B common stock, after giving effect to
the six-for-one stock split, on January 29, 1999. Per share information is
not included for periods prior to 1999 because the capitalization
transactions that occurred on January 29, 1999 substantially altered our
capital structure.
(2) Pro forma basic and diluted net loss per common share was calculated
assuming a $2,551 accrued dividend on the Series B preferred stock. The
Series B preferred stock becomes subject to mandatory redemption in
February 2010. This accrued dividend increases the net loss attributable to
common stockholders to $114,964.
25
<PAGE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1999
AS OF --------------------------
DECEMBER 31, 1998 ACTUAL PRO FORMA(1)
------------------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents, short-term
investments and restricted cash............... $16 $568,729 $568,729
Plant, property and equipment, net.............. 107,948 252,223 252,223
FCC operating licenses, net..................... 133,180 151,056 151,056
Total assets.................................... 247,666 1,015,327 1,015,327
Current liabilities............................. 8,995 58,503 58,503
Long-term debt.................................. -- 785,484 785,484
Series B redeemable preferred stock............. -- -- 24,401
Total stockholders' equity...................... $238,671 $170,616 $146,215
</TABLE>
- --------------------------
(1) Pro forma amounts reflect adjustments through December 31, 1999 for the
reclassification of the Series B preferred stock, plus accrued dividends,
from the stockholders' equity section of the balance sheet to between
liabilities and stockholders' equity. Upon consummation of this offering, we
will record a charge to accumulated deficit with a credit to Series B
preferred stock representing the 12% dividend accrued from the time of
issuance to the closing of this offering.
(2) Short-term investments include marketable securities and corporate
commercial paper with original purchase maturities greater than three
months. Restricted cash reflects the cash collateral account maintained
under the credit facility equal to borrowings outstanding, until the FCC has
approved the transfer applications relating to the licenses acquired by us
on January 29, 1999.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OTHER DATA:
Covered Pops (end of period) (millions)................... 6.1
Subscribers (end of period)............................... 46,083
EBITDA as adjusted(1)..................................... $(17,265) $(31,691)
Capital expenditures(2)................................... $104,334 $133,210
</TABLE>
- ------------------------
(1) EBITDA as adjusted represents net loss before interest expense, interest
income, depreciation, amortization and stock-based 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.
(2) Capital expenditures are expenditures (exclusive of $22 million Motorola
vendor credits and non-cash capitalized interest) 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.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Some 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 Nextel 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 Selected Consolidated
Financial Data, the consolidated financial statements and the related notes
included elsewhere in this prospectus.
Our historical results discussed in this section and throughout this
prospectus include the operations we acquired from Nextel WIP on January 29,
1999 in connection with our initial capitalization, which operations had
previously been managed by Nextel. See Note 1 of our audited consolidated
financial statements for a discussion of our formation, capitalization and basis
of presentation.
OVERVIEW
We hold or have the right to use broadband wireless frequencies that cover
40 million Pops in 46 markets. We also have the option to acquire from
Nextel WIP frequencies that cover an additional 13 million Pops, of which we
currently intend to acquire frequencies covering 2.3 million Pops. As of
January 15, 2000, we had commercial operations in markets with total Pops of 9.9
million and the ability to offer service to, or cover, 7.7 million Pops. These
operational markets are in Hawaii, New York, Texas and Pennsylvania. We intend
to be able to provide service to over 21 million Pops by the end of 2000 and
over 27 million Pops by the end of 2001.
As of December 31, 1999, we had approximately 46,000 digital subscribers
with a covered market penetration of approximately 0.75%. We added, net of
deactivations, 12,682 subscriber units during the fourth quarter of 1999, and
35,901 subscriber units for the year ended December 31, 1999.
Due to the continued development, build-out and enhancement of our portion
of the Nextel digital mobile network, we expect to continue to experience
negative operating margins. In addition, we anticipate costs such as site
rentals, telecommunications expenses, network equipment and other capital items
to increase. Sales and marketing expenses and general and administrative costs
are also expected to increase with the commercialization of service in new
markets.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
REVENUES
Our primary sources of revenues are service revenues and equipment 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. Service
revenues also include roaming revenues related to the use by Nextel subscribers
of our portion of the Nextel digital mobile network.
Our equipment revenues consist of revenues received for wireless telephones
purchased by our subscribers. Certain of our digital equipment sales are made
through independent distributors under agreements allowing rights of return on
merchandise unsold by the distributors. We defer recognition of such sales until
the merchandise is sold by the distributors.
27
<PAGE>
For the year ended December 31, 1999 total revenues were primarily generated
from our upstate New York and Hawaii markets, which became operational in July
and September 1998, respectively. Revenues increased from 1998 to 1999 due to
the growth in the number of subscribers since the initial launch. From the year
ended December 31, 1998 to the year ended December 31, 1999, our subscriber base
increased from 10,182 to 46,083.
Average revenue per unit, or ARPU, is an industry term that measures total
service revenues per month from our subscribers divided by the average number of
digital subscriber units in commercial service for that month. The following
table sets forth our recent revenues (in thousands, except for ARPU):
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED PERCENT OF ENDED PERCENT OF
DECEMBER 31, CONSOLIDATED DECEMBER 31, CONSOLIDATED
1998 REVENUES 1999 REVENUES
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Service revenues................. $3,745 71% $28,136 86%
Equipment revenues............... 1,564 29 4,584 14
------ --- ------- ---
Total revenues................... $5,309 100% $32,720 100%
====== === ======= ===
ARPU(1).......................... N/A $66
</TABLE>
- --------------------------
(1) ARPU does not include roaming revenues generated from the use by Nextel
subscribers of our portion of the Nextel digital mobile network. ARPU is not
calculated for December 31, 1998 due to the information not being comparable
to the year ending December 31, 1999.
COST OF SERVICE REVENUES
Expenses included in the cost of service revenues are site rent, utilities,
maintenance, engineering, personnel and interconnect charges, and amounts we
must pay Nextel WIP when our customers roam onto Nextel's portion of the Nextel
digital mobile network. These expenses depend primarily on the number of
operating cell sites, total minutes of use and mix of minutes of use between
interconnect and Nextel Direct Connect services.
For the year ended December 31, 1999 our cost of service revenues was
$18.8 million compared to $6.1 million for the same period in 1998. The increase
for 1999 compared to 1998 was primarily due to twelve months of operational
activities in 1999 compared to initial operating expenses for upstate New York
and Hawaii that launched in July and September 1998, respectively.
COST OF EQUIPMENT REVENUES
Cost of equipment revenues includes the cost of the subscriber wireless
telephones and accessories sold by us. For the year ended December 31, 1999 our
cost of equipment revenues was $10.7 million compared to $2.9 million for the
same period in 1998. The increase in cost in 1999 resulted primarily from the
provision of wireless telephones and accessories to new subscribers as we have
expanded our portion of the Nextel digital mobile network. As of December 31,
1999, we had 46,083 subscribers. As part of our business plan, we often offer
our equipment at a discount or as part of a promotion. As a result, the
difference between equipment revenues and cost of equipment revenues was
$6.2 million and $1.4 million for the years ended December 31, 1999 and 1998,
respectively. We expect to continue to employ these discounts and promotions in
an effort to grow our number of subscribers. Therefore, for the foreseeable
future, we expect that cost of equipment revenues will exceed our equipment
revenues.
28
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses consist of sales and marketing
expenses, and general and administrative costs. Sales and marketing expenses
relate to salaries for sales representatives and sales support personnel, and
costs associated with indirect distribution channels, marketing and advertising
programs. We anticipate that our cost per gross additional customer will be
relatively high during our first several years of operation, but will decline as
sales representatives become more efficient, we expand our indirect distribution
channels and the cost of our sales infrastructure is distributed over a greater
base of customer additions.
General and administrative costs relate to corporate overhead personnel
including tax, legal, planning, human resources, information technology,
treasury and accounting functions. The year ended December 31, 1999 was a
transition period during which Nextel WIP made certain accounting, payroll,
customer care, purchasing, human resources, information technology and billing
functions available to us. For the year ended December 31, 1999 we paid
Nextel WIP approximately $2.8 million for these services. In late October 1999,
our customer care center began operations and at the end of 1999, we had
transferred a majority of these services to our employees and systems.
For the year ended December 31, 1999, our selling, general and
administrative expenses were $34.9 million compared to $13.5 million for the
same period in 1998. Of the total $34.9 million for the year ended December 31,
1999, $18.9 million pertained to our Hawaii and upstate New York markets. The
remaining amount reflects the costs to hire and set up functional departments
and offices in addition to increasing the sales and marketing activities for new
market launches. The $5.4 million increase in expenses for the Hawaii and
upstate New York markets for the same period reflects the growth in sales and
marketing activities to build the subscriber count.
STOCK-BASED COMPENSATION EXPENSE
For the years ended December 31, 1999 and 1998, we recorded stock-based
compensation expense associated with our restricted stock purchase agreements of
$27.3 million and $447,000, respectively. This expense is a non-cash expense.
These grants were approved by our board in July 1998, but shares were not issued
until November 1998. These grants are considered compensatory and we account for
their deferred compensation expenses on a basis similar to that used for stock
appreciation rights.
DEPRECIATION AND AMORTIZATION EXPENSE
For the year ended December 31, 1999, our depreciation and amortization
expenses were $12.7 million compared to $4.6 million for the same period in
1998. The increase of $8.1 million relates primarily to depreciating the
wireless network assets for the launched Hawaii and upstate New York markets and
starting the amortization of our FCC-licensed radio spectrum.
NET LOSS
For the year ended December 31, 1999 we reported a net loss of approximately
$112.4 million which includes an amount for stock-based compensation expense of
$27.3 million. This represents an increase of $90.1 million from our loss of
$22.3 million for the same period in 1998. Expenses increased in all categories
as we have added subscriber usage to the network, hired staff, set up functional
departments and offices, and increased marketing and sales activities for new
launch markets. We anticipate reporting net losses for the foreseeable future as
we grow and expand to meet the requirements of the business.
29
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs arise from the capital requirements necessary to
complete the build-out of our portion of the Nextel digital mobile network,
including the future acquisitions of additional frequencies and the introduction
of new services. We expect capital expenditures to include, among other things,
switches, base radios, transmission towers, antennae, radio frequency
engineering, cell site construction, and additional FCC licenses. Currently, we
estimate that capital requirements to build out our portion of the Nextel
digital mobile network, including build-out of the two markets that we intend to
exercise our option to purchase, and operating losses and working capital for
the period from inception through the end of 2003, will total approximately
$1.2 billion, including the in-kind contributions we have received or expect to
receive from Nextel WIP and Motorola.
For the year ended December 31, 1999, our capital expenditures were
approximately $158.1 million, including $22.0 million from the Motorola vendor
credit and non-cash capitalized interest, spent primarily to build out the
Nextel digital mobile network in the upstate New York, Hawaii, Pennsylvania,
Kentucky, Iowa, and Texas markets.
In addition, as of January 15, 2000 we had approximately $20 million in
commitments for additional frequency purchases.
BUILD-OUT SCHEDULE
For purposes of our build-out, we have divided our territory into 48
markets, including the two markets for which we intend to exercise our option to
build out. Our agreements with Nextel WIP require us to build out and provide
service in all of these markets by June 2001. The table below identifies our
historical and planned build-out schedule for these markets:
<TABLE>
<CAPTION>
NEXTEL PARTNERS BUILD-OUT SCHEDULE*
- ---------------------------------------------------------------------------------------------------
INCREMENTAL COVERED CUMULATIVE COVERED NUMBER OF MARKETS LAUNCHED
YEAR POPULATION POPULATION OR TO BE LAUNCHED
- ---- -------------------- -------------------- -----------------------------
<S> <C> <C> <C>
1998 4.6 million 4.6 million 5
1999 1.5 million 6.1 million 2
2000 15.2 million 21.3 million 28
2001 5.8 million 27.1 million 13**
</TABLE>
- --------------------------
* We have calculated Pops for purposes of our build-out schedule by using a
radio frequency propagation tool to predict reliable service area. We then
use a geographical information system product to determine Pops within such
reliable service area. Our geographical information system product uses 1990
county census data extrapolated through 1997 based on estimated population
growth rates.
** Including the two markets which we intend to exercise our option to acquire.
OPTION TERRITORIES
Under our agreements with Nextel WIP, we have the right, but not the
obligation, to elect to build out additional markets covering approximately
13 million Pops after we have launched services in five of our existing markets.
This option expires if not exercised prior to August 29, 2000. We intend to use
a portion of the proceeds of this offering to exercise our option to acquire
frequencies covering 2.3 million Pops in two markets in Iowa, South Dakota and
Pennsylvania.
If and when we elect to build out any option territory we must comply with
the same launch criteria applicable in the rest of our markets. In addition, we
have the right to purchase from Nextel WIP all related fixed network equipment
and operational contracts existing, held or used by Nextel in such territories.
Moreover, subject to Nextel WIP's ability to obtain any appropriate waivers
30
<PAGE>
or approvals from its financing entities and the FCC, Nextel WIP will transfer
to us licenses held by Nextel to operate certain frequencies in the option
territories in which we elect to build out.
EQUIPMENT AND OPERATING AGREEMENTS
We have entered into agreements with Motorola to purchase necessary
infrastructure equipment and other related software and services we use as well
as subscriber wireless telephones and other accessories. In addition, in
connection with the capitalization transactions, Motorola contributed to us a
total of $22 million credit against future purchases in exchange for shares of
our preferred stock. As of December 31, 1999 we had fully utilized this credit.
See "Related-Party Transactions--Motorola Purchase Agreements."
Currently, our agreements with Nextel WIP allow us access to Nextel's
switches and switching facilities. Nextel WIP 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:
- integration of our cell sites into Nextel's national switching
infrastructure;
- shared coverage of Nextel Direct Connect service to communities of
interest;
- minimized costs to us and to Nextel; and
- maximized quality of service to our customers and to Nextel customers.
These criteria provide for a flexible construction schedule of switches to
serve our territory, depending on the existing switches in Nextel's territory
and the amount of customer traffic handled by any one switch. We have the option
of installing our own switching facilities within our territory. However, our
deployment of any switching facility requires coordination with Nextel WIP and
may require Nextel WIP's approval. Our agreements with Nextel WIP 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. We believe that we have
sufficient funds on hand for these installations under our current business
plans.
SOURCES OF FUNDING
To date, third-party financing activities have provided all of our funding.
For the year ended December 31, 1999 these financings totaled $851.1 million and
included:
- proceeds from cash equity contributions of $119.7 million;
- the offering of our 14% senior discount notes for $406.4 million; and
- term loans incurred by our operating subsidiary of $325 million.
For the year ended December 31, 1999, we also received:
- the contribution by Nextel WIP of FCC licenses valued at $142 million, in
exchange for preferred stock; and
- the contribution by Motorola of a $22.0 million credit to use against our
purchases of Motorola manufactured infrastructure equipment in exchange
for preferred stock, all of which had been used by December 31, 1999.
In addition, as of December 31, 1999, we had irrevocable commitments from
our current stockholders to contribute an additional $83.1 million. An
installment of $52.1 million was contributed in December 1999. The remaining
commitments will be paid in installments of
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<PAGE>
$15.5 million in September of 2000, $52.1 million in December 2000, and
$15.5 million in September 2001.
Our 14% senior discount notes due February 1, 2009 were sold in January
1999. The notes were issued at a discount to their aggregate principal amount at
maturity and generated aggregate gross proceeds to us of approximately
$406 million. In July 1999 these notes were exchanged by us for registered notes
having the same financial terms and covenants as the notes issued in January
1999. 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 million by February 1, 2004. Cash interest will not
accrue on the notes prior to February 1, 2004. As of December 31, 1999, the
accreted value of the outstanding senior discount notes was approximately
$460 million.
Nextel Partners Operating Corp., one of our wholly owned subsidiaries,
entered into a credit facility in January 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. This credit facility was amended and restated
in September 1999. The credit facility, as amended, includes a $175 million term
loan, a $150 million term loan and a $100 million reducing revolving credit
facility. Subject to Nextel Partners Operating Corp.'s right in the future to
seek an increase of up to $50 million, the credit facility may not exceed
$425 million. The $175 million term loan matures on January 29, 2008 and the
$150 million term loan matures on July 29, 2008. The revolving credit facility
will terminate on January 29, 2007.
On January 29, 1999, Nextel Partners Operating Corp. borrowed the full
amount of the $175 million term loan and on September 9, 1999, it borrowed the
full amount of the $150 million term loan. As of December 31, 1999, no amounts
were outstanding under the $100 million revolving credit facility.
The $175 million and the $150 million term loans both bear interest, at our
option, at the administrative agent's alternate base rate or reserve-adjusted
LIBOR plus, in each case, applicable margins. The applicable margin for the
$175 million term loan is 4.75% over LIBOR and 3.75% over the base rate of the
higher of 0.5% per annum above the latest federal funds rate or the prime rate.
The applicable margin for the $150 million term loan is 4.25% over LIBOR and
3.25% 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.
Borrowings under the term loans are secured by a first priority pledge of
all assets of our subsidiaries and a pledge of their capital stock. The credit
facility contains customary financial and other covenants for the wireless
industry. The credit facility also contains covenants requiring the maintainence
of certain defined financial ratios and meeting operational targets including
service revenues, subscriber units and network coverage. As of December 31, 1999
Nextel Partners Operating Corp. was in compliance with all covenants associated
with this credit facility.
We believe the net proceeds from this offering, together with the equity
investments, the proceeds from the issuance of the senior discount notes and
borrowings under the credit facility, provide us with funds sufficient to
complete the build-out of our existing markets and the two markets for which we
intend to exercise our option to buildout, acquire additional frequencies and
provide us with the 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. As of
December 31, 1999, our cash and cash equivalents, short-term investments and
restricted cash balance was $568.7 million. Although we estimate that we will
have sufficient funds
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<PAGE>
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 Nextel digital mobile network, to acquire additional FCC licenses, to add
capacity and to offer additional services, and such additional financing might
be expensive or impossible to obtain.
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 the term loans of
our subsidiary under its credit facility. In April 1999, we entered into an
interest rate swap agreement for $60 million 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
$2.7 million.
In January 1999, we issued our 14% senior discount 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.
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 us on January 1, 1999 and established accounting
standards for costs incurred in the acquisition or development and
implementation of computer software. This new standard requires the
capitalization of certain software implementation costs relating to software
acquired or developed and implemented for our use. The adoption of this
statement has not had a significant effect on our 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 has not had a significant effect on our 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 137, issued August 1999,
postpones for one year the mandatory effective date for SFAS 133 to January 1,
2001. We have not evaluated the effects of this change on our financial position
or results of operations.
REVENUE RECOGNITION IN FINANCIAL STATEMENTS--In November of 1999, the SEC
released Staff Accounting Bulletin Number 101--Revenue Recognition in Financial
Statements. This bulletin will become effective for us for the quarter ended
March 31, 2000. This bulletin establishes more clearly defined revenue
recognition criteria than previously existing accounting pronouncements, and
specifically addresses revenue recognition requirements for nonrefundable fees,
such as activation fees, collected by a company upon entering into an
arrangement with a customer, such as an arrangement to provide telecommunication
services. We believe that the effects of this bulletin will not be material to
our financial position or results of our operations.
33
<PAGE>
BUSINESS
OVERVIEW
We provide digital wireless communications services in mid-sized and smaller
markets throughout the United States. We hold or have the right to use broadband
wireless frequencies that cover 40 million Pops in 46 markets. We are licensed
to operate in 12 of the top 100 metropolitan statistical areas in the United
States ranked by population and 51 of the top 200 metropolitan statistical
areas. We also have the option, under certain circumstances, to acquire from
N-WIP frequencies that cover an additional 13 million Pops, of which we
currently intend to acquire frequencies covering 2.3 million Pops. In
January 1999, we entered into an affiliation with Nextel, whose wholly owned
subsidiary owns 36.5% of our common stock prior to this offering and is our
largest stockholder. This affiliation was created to accelerate the build-out of
the Nextel digital mobile network by granting us the exclusive right to offer
wireless communications services under the Nextel brand in selected mid-sized
and smaller markets.
The Nextel digital mobile network utilizes a single digital transmission
technology called integrated digital enhanced network, or iDEN, which was
developed by Motorola. This network constitutes one of the largest
fully-integrated wireless communications systems in the United States. By the
end of 2000, we and Nextel together plan to provide service covering all of the
top 100 metropolitan statistical areas. We offer a differentiated package of
services under the Nextel brand name targeted to business users. We currently
offer the following fully-integrated services accessible through a single
wireless telephone:
- digital mobile, or interconnect, telephone service;
- Nextel Direct Connect service that allows users to contact co-workers
instantly, on private one-to-one calls or on a group call; and
- the ability to receive pages and short text messages.
In addition, Nextel has announced its plan to offer users access to new,
digital two-way mobile data and Internet connectivity services, expected to be
commercially available in mid-2000. As part of our agreements with Nextel WIP,
we expect to offer these same data services in our markets after their
commercial implementation by Nextel.
Our senior management team has substantial operating experience, averaging
over 15 years in the communications industry. Each member of senior management
has significant experience working at AT&T Wireless, McCaw Cellular and/or
Nextel. Our senior management and employees collectively own 6.7% of our common
stock on a fully diluted basis prior to this offering. Other key stockholders,
in addition to Nextel's subsidiary, include DLJ Merchant Banking, Madison
Dearborn Partners, Eagle River Investments, an investment company controlled by
Craig O. McCaw, and Motorola.
BUSINESS STRATEGY
Our goal is to become the leading provider of integrated digital wireless
communication services in each market in our territory by offering
high-capacity, high-quality, advanced communications services on our portion of
the Nextel digital mobile network and implementing key elements of Nextel's
business strategy in our markets. In addition to our relationship with Nextel,
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:
- PROVIDE DIFFERENTIATED PACKAGE OF WIRELESS SERVICES. We offer a package of
services and features that combines multiple wireless communications
options in a single wireless telephone. We will continue to emphasize the
differentiated features of iDEN technology and implement advancements in
this technology platform as they become available. In addition, we
maintain uniformity with Nextel by offering consistent rates to our
customers anywhere on
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<PAGE>
the Nextel digital mobile network, billing based upon the actual numbers
of seconds of airtime after the first minute, and rate plans that do not
distinguish between "peak" and "off-peak" minutes.
- TARGET BUSINESS CUSTOMERS. We believe that our focus on business customers
will result in higher monthly average revenue per unit and lower average
monthly service cancellations or terminations. This is a market segment
for which we believe our product has high utility, and we further believe
that we and Nextel are the only major U.S. wireless carriers directing
fully integrated, nationwide offerings to this segment.
- DEPLOY ROBUST NETWORK RAPIDLY. Our objective is to build robust wireless
systems that cover all key areas of a given market before we launch our
network in that market. We are deploying these systems rapidly to capture
the current and projected growth in wireless usage in the United States.
We are also building our customer care and internal systems to support
future anticipated demand.
- OPERATE IN MID-SIZED AND SMALLER MARKETS. We focus on mid-sized and
smaller markets with demographics we believe to be similar to those served
by Nextel. We believe that this strategy will allow us to rapidly increase
penetration within our targeted customer base, which we believe has
historically been underserved in these markets. We believe that this
focus, combined with our differentiated service offerings, will give us
the ability to sustain our pricing strategy.
MARKETS
We hold or have the right to use broadband wireless frequencies that cover
40 million Pops in 46 markets. We also have the option to acquire from Nextel
WIP frequencies that cover an additional 13 million Pops, of which we currently
intend to acquire frequencies covering 2.3 million Pops. We consider these
markets to be attractive because:
- based on our understanding of Nextel's plans, these markets are integral
to Nextel's strategy of providing digital wireless services;
- we believe that Nextel has experienced rapid subscriber growth and
competitive success in markets with similar economic and demographic
characteristics;
- we believe that our markets generally contain fewer wireless competitors
than do large urban markets; and
- a number of our markets are adjacent to operational Nextel markets and
include numerous offices and branches of Nextel national account customers
that we expect will become our customers as soon as we launch service in
their vicinity.
The table below lists the 48 markets in which we have launched or intend to
launch digital wireless service:
<TABLE>
<CAPTION>
ACTUAL OR
PLANNED
REGION MARKET NAME TOTAL POPS LAUNCH
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
NORTHEAST Syracuse/Utica-Rome/Binghamton/Elmira, NY 2,308,433 2nd Half 1998
Harrisburg/York/Lancaster, PA 1,641,088 1st Half 2000
Albany/Glens Falls, NY 1,407,264 2nd Half 1998
Central Pennsylvania (Altoona, Williamsport,
State College)* 1,366,464 2nd Half 2001
Buffalo, NY 1,282,387 2nd Half 1998
Rochester, NY 1,049,391 2nd Half 1998
Wilkes-Barre/Scranton, PA 795,694 1st Half 2000
Erie, PA 369,863 2nd Half 1999
Jamestown, NY 140,541 1st Half 2000
---------------------------
Total 10,361,125
----------
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
ACTUAL OR
PLANNED
REGION MARKET NAME TOTAL POPS LAUNCH
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
MIDWEST Eastern Iowa (Waterloo, Dubuque, Davenport,
Cedar Rapids, Iowa City) 1,829,046 1st Half 2000
Central Illinois (Peoria, Springfield,
Champaign, Bloomington, Decatur) 1,757,899 1st Half 2000
Evansville/Owensboro, IN 1,652,709 1st Half 2001
Green Bay/Fond du Lac/Appleton/Sheboygan, WI 1,435,451 1st Half 2001
Sioux City, IA/Sioux Falls, SD* 982,519 2nd Half 2001
Nebraska (Omaha, Lincoln) 936,888 1st Half 2000
Des Moines, IA 842,622 1st Half 2000
Idaho (Boise, Twin Falls) 606,139 1st Half 2000
Eau Claire/La Crosse, WI 524,868 2nd Half 2000
Terre Haute, IN 337,121 1st Half 2001
Duluth, MN 263,627 1st Half 2001
Rochester, MN 238,733 1st Half 2001
----------
Total 11,407,622
----------
SOUTH Kentucky (Lexington-Fayette, Louisville) 2,543,523 1st Half 2000
Arkansas (Fayetteville, Ft. Smith, Pine
Bluff) 1,804,738 1st Half 2001
Shreveport/Monroe/Tyler/Longview, LA/TX 1,597,763 2nd Half 2000
Hattiesburg/Jackson, MS 1,390,583 1st Half 2001
Roanoke/Lynchburg/Charlottesville, VA 1,175,872 1st Half 2001
McAllen/Harlingen/Brownsville, TX 963,565 2nd Half 2000
Montgomery, MS 931,668 1st Half 2000
Pensacola/Panama City/Fort Walton Beach, FL 839,162 1st Half 2000
Macon/Warner Robins, GA 743,012 2nd Half 2000
Lafayette/Lake Charles, LA 719,335 1st Half 2000
Temple/Killeen/Waco, TX 672,352 2nd Half 1999
Albany, GA 651,977 2nd Half 2000
Corpus Christi/Victoria, TX 619,954 2nd Half 2000
Little Rock, AR 560,297 1st Half 2001
Mobile, AL 530,315 1st Half 2000
Alexandria, LA 462,765 2nd Half 2000
Bristol/Johnson City/Kingsport, TN 455,691 2nd Half 2000
Tallahassee, FL 442,904 1st Half 2000
Beaumont, TX 373,194 1st Half 2000
Pascagoula, MS 351,431 1st Half 2000
Columbus, GA 338,865 2nd Half 2000
Texarkana, TX/AR 331,145 2nd Half 2000
Laredo, TX 284,574 1st Half 2001
Dothan/Auburn-Opelika, GA 248,951 2nd Half 2000
Abilene, TX 186,379 1st Half 2001
Bryan/College Station, TX 174,624 1st Half 2000
----------
Total 19,394,639
----------
NONCONTINENTAL US Hawaii (all islands) 1,197,687 2nd Half 1998
----------
Combined Total 42,361,073
==========
</TABLE>
* Markets for which we expect to exercise our option to build out.
We have calculated total Pops for a given market by utilizing the 1990
census data for each county within the market and extrapolating such data
through 1997 based on estimated population growth rates. Future launch schedules
for our markets are subject to the various factors discussed under the heading
"Risk Factors" in this prospectus.
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<PAGE>
In addition to the 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 populations, 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.
FREQUENCY MANAGEMENT AGREEMENT
In August 1999, we exercised our option to elect to build out certain
markets in Texas, Indiana, Arkansas, and Georgia. These markets contain 3.8
million Pops. On September 9, 1999, Nextel filed with the FCC applications to
transfer control to us of the licenses covering these markets. The FCC did not
receive any comments from third parties during the public comment period on
these applications. We anticipate that the FCC will approve these applications
later this year, although there can be no assurance that it will do so.
Pending FCC approval, we are managing the frequencies covered by the
transfer applications pursuant to a frequency management agreement with Nextel
WIP. This agreement obligates us 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 Nextel
digital mobile network. This agreement will terminate upon the FCC's approval of
the transfer applications.
THE NEXTEL DIGITAL MOBILE NETWORK
We are constructing our portion of the Nextel digital mobile network using
the same technology used by Nextel. This technology, referred to as iDEN, was
developed by Motorola.
We are required and intend to build and operate our portion of the Nextel
digital mobile network in accordance with Nextel's standards, which will enable
both companies to achieve a consistent level of service throughout the United
States. By the end of 2000, together with Nextel, we plan to provide service
covering all of the top 100 metropolitan statistical areas in the United States
ranked by population.
Our customers are assured of digital quality and advanced features whether
they are using our or Nextel's portion of the Nextel digital mobile network.
This contrasts to the hybrid analog/digital networks of cellular competitors
that do not support all features in the analog-only portions of their networks.
DIGITAL MOBILE NETWORK SERVICES. We offer a bundled product consisting of
the following fully-integrated services accessible through a single wireless
telephone:
- digital mobile, or interconnect, telephone service;
- Nextel Direct Connect service that allows users to contact co-workers
instantly, on private one-to-one calls or on a group call; and
- the ability to receive pages and short-text messages.
In addition, the Nextel 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.
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
37
<PAGE>
in a single wireless telephone 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
certain business users' communications involves 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 currently generates approximately 50% of our network traffic.
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 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 has announced its plans to offer customers access to new digital
two-way mobile data and Internet connectivity services. Three new wireless
telephones developed and manufactured by Motorola, the "i1000plus," "i500plus"
and "i700plus," are available. These new wireless telephones are expected to be
the first in a product line that incorporates micro-browsers and wireless
Internet capability, and are designed to be combined with other mobile data
applications to be used in connection with Nextel's planned wireless data
service offering. Nextel has begun testing the underlying technology for these
services in several U.S. markets and has announced that it currently plans to
commercially launch the wireless data service offering in mid-2000.
In May 1999, Nextel announced an agreement with Microsoft Corporation to
deploy Nextel Online, a wireless Internet service offering that enables Nextel
subscribers to access a customized set of Internet services offered through a
version of Microsoft's MSN portal anytime, anywhere on the Nextel digital mobile
network. Concurrent with this agreement, Microsoft invested $600 million in
Nextel.
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 its performance in the following
areas:
- SUBSCRIBER GROWTH. Nextel reported in its quarterly report that as of
September 30, 1999, it provided digital service to about 4.1 million
subscriber units in the United States. Based on information reported by
cellular and digital service providers, in seven of the eight quarters
through September 30, 1999, Nextel has been one of the top two U.S.
wireless industry growth leaders as measured by net customer additions.
- SUBSCRIBER REVENUES. As reported in its quarterly report for the period
ended September 30, 1999, Nextel's average monthly ARPU for its services
was approximately $74 for the three months ended September 30, 1999, as
compared with a wireless industry average of approximately $40 for the six
months ended June 30, 1999, as reported by the Cellular Telecommunications
Industry Association.
INTERNATIONAL ROAMING AGREEMENTS. We expect to enter into international
roaming agreements with carriers operating outside of the United States. To the
extent that we are unable to obtain an independent agreement due to a
technological issue, our agreements with Nextel WIP allow us to earn revenue
when non-U.S. subscribers roam on our portion of the Nextel digital mobile
network.
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Currently, our and Nextel's subscribers can roam on Clearnet Communications
Inc.'s network in Canada and Clearnet's subscribers can roam on the Nextel
digital mobile network.
DIGITAL MOBILE NETWORK TECHNOLOGY. The Nextel digital mobile network
combines the iDEN 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. Nextel currently uses iDEN
technology throughout its portion of the Nextel digital mobile network, and we
are required to use iDEN technology exclusively. iDEN technology is a
proprietary format for delivering signals over scattered, non-contiguous
specialized mobile radio, or SMR, frequencies.
The iDEN technology shares the same basic platform as the wireless standards
underlying global system for mobile communications, or GSM, and time division
multiple access, or TDMA. iDEN shares many 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. iDEN differs in a number of
significant respects from the TDMA technology versions being assessed or
deployed by many cellular and PCS providers in the United States. The iDEN
technology, when utilized for the two-way radio dispatch function, can be
significantly more efficient than TDMA technology formats.
The design of the Nextel 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 transfer 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.
Under our agreements, we and Nextel WIP are required to cooperate to
optimize the location of the switching centers to support both its existing and
planned Nextel digital mobile network service and our launch of service. In
areas where we do not have our own switch, we obtain switching services from
Nextel WIP for a fee.
The implementation of the Nextel digital mobile network design and
technology increases the capacity of a SMR channel significantly, as compared to
analog technology, in two ways:
- 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.
- Each cell site provides service on our licensed frequencies to a
particular geographic area permitting the customer's telephone 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
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than one mile and up to 30 miles. This process avoids interference, while
permitting significantly more customers to use the frequencies allotted to
us.
The system 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.
NETWORK BUILD-OUT AND CAPITAL EXPENDITURE PLAN
For purposes of our build-out, we have divided our territory into 48
markets, including the two markets which we intend to exercise our option to
build out. Our agreements with Nextel WIP require us to build out and provide
service in all of these markets by June 2001. The table below identifies our
historical and planned build-out schedule for these markets:
<TABLE>
<CAPTION>
NEXTEL PARTNERS BUILD-OUT SCHEDULE*
- ---------------------------------------------------------------------------------------------------
INCREMENTAL COVERED CUMULATIVE COVERED NUMBER OF MARKETS LAUNCHED
YEAR POPULATION POPULATION OR TO BE LAUNCHED
- ---- -------------------- -------------------- -----------------------------
<S> <C> <C> <C>
1998 4.6 million 4.6 million 5
1999 1.5 million 6.1 million 2
2000 15.2 million 21.3 million 28
2001 5.8 million 27.1 million 13**
</TABLE>
- ------------------------
* We have calculated Pops for purposes of our build-out schedule by using a
radio frequency propagation tool to predict reliable service area. We then
use a geographical information system product to determine Pops within such
reliable service area. Our geographical information system product uses 1990
county census data extrapolated through 1997 based on estimated population
growth rates.
** Including the two markets which we intend to exercise our option to acquire.
Under the terms of the operating agreements with Nextel WIP, specific areas,
including metropolitan areas, smaller communities and corridors, are "required
build" areas. Our agreements with Nextel WIP require us to launch commercial
service in these areas and we have ongoing requirements to complete additional
build-outs in subsequent years.
In addition, we have the option to elect to build out certain additional
markets covering approximately 13 million Pops once we have launched services in
five of our existing markets. We currently intend to exercise this option with
respect to licenses covering 2.3 million Pops. This option expires if not
exercised prior to August 2000. Nextel may build out option markets prior to our
exercise of an option if Nextel WIP provides us with notice of Nextel's intent
to build out an optioned market and, in response to the notice, we decline to
exercise our option to build out that market. If our required 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 timely completes the build-
out of these areas, we will have no right to acquire or operate in those areas.
CELL SITE ACQUISITION AND CONSTRUCTION. As of December 31, 1999, we had
leasehold interests in 1,010 cell site locations for our transmission equipment
throughout our territory, which is more than 56% of the 1,800 sites that we
estimate will be required to complete the initial system build-out of our
portion of the Nextel digital mobile network. Of these sites, 530 were equipped
and operational at December 31, 1999.
Initially, we leased approximately 40 of these sites from Nextel WIP. In
April 1999, Nextel WIP sold these towers to SpectraSite Holdings, Inc., along
with other towers, and entered into agreements pursuant to which SpectraSite
agreed to build or purchase additional towers, including
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<PAGE>
towers in our territory. We have entered into leasing arrangements with
SpectraSite on agreed terms for space on all towers controlled by SpectraSite
located in our territory and upon which we require space. With respect to all
SpectraSite towers in our territory on which we lease space, Nextel WIP has
agreed to compensate us for the difference between the lease rates we pay to
SpectraSite and the lease rates we would have paid to Nextel WIP under our
former master lease agreement.
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.
BUILD-OUT CRITERIA Our agreements with Nextel WIP 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's U.S. 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 specific frequencies, their 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 digital mobile network customers who roam into our market and
the ability to support additional features as required by Nextel.
RELATIONSHIP WITH NEXTEL
We intend to capitalize on our relationship with Nextel, and believe our
relationship provides strategic and cost-saving advantages, including the
following:
- NEXTEL 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.
- NATIONWIDE ROAMING. Our subscribers and subscribers of Nextel are able to
use interconnect service to roam throughout the Nextel digital mobile
network at no additional charge. Nextel provides our subscribers the same
basic mobile telephone functionality and related features available to
them in our markets when they roam into Nextel's markets. Pursuant to our
operating agreements with Nextel WIP, Nextel's subscribers generate
revenue for us when they roam into our markets and we pay Nextel when our
subscribers roam into its markets.
- SUPPORT SERVICES. The operating agreements with Nextel WIP enable us to:
- use Nextel's switching facilities and network monitoring center;
- use Nextel's back-office systems to support customer activation and
billing; and
- access technology improvements from Nextel's research and development.
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<PAGE>
Prices for these services are based on Nextel's cost to provide us these
services.
- NEXTEL'S EXISTING RELATIONSHIPS WITH VENDORS AND DISTRIBUTORS. Nextel WIP
has agreed to assist us in obtaining the same terms it receives from its
vendors of equipment and services. For example, under our agreement with
Motorola, subject to certain exceptions, we purchase wireless telephones
and infrastructure equipment from Motorola at the same prices as Motorola
offers such equipment to Nextel. We intend to develop our own
relationships with vendors and seek from Nextel's distributors terms
similar to those agreed to with Nextel.
- NEXTEL'S NATIONAL ACCOUNTS. We anticipate that individuals in numerous
offices and branches of Nextel's national accounts will become our
subscribers when we launch service in their area. On January 29, 1999,
Nextel national accounts' subscribers who were located in our operational
markets became our subscribers.
SALES AND MARKETING
BUSINESS CUSTOMER FOCUS. Our marketing strategy targets business users who
we believe are particularly attracted to the Nextel 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.
As we launch in each of our markets, we receive 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 our territory or as a result of inquiries directed to Nextel prior to the
launch of services. We expect to continue to benefit from Nextel's national
advertising campaigns. We utilize a direct sales force as well as indirect sales
channels, direct mail and telemarketing to market our services and products.
We believe that this focus on business customers and our unique bundle of
services have resulted in higher monthly average revenue per unit and a lower
average monthly cancellation or termination rate than other wireless services
providers have experienced.
PRICING PLANS. Although we set our price levels in each of our markets
independently of Nextel, we are required to adopt Nextel's pricing strategies.
We believe these strategies are both profitable and attractive to customers.
These pricing features include home-rate roaming, one-second rounding after the
first minute and flat-rate pricing, which we believe differentiate our services
from competitors, and enable us to benefit from Nextel's national advertising of
these features:
- 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 Nextel digital
mobile network, without the complex dialing procedures, access fees or
higher roaming airtime rates frequently encountered by roaming customers
of cellular providers.
- 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.
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- 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.
CUSTOMER CARE
In October 1999, our customer care call center in Las Vegas, Nevada became
operational and began to provide services to our subscribers. Our subscribers
can reach customer service by dialing 611 from their wireless telephones or by
calling the national 800 number advertised by Nextel. Nextel's call center
routes all calls from our customers to us. In addition to customer care, we have
strategically located our credit and activation, order fulfillment, and
collection services in the call center.
THE NEXTEL WIP OPERATING AGREEMENTS
The operating agreements define the relationship, rights and obligations
between Nextel WIP and us. The agreements began January 29, 1999, have initial
terms of ten years, and may be extended for up to two and a half years, with
four ten-year renewals available at our option.
Pursuant to the agreements, Nextel WIP is obligated to share with us
Nextel's experience in operating iDEN networks by granting us access to meetings
and providing specified services upon our request. The most significant services
Nextel WIP may provide us are:
- 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;
- 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;
- use of Nextel's back-office systems in order to support customer
activation, billing and customer care for national accounts in exchange
for fees based on Nextel's national average cost for such services;
- 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;
- access to technology enhancements and improvements; and
- assisting us in contracting with Nextel's vendors on the same terms as
Nextel obtains wherever possible.
To further support us in our efforts, Nextel WIP has also agreed that:
- 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;
- the switch monitoring services will be supplied for a fee based on
Nextel's average costs of providing such service;
- 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
- when a Nextel subscriber roams on our system we receive a percentage of
the service revenues generated by the roaming subscriber. The percentage
is 90% of the service
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<PAGE>
revenues 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 addition, the operating agreements demand that we adhere to certain key
operating requirements, including the following:
- we generally are required to offer the full complement of products and
services offered by Nextel in comparable service areas;
- 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;
- we must meet minimum network performance and customer care thresholds; and
- we must adhere to standards in other operating areas, such as frequency
design, site acquisition, construction, cell site maintenance and
marketing and advertising.
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 Nextel 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.
The provision of cellular telephone service began with providers utilizing
the 800 MHz band of radio frequency in 1982 when the FCC began issuing two
licenses per market throughout the United States. In 1993, the FCC allocated a
portion of the radio spectrum, 1850-1990 MHz, for a new wireless communications
service commonly known as PCS. The FCC's stated objectives in auctioning
bandwidth for PCS were to foster competition among existing cellular carriers,
increase availability of wireless services to a broader segment of the public,
and bring innovative technology to the U.S. wireless industry. From 1995 through
1997, the FCC conducted auctions in which industry participants were awarded PCS
licenses for designated areas throughout the United States.
The demand for wireless telecommunications has grown rapidly, driven by the
increased availability of services, technological advancements, regulatory
changes, increased competition and lower prices. According to the Cellular
Telecommunications Industry Association, the number of wireless subscribers in
the United States, including cellular, PCS and ESMR, has grown from
approximately 200,000 at June 30, 1985 to over 76 million at June 30, 1999,
which reflected a penetration rate of 27.6%.
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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:
- the smaller portion of the radio spectrum allocated to SMR;
- the assignment of SMR frequencies on a non-contiguous basis;
- 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
- 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, we, or a Nextel subsidiary, hold EA licenses for all
of the territories that we intend to serve.
EA licenses 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 WIP 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
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renewal from the FCC. EA licensees can generally expect to obtain renewal of
their licenses if they are otherwise in good standing before the FCC.
All of our SMR licenses are subject to FCC build-out requirements. The FCC
recently modified the build-out deadlines for our pre-1997 site-by-site SMR
licenses permitting us to utilize the same build-out schedule as our EA
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
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, including us,
collectively regulated as "CMRS" providers, from restricting another carrier's
ability to resell its services until November 24, 2002. The FCC also has adopted
requirements for CMRS providers, including covered SMR providers, to implement
various enhanced 911 capabilities. 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 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
has recently upheld this 45 MHz cap, while increasing the cap in rural areas to
55 MHz. 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 necessary for the offering of our services.
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
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jurisdiction among other matters. Under its broad oversight authority with
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 that impose a number of obligations for local exchange carriers
to interconnect their network to other carriers' networks which affect wireless
service providers. Established local exchange carriers must provide for
co-location of equipment necessary for interconnection, as well as any
technically feasible method of interconnection requested by a CMRS provider. In
addition, all local exchange carriers 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 exchange carrier, 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. Implementation of certain capabilities
required by the FCC must be completed by September 30, 2001. These requirements
are presently subject to appeal in Federal court. Compliance with the
requirements of this Act and the FCC's rules 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 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. 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, state 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 sites 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. Pursuant to Congressional directive, or on its own, the FCC may
allocate additional spectrum, at any time, which may lead to the offering by
others of services competitive with ours.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to our
executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ------------------------------------------
<S> <C> <C>
John Chapple.............................. 46 President, Chief Executive Officer and
Chairman of the Board
John Thompson............................. 46 Vice President, Chief Financial Officer
and Treasurer
David Thaler.............................. 44 Vice President--Business Operations
David Aas................................. 46 Vice President--Engineering and Technical
Operations
Perry Satterlee........................... 39 Vice President--Sales and Marketing
Mark Fanning.............................. 40 Vice President--People Development
Donald Manning............................ 39 Vice President, General Counsel and
Secretary
Timothy Donahue........................... 51 Director
Andrew Rush............................... 42 Director
Andrew Sinwell............................ 35 Director
Dennis Weibling........................... 47 Director
Steven Dodge.............................. 54 Director
</TABLE>
JOHN CHAPPLE worked to organize Nextel Partners throughout 1998 and has been
the President, Chief Executive Officer and Chairman of the Board of Nextel
Partners and our subsidiaries since August 1998. Mr. Chapple was elected to our
board of directors pursuant to the terms of our shareholders' agreement.
Mr. Chapple, a graduate of Syracuse University and Harvard University's Advanced
Management Program, has nearly 20 years of 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, past Vice-Chairman
of the Cellular Telecommunications Industry Association and has been on the
Board of Governors of the NHL and NBA. Mr. Chapple is currently on the Syracuse
University Maxwell School Board of Advisors.
JOHN THOMPSON has been the Chief Financial Officer and Treasurer of Nextel
Partners and our subsidiaries since August 1998 and has approximately 20 years
of finance experience, including 12 years in the wireless communications
industry. In March 1999 he became a Vice President. 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.
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DAVID THALER has been the Vice President-Business Operations of Nextel
Partners and our subsidiaries since August 1998 and has nearly 17 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 14
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 and our subsidiaries since August 1998. Prior to joining
Nextel Partners, Mr. Aas served as Vice President of Engineering and Operations
of AT&T Wireless' Messaging Division. Mr. Aas has 21 years of 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. From 1989 to August 1998, he was with
AT&T Wireless, where he led the design, development, construction and operation
of AT&T Wireless' 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-Sales and Marketing of Nextel
Partners and our subsidiaries since August 1998 and has approximately 12 years
of wireless industry experience. He spent the prior 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 and our subsidiaries since August 1998 and has over 17 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 Cellular's
California/Nevada region.
DONALD MANNING has been the Vice President, General Counsel and Secretary of
Nextel Partners and our subsidiaries since August 1998. From July 1996 to July
1998, he served as Regional Attorney for the Western Region of AT&T Wireless
Services, an 11-state business unit generating over $400 million in revenues
annually. Prior to joining AT&T Wireless Services, from September 1989 to July
1998, Mr. Manning was an attorney with Heller Ehrman White & McAuliffe
specializing in corporate and commercial litigation. From September 1985 to
September 1989, he was an attorney with the Atlanta-based firm of Long,
Aldridge & Norman.
TIMOTHY DONAHUE has been a director of Nextel Partners and our subsidiaries
since January 1999. Mr. Donahue was elected to our board of directors as the
designee of Nextel WIP pursuant to the terms of our shareholders' agreement.
Mr. Donahue has been a director of Nextel since June 1996, was the President and
Chief Operating Officer from February 1996 to July 1999, and has been the
President and Chief Executive Officer since July 1999. From 1986 to January
1996, Mr. Donahue held various senior management positions with AT&T Wireless
Services.
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<PAGE>
ANDREW RUSH has been a director of Nextel Partners and Nextel Partners
Operating Corp. since January 1999. Mr. Rush was elected to our board of
directors as the designee of DLJ Merchant Banking pursuant to the terms of our
shareholders' agreement. 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
boards of directors of Societe d'Ethanol de Synthese, American Tissue, Inc. and
Worldwide Fiber, Inc.
ANDREW SINWELL has been a director of Nextel Partners and Nextel Partners
Operating Corp. since January 1999. Mr. Sinwell was elected to our board of
directors as the designee of Madison Dearborn Partners pursuant to the terms of
our shareholders' agreement. Mr. Sinwell is currently a Director of Madison
Dearborn Partners, which he joined in August 1996. From 1994 to 1996,
Mr. Sinwell was a Senior Policy Advisor at the FCC. He currently serves on the
boards of directors of @Link Networks, Inc., Enews.com, Hotwire Services, Inc.,
Reiman Holding Company, LLC and Western Integrated Network, LLC.
DENNIS WEIBLING has been a director of Nextel Partners and Nextel Partners
Operating Corp. since January 1999. Mr. Weibling was elected to our board of
directors as the designee of Eagle River pursuant to the terms of our
shareholders' agreement. Mr. Weibling has been a director of NEXTLINK since
January 1997. Mr. Weibling has also 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 for Nextel. Mr. Weibling
serves on the board and executive committee of Teledesic Corporation, a
satellite telecommunications company backed by Craig O. McCaw and William H.
Gates III.
STEVEN DODGE has been a director of Nextel Partners and Nextel Partners
Operating Corp. since February 2000. In addition, Mr. Dodge is currently the
Chairman and Chief Executive Officer of American Tower Corporation, an
independent owner and operator of communications towers in the United States.
American Tower Corporation was organized in July 1995 as a subsidiary of
American Radio Systems Corporation, of which Mr. Dodge was the founder and Chief
Executive Officer, and was spun off to the American Radio stockholders at the
time of American Radio's merger with CBS in June 1998. At that time, American
Tower Corporation began trading publicly. Mr. Dodge was employed with American
Radio from March 1988 to June 1998, and prior to that time, from 1978 to 1988,
Mr. Dodge was the founder and Chief Executive Officer of American Cablesystems,
a publicly traded cable television company which was merged into Continental
Cable in 1988, now Media One. Mr. Dodge also serves on the boards of directors
of WebLink Wireless Inc., a publicly traded provider of wireless messaging
services, TD Waterhouse Group, Inc., a publicly traded brokerage firm, and
Sensitech, Inc., a supplier of environmentally-sensitive products.
BOARD OF DIRECTORS
Upon consummation of this offering, our board of directors will be comprised
of six directors. Pursuant to the shareholders' agreement, as amended, certain
parties to the agreement, who together will own approximately 79% of our
outstanding common stock upon completion of this offering, have agreed to vote
their shares of our common stock to elect as directors:
- one person selected by Madison Dearborn Partners: currently, Andrew
Sinwell;
- one person selected by Nextel WIP: currently, Timothy Donahue;
- one person selected by Eagle River: currently, Dennis Weibling; and
- our chief executive officer: currently, John Chapple.
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<PAGE>
Prior to this offering, DLJ Merchant Banking had the right to designate two
directors, one of whom was in turn designated by Madison Dearborn Partners, and
all of the parties to the shareholders' agreement had agreed to vote to elect
such designees as directors. Andrew Rush was elected to our board as a result of
his designation by DLJ Merchant Banking prior to the amendment to the
shareholders' agreement, which amendment was completed in contemplation of this
offering. The shareholders' agreement, as amended, will be in effect following
closing of this offering.
All directors will hold office until the next annual meeting of stockholders
and until their successors are duly elected.
COMMITTEES
Upon consummation of this offering, our audit committee will consist of
Messrs. Rush, Sinwell and Dodge. The audit committee will make recommendations
to our board of directors regarding the selection of independent auditors,
review the scope of audit and other services by our independent auditors, review
the accounting principles and auditing practices and procedures to be used for
our financial statements and review the results of those audits.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We do not currently have a compensation committee, and, instead, our entire
board of directors makes compensation determinations. John Chapple, our Chief
Executive Officer and Chairman of the Board, participated in our board's
deliberations of executive officer compensation in 1999. No interlocking
relationship exists between any member of our board of directors and any member
of the board of directors or compensation committee of any other company, nor
has any such interlocking relationship existed in the past.
DIRECTOR COMPENSATION
To date, none of our directors has received compensation for services
provided to us as a director. Mr. Dodge will receive compensation of $2,500 per
quarter, plus $1,000 for each meeting he attends in person and $500 for each
meeting he attends via conference call. In addition, we have authorized a grant
to Mr. Dodge of an option, to be effective as of the closing of this offering,
to purchase 25,000 shares of Class A common stock, which option will vest in
three equal annual installments and have an exercise price equal to the price at
which the Class A common stock is initially offered to the public in this
offering. All directors are reimbursed for their out-of-pocket expenses in
serving on the board of directors.
EXECUTIVE COMPENSATION
Our executive officers are appointed by, and serve at the discretion of, our
board of directors. There are no family relationships among our directors and
officers.
SUMMARY COMPENSATION TABLE. Prior to January 29, 1999, we did not pay any
compensation to our 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 and Termination of
Employment Arrangements."
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The following table sets forth the compensation paid by us for services
rendered during fiscal year 1999 by our chief executive officer and our other
four most highly compensated executive officers.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM COMPENSATION
COMPENSATION ---------------------------------
-------------------- RESTRICTED SECURITIES
BASE STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY $ BONUS $ AWARDS(1)($) OPTIONS/SARS(#) COMPENSATION(9)($)
- --------------------------- --------- -------- ------------- ----------------- --------------------
<S> <C> <C> <C> <C> <C>
John Chapple
Chief Executive Officer........... $150,000 -- $491,111(2) 105,000(7) $87,500
John Thompson
Chief Financial Officer and
Treasurer......................... 150,000 -- 339,444(3) 315,000(8) 87,500
David Thaler
Vice President--Business
Operations........................ 150,000 -- 195,000(4) 60,000(7) 87,500
David Aas
Vice President--Engineering and
Technical Operations.............. 140,000 -- 162,500(5) 60,000(7) 10,000
Perry Satterlee
Vice President--Sales and
Marketing......................... 150,000 -- 137,222(6) 120,000(7) 44,000
</TABLE>
- ------------------------------
(1) Represents an estimated value of $0.17 per share as of the date of grant,
less price paid per share by such officer for shares of Class A common stock
sold to such officer at a purchase price of $0.002 per share pursuant to
restricted stock purchase agreements. As of January 1, 2000, 44.5% of these
shares had vested. Assuming continued employment with us, the remaining
shares vest pursuant to the following schedule: an additional 19.5% vest as
of December 31, 2000 and an additional 18% vest as of each of December 31,
2001 and December 31, 2002. See "--Restricted Stock Purchase Agreements and
Change of Control Arrangements."
(2) Represents 2,946,666 shares of Class A common stock, of which 1,311,264
shares have vested as of January 1, 2000.
(3) Represents 2,036,664 shares of Class A common stock, of which 906,318 shares
have vested as of January 1, 2000.
(4) Represents 1,170,000 shares of Class A common stock, of which 520,650 shares
have vested as of January 1, 2000.
(5) Represents 975,000 shares of Class A common stock, of which 433,878 shares
have vested as of January 1, 2000.
(6) Represents 823,332 shares of Class A common stock, of which 366,384 shares
have vested as of January 1, 2000.
(7) Represents options to purchase shares of Class A common stock granted on
December 31, 1999, which options have an exercise price of $1.85 per share
and vest in three equal annual installments.
(8) Represents an option to purchase up to 210,000 shares of Class A common
stock granted to Mr. Thompson on January 29, 1999, which option has an
exercise price of $1.67 per share and is fully vested, as well as an option
to purchase up to 105,000 shares granted on December 31, 1999, which option
has an exercise price of $1.85 per share and vests in three equal annual
installments. See "--Option Grants in Fiscal Year 1999."
(9) Represents lump sum payments made to officers on January 29, 1999 for
services rendered to us prior to that date. See "--Executive Employment
Contracts and Termination of Employment Arrangements."
OPTION GRANTS IN FISCAL YEAR 1999
The following table sets forth certain information with respect to stock
options granted to each of our named executive officers during the fiscal year
ended December 31, 1999. In accordance with the rules of the Securities and
Exchange Commission, also shown below is the potential realizable value over the
term of the option, the period from the grant date to the expiration date, based
on assumed rates of stock appreciation of 5% and 10%, compounded annually. These
amounts are mandated by the Securities and Exchange Commission and do not
represent our estimate of future stock price. Actual gains, if any, on stock
option exercises will depend on the future performance of our Class A common
stock. In fiscal year 1999, we granted options to acquire up to an aggregate of
5,049,600 shares to employees and directors, excluding options that were
subsequently forfeited due to termination, all under our stock option plan and
all at an
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exercise price equal to the fair market value of our Class A common stock on the
date of grant as determined in good faith by our board of directors.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
PERCENT OF TOTAL PRICE APPRECIATION FOR
NUMBER OF SECURITIES OPTIONS GRANTED EXERCISE OPTION TERM
UNDERLYING OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION -----------------------
NAME GRANTED (#) FISCAL 1999 SHARE DATE 5%($) 10%($)
- ------------------------------- --------------------- ---------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John Chapple................... 105,000 2.1% $1.85 12/31/09 $2,907,577 $4,629,830
John Thompson.................. 210,000(1) 4.2 1.67 1/29/09 5,538,242 8,417,873
105,000 2.1 1.85 12/31/09 2,907,577 4,629,830
David Thaler................... 60,000 1.2 1.85 12/31/09 1,661,473 2,645,617
David Aas...................... 60,000 1.2 1.85 12/31/09 1,661,473 2,645,617
Perry Satterlee................ 120,000 2.4 1.85 12/31/09 3,322,945 5,291,235
</TABLE>
(1) After the fourth anniversary of the stock option agreement pursuant to which
this option was granted, Mr. Thompson may surrender, without payment of the
exercise price, all or a portion of the option for payment in cash by us of
$2.38 per share. The option is currently fully vested and exercisable by
Mr. Thompson and will expire on January 29, 2009.
AGGREGATE OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR-END OPTION VALUES
None of our named executive officers exercised any options in fiscal 1999.
With respect to our named executive officers, the following table sets forth
information concerning exercisable and unexercisable options held as of
December 31, 1999. The "Value of Unexercised In-the-Money Options at
December 31, 1999" is based upon an assumed initial public offering price of
$17.00 per share minus the per share exercise price multiplied by the number of
shares underlying the option.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 1999 DECEMBER 31, 1999 ($)(1)
--------------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
John Chapple...................................... 0 105,000 $ -- $1,590,750
John Thompson..................................... 210,000 105,000 3,219,300 1,590,750
David Thaler...................................... 0 60,000 -- 909,000
David Aas......................................... 0 60,000 -- 909,000
Perry Satterlee................................... 0 120,000 -- 1,818,000
</TABLE>
EXECUTIVE EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
We have entered, through our wholly owned subsidiary, 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 services rendered to us prior to such date. Upon completion of
the build-out of initial portions and applicable optional portions of the Nextel
digital mobile network on or before March 1, 2002, each may receive a raise in
his base salary and a performance-based bonus. In addition, each has agreed that
while employed by us, and for one year thereafter, he will not compete against,
or solicit employees or business from, us or Nextel, or any of our affiliates.
Each agreement has an initial four-year term and further provides that in
the event the employee is terminated without cause or resigns for good reason,
as defined in the agreements, the employee shall be entitled to receive up to
one year's base salary plus an amount equal to the employee's most recent annual
bonus.
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RESTRICTED STOCK PURCHASE AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
On November 20, 1998, we entered into restricted stock purchase agreements
with each of Messrs. Chapple, Thompson, Thaler, Aas, Satterlee and Fanning in
consideration of their employment, which agreements were amended on January 29,
1999. We also entered into a restricted stock purchase agreement with Donald
Manning on September 9, 1999. Pursuant to these agreements, we sold an aggregate
of 8,834,994 shares of Class A common stock to these executive officers at a
price of $0.002 per share. These shares are subject to vesting provisions and,
subject to certain conditions, unvested shares may be repurchased by us for
$0.002 per share upon termination of the individual's employment, and vested
shares may be repurchased by us upon termination for cause or resignation
without good reason at varying prices.
As of January 1, 2000, 44.5% of these shares had vested. Assuming continued
employment with us, the remaining shares vest pursuant to the following
schedule: an additional 19.5% vest as of December 31, 2000 and an additional 18%
vest as of each of December 31, 2001 and December 31, 2002. In addition, the
vesting of the shares may be accelerated upon:
- a change of control of us or Nextel;
- termination of employment on account of death or disability, or by us
without cause;
- resignation for good reason as defined in the agreements; or
- subject to certain conditions, upon the sale or other disposition by
affiliates of DLJ Merchant Banking of 75% or greater of their Class A
common stock.
EMPLOYEE STOCK OPTION PLAN
Our nonqualified stock option plan was adopted by our board of directors in
January 1999 and is anticipated to be approved by our stockholders in
February 2000. This plan offers employees the opportunity to purchase shares of
Class A common stock at a price equal to the fair market value of the stock as
of the date of the option grant. The total number of shares that has been
reserved for issuance under the plan is 16,545,354 shares of Class A common
stock, provided that this number will be increased by the amount of shares
repurchased by us under the restricted stock purchase agreements or our
shareholders' agreement.
Under our stock option plan, no options may be granted to senior managers
unless we achieve certain performance criteria based on build-out, revenue and
EBITDA targets. The grants to employees, other than senior managers, may be
subject to similar performance criteria or other criteria established by our
board of directors. Under the terms of the plan, it is contemplated that
approximately 25% of the options subject to the plan will be granted in
connection with the recruitment of new employees and that senior managers will
receive in the aggregate approximately 20% of the total number of options
granted each year.
Moreover, under the terms of the plan, no more than 30% of the total number
of authorized options may be granted in any year and no options may be granted
under the plan after January 1, 2003. The options granted are exercisable for
ten years. The options are generally non-transferable, and the right to exercise
terminates concurrently with termination of employment. The plan contemplates
the acceleration of vesting of some or all outstanding options upon a change of
control of us.
EMPLOYEE STOCK PURCHASE PLAN
Our employee stock purchase plan was adopted by our board of directors in
January 2000 and is anticipated to be approved by our stockholders in February
2000. The employee stock purchase
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plan will be effective upon the completion of this offering. Initially, a total
of 3,000,000 shares of Class A common stock will be reserved for issuance under
the employee stock purchase plan.
The employee stock purchase plan, which is intended to qualify under Section
423 of the Internal Revenue Code of 1986, will be administered by a committee
appointed by our board. Our employees, including officers and employee
directors, are eligible to participate in the employee stock purchase plan if
they are employed for at least 20 hours per week.
The employee stock purchase plan will be implemented by consecutive offering
periods ranging in duration from three to 12 months. We currently anticipate
that the initial offering period under the employee stock purchase plan will
begin on April 1, 2000 and terminate on or before June 30, 2000. Our board of
directors may change the timing or duration of the offering periods. The
employee stock purchase plan permits eligible employees to purchase shares of
common stock through payroll deductions at 85% of the lesser of the fair market
value per share of the common stock on the first day of the offering period or
on the purchase date. Participants generally may not purchase shares if,
immediately after the grant, the participant would own stock or options to
purchase shares of Class A common stock totaling 5% or more of the total
combined voting power of all of our outstanding capital stock, or more than
$25,000 of our outstanding capital stock in any calendar year.
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RELATED-PARTY 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, respectively, for operating advances
previously made to us, and we made a return of capital payment to Nextel WIP 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 December 31, 1999, Nextel WIP owed
us $1.2 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 14% senior discount notes and borrowings by our principal operating
subsidiary. On September 9, 1999 we raised an additional $209 million through
cash and in-kind equity contribution and commitments and borrowings. In
connection with these transactions, we or one of our subsidiaries entered into
several agreements with our majority stockholders, including new and/or revised
operating agreements with Nextel WIP and equipment purchase agreements with
Motorola.
CAPITALIZATION TRANSACTIONS
JANUARY 29, 1999 TRANSACTIONS. On January 29, 1999, Nextel WIP assigned to
us, subject to approval by the FCC, certain licenses and equipment in exchange
for 13,110,000 shares of Series B preferred stock, 52,440,000 shares of
Series C preferred stock, 13,110,000 shares of Series D preferred stock and cash
of $130.9 million. Nextel WIP is the owner of 36.5% of our common stock prior to
this offering, and two of our directors, Timothy Donahue and Dennis Weibling,
are affiliated with Nextel WIP.
Simultaneously, we sold equity securities in a private placement in the
amount of $174.8 million and issued 14% senior discount notes for aggregate
proceeds of approximately $406 million. The equity securities sold consisted of
104,879,826 shares of Series A preferred stock, valued at $170.9 million, and
warrants to purchase 2,434,260 shares of Class A common stock for an exercise
price of less than $0.01 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 of $18.4 million towards the purchase
of infrastructure equipment. As of December 31, 1999 the Company had used all
$18.4 million of the vendor credit from Motorola. Motorola is the beneficial
owner of 6.1% of our outstanding common stock prior to this offering.
In addition to Motorola, purchasers of the Series A preferred stock and
warrants in the January 29, 1999 transaction included:
- DLJ Merchant Banking and its affiliates, who are the beneficial owners of
13.3% of our outstanding common stock prior to this offering. One of our
directors, Andrew Rush, is affiliated with DLJ Merchant Banking;
- Madison Dearborn Partners, which is the beneficial owner of 12.7% of our
outstanding common stock prior to this offering. One of our directors,
Andrew Sinwell, is affiliated with Madison Dearborn Partners;
- Eagle River, which is the beneficial owner of 9.1% of our outstanding
common stock prior to this offering. One of our directors, Dennis
Weibling, is affiliated with Eagle River;
- The Huff Alternative Income Fund, L.P., which is the beneficial owner of
6.7% of our outstanding common stock prior to this offering and holds a
portion of our 14% senior discount notes; and
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<PAGE>
- John Chapple, our chief executive officer and a director, and the
beneficial owner of 1.6% of our outstanding common stock prior to this
offering.
SEPTEMBER 9, 1999 EXPANSION TRANSACTIONS. On September 9,1999, one of our
subsidiaries entered into an expansion territory asset transfer and
reimbursement agreement with Nextel WIP to acquire for $10.6 million certain
assets, properties, rights and interests to be used in connection with the
construction and operation of additional territories. To accomplish the
build-out and operation of this expansion territory, we issued 5,330,142 shares
of Series C preferred stock to Nextel WIP having an aggregate value of
$8.9 million in exchange for the contribution of certain licenses and an
extension of an operating agreement governing the build-out of the Nextel
digital mobile network in the expansion territory. We also issued 20,954,820
shares of Series A preferred stock, valued at $37.2 million, to investors, and
6,902,484 shares of Series C preferred stock, valued at $12.8 million, to Nextel
WIP. The equity securities were issued in exchange for cash of $15.5 million, an
irrevocable cash equity commitment of $30.9 million to be received over the
subsequent two-year period, and a vendor credit from Motorola of $3.6 million
towards the purchase of infrastructure equipment. As of December 31, 1999 we had
used all of the $3.6 million vendor credit from Motorola. In addition to
Motorola, purchasers of the Series A preferred stock in the September 9,1999
transaction included DLJ Merchant Banking and its affiliates, Madison Dearborn
Partners, Eagle River, The Huff Alternative Income Fund, John Chapple, David
Aas, our vice president--engineering and technical operations, Mark Fanning, our
vice president--people development, Perry Satterlee, our vice president--sales
and marketing, David Thaler, our vice president--business operations, and John
Thompson, our chief financial officer and treasurer.
Upon the closing of this offering, each outstanding share of Series A
preferred will convert into one share of Class A common stock and each share of
Series C and Series D preferred stock will convert into one share of Class B
common stock.
SHAREHOLDERS' AGREEMENT
GENERAL. On January 29, 1999, we entered into a shareholders' agreement
with Nextel WIP, DLJ Merchant Banking, Madison Dearborn Partners, Eagle River,
Motorola, our senior management stockholders, and all of our other stockholders
prior to this offering. In that agreement, 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 stockholders. This agreement was
amended in connection with the transactions contemplated by this prospectus and
will survive closing of this offering.
MANAGEMENT. Under the terms of the shareholders' agreement, as amended, we
have agreed that our board of directors will consist of six persons. The parties
to the amended shareholders' agreement other than DLJ Merchant Banking, who
together will own approximately 79% of our outstanding common stock upon
completion of this offering, have agreed to vote to elect as directors:
- one person selected by Madison Dearborn Partners;
- one person selected by Nextel WIP;
- one person selected by Eagle River; and
- our chief executive officer.
Prior to this offering, DLJ Merchant Banking had the right to designate two
directors, one of whom was designated by Madison Dearborn Partners, and all of
the parties to the shareholders' agreement had agreed to vote to elect such
designees as directors. The obligation of the other parties to the shareholders'
agreement to vote in favor of the DLJ Merchant Banking designee
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terminated upon the amendment of the shareholders' agreement. The parties to the
amended shareholders' agreement have agreed that DLJ Merchant Banking may
nominate a director for election by the Company's stockholders.
On January 29, 1999, the parties to the shareholders' agreement elected John
Chapple, our chief executive officer, Timothy Donahue, Nextel WIP's designee,
Andrew Rush and Andrew Sinwell, DLJ Merchant Banking's designees, and Dennis
Weibling, Eagle River's designee, to our board of directors. The right of a
stockholder to designate a director terminates when the stockholder and its
affiliates own, in the aggregate, less than 50% of their original ownership of
our capital stock.
Certain matters, including a sale of substantially all of our assets, the
entering into of any agreement the terms of which would be materially altered in
the event Nextel or Nextel WIP exercised or failed to exercise its right to
acquire a majority of our outstanding stock, changes in our business strategy or
objectives, a material change in the technology we use, or a decision to broaden
the scope of our business, require the approval of the director designated by
Nextel WIP, although these approval rights terminate if, after January 29, 2011,
Nextel WIP transfers all of its shares to a third party.
RESTRICTIONS ON TRANSFER. The shareholders' agreement imposes numerous
restrictions with respect to the sale, transfer or other disposition of our
capital stock by the parties to the shareholders' agreement. Generally, prior to
the completion of our portion of the Nextel digital mobile network and the
achievement of positive EBITDA for two consecutive fiscal quarters, excluding
the effects of any optional markets acquired by us, Eagle River and the
management stockholders may transfer shares only to family members, affiliates
and certain other permitted transferees; provided, however, that after this
offering, each such stockholder may sell up to 30% of its shares subject to
certain rights of first offer and rights of first refusal available to DLJ
Merchant Banking, Madison Dearborn Partners, Eagle River, Motorola, Nextel WIP,
the management stockholders and their permitted transferees. Prior to
January 29, 2011, Nextel WIP may not transfer its shares other than to permitted
transferees or to us in return for frequencies that it repurchases. Other
stockholders who are parties to the shareholders' agreement may transfer their
shares to third parties, subject to the rights of first offer and rights of
first refusal described above. No party to the shareholders' agreement may
transfer its shares to a telecommunications company or a person or entity
controlling a telecommunications company.
REGISTRATION RIGHTS. Following this offering, entities affiliated with DLJ
Merchant Banking and Madison Dearborn Partners, will have the following
registration rights, provided in each case that the aggregate proceeds from the
sale of the amount of securities demanded to be registered must be expected to
exceed $50,000,000:
- DLJ Merchant Banking and Madison Dearborn Partners may collectively demand
one registration, at our expense, of up to all of their shares if the
stockholder making the request then holds at least 5% of our outstanding
common stock at the time of demand, assuming conversion of any outstanding
warrants, options and convertible stock; and
- DLJ Merchant Banking and Madison Dearborn Partners may collectively demand
a second and third registration, at their expense, if the stockholder
making the request then holds at least 2.5% of our outstanding common
stock at the time of demand, assuming conversion of any outstanding
warrants, options and convertible stock.
If DLJ Merchant Banking or Madison Dearborn Partners exercises any of their
demand rights, all of the other parties to the shareholders' agreement would be
entitled to include their shares in such registration, subject to cutback by the
underwriters in any underwritten offering.
Additionally, under the terms of the shareholders' agreement, if we propose
to register any of our securities under the Securities Act, either for our own
account or for the account of other
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security holders exercising registration rights, the parties to the
shareholders' agreement are entitled to notice of the registration and to
include their shares of common stock in the registration at our expense. All of
these registration rights are subject to the right of the underwriters of an
offering to limit the number of shares included in such registration.
Each of Nextel WIP, DLJ Merchant Banking and its affiliates, Madison
Dearborn Partners, Eagle River and the management stockholders have entered into
a lock-up agreement with us and have agreed generally not to transfer their
shares or exercise their registration rights for a period of 18 months following
this offering.
PREEMPTIVE AND ANTIDILUTIVE RIGHTS. Prior to the later of completion of the
initial build-out of scheduled sections of our territory and January 29, 2003,
Nextel WIP has the right to preempt any public offering of our stock by us or by
DLJ Merchant Banking and to purchase all of the stock being offered. Nextel WIP
has waived its preemptive right with respect to this offering.
REIMBURSEMENT OF CERTAIN EXPENSES. In 1999 we reimbursed Nextel, Nextel WIP
and Eagle River $16.6 million and $1.2 million, respectively, for operating
advances and expenses made and incurred by them prior to January 29, 1999 in
order to facilitate the construction of our portion of the Nextel digital mobile
network. We also reimbursed the actual out-of-pocket transaction costs,
including fees and expenses of counsel, incurred by Nextel WIP, Eagle River and
DLJ Merchant Banking in connection with the consummation of the capitalization
transactions on January 29, 1999.
TERMINATION. The amended shareholders' agreement continues until
January 29, 2014, and thus remains in effect following the closing of this
offering.
NEXTEL OPERATING AGREEMENTS
We, through our principal subsidiary, entered into agreements with Nextel
WIP which govern the build-out and operation of our portion of the Nextel
digital mobile network. Except as specifically set forth below, these operating
agreements were executed on January 29, 1999 and, in some cases, were amended on
September 9, 1999, and 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.
JOINT VENTURE AGREEMENT
BUILD-OUT AND OPERATIONS. Our agreements with Nextel WIP require us to
build our portion of the Nextel digital mobile network on time and make it
compatible with Nextel's systems. We have agreed to meet or exceed quality
standards applicable from time to time to Nextel's subsidiaries operating in the
United States. We are also required to offer a set of core service features and
to upgrade our system to comply with future Nextel standards. If we determine
that implementation of an upgrade required by Nextel WIP would be materially
adverse to us, then we will not be required to implement the upgrade unless
Nextel WIP agrees to pay a subsidy to us in an amount not to exceed the lesser
of:
- our anticipated aggregate net losses resulting from the upgrade;
- our actual net losses associated with the upgrade through the date of the
subsidy payment;
- the anticipated cumulative losses for all the upgrades net of all
cumulative anticipated profits for all the upgrades; and
- the actual cumulative losses for all the upgrades net of all actual
cumulative profits for all the upgrades.
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Alternatively, if Nextel WIP elects not to pay us a subsidy in connection with
the required upgrade, then:
- Nextel WIP can agree under certain circumstances to waive the requirement
that we make the upgrade;
- we can exercise an option to provide all non-Nextel stockholders with the
opportunity to put their stock to Nextel WIP, as described below; or
- we can request arbitration to determine the subsidy that Nextel WIP will
be required to pay in connection with the implementation of the upgrade.
With respect to data and Internet connectivity services, Nextel WIP has
agreed to charge us only for development work necessary to enable us to offer
those services and not to charge us for any part of Nextel's development cost.
In return, we have agreed not to seek any subsidy under the operating agreements
when we offer the data and Internet connectivity services now being implemented
by Nextel.
ACQUISITION OF LICENSES. In October 1999, we received FCC approval of the
transfer of control of Nextel WIP's initial contribution of licenses to us, and
the transfer was completed in January 2000. We are currently awaiting FCC
approval of the licenses contributed to us in September 1999 by Nextel WIP. 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 WIP, 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 WIP.
EQUIPMENT, VENDORS AND DISCOUNTS. If we request, Nextel WIP has agreed to
assist us in obtaining the same discounts as are available to Nextel from any
Nextel 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 WIP's
approval prior to taking certain actions, including:
- making a material change in our technology or business objectives;
- broadening the scope of our business beyond our current business
objectives;
- disposing all or substantially all of our assets; or
- the entering into of any agreement the terms of which would be materially
altered in the event that Nextel WIP or Nextel exercises, or declines to
exercise, its rights to acquire additional shares of our stock under the
terms of the shareholders' agreement or our restated certificate of
incorporation.
EXCLUSIVITY. Nextel WIP has agreed that during the term of the joint
venture agreement, Nextel and/or its subsidiaries will not provide digital
mobile wireless communications services within our markets, except that Nextel
and/or its subsidiaries:
- have certain rights in any of the option territories we elect not to build
out;
- may continue to provide analog 800 MHz service in our markets so long as
the services do not use any of the marks licensed to us under our
trademark license agreement with Nextel WIP;
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- may provide digital wireless communications services in our markets on
non-800 MHz frequencies so long as these services:
- do not use any of the marks licensed to us under the trademark license
agreement, and
- do not use Motorola iDEN or other digital service on 800 MHz
frequencies.
In addition, Nextel WIP has agreed to negotiate with us to give us the first
right to own and operate businesses using the 900 MHz frequency in our
territory.
MARKETING, ADVERTISING AND PRICING. We are generally required to adhere to
the same standards for pricing structure, advertising, promotions, customer
care, telemarketing and related activities as the Nextel subsidiaries operating
in the United States. We do, however, set our own prices in our markets, except
that we are required to honor pricing plans established by Nextel for its
national account customers even with respect to subscribers of those national
accounts located in our markets, and we are required to support any of Nextel's
indirect distribution outlets located in our markets.
BACK OFFICE/MIS SERVICES. Nextel WIP provides us access to certain
back-office support and information systems on an ongoing basis. In exchange, we
pay Nextel WIP fees, based on its costs, for access to and use of these systems.
For the year ended December 31, 1999, we were charged approximately $455,000 for
these services.
MATERIAL BREACH; TERMINATION. In the case of certain material breaches,
including, without limitation, a delay in the completion of the build-out of the
Nextel digital mobile network and our failure to offer services required by
Nextel WIP or to meet performance requirements, Nextel WIP may have the right to
terminate the joint venture agreement and the other operating agreements
following an arbitration proceeding.
In the event of a termination of the joint venture agreement, Nextel WIP
could, in certain circumstances, purchase or be forced to purchase all of our
outstanding stock. In such event, Nextel WIP, at its option, would be entitled
to pay the purchase price therefor in cash or in shares of Nextel common stock.
See "Description of Capital Stock."
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. Royalties are due
to Nextel WIP for the use of the licensed marks, beginning January 1, 2002, if
and when, following January 1, 2002 we achieve two consecutive fiscal quarters
of positive EBITDA. In such event, we would pay 0.5% of our gross monthly
service revenues from the time of such event to December 31, 2004, and
thereafter we would pay 1.0% of our gross monthly service revenues from the
later of the time of such event and January 1, 2005. This agreement terminates
automatically upon termination of the joint venture agreement. Nextel WIP 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 materials.
ROAMING AGREEMENT
Through the roaming agreement, we and Nextel WIP (with respect to Nextel
subscribers) have agreed to provide ESMR service to each other's subscribers
when those subscribers are roaming in the territory of the other. Subject to
quarterly adjustment, we receive revenues from the payment of
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roaming fees by Nextel WIP equal to 95% of the aggregate service revenue
generated by Nextel customers roaming on our portion of the Nextel digital
mobile network through 1999, 90% in 2000, 85% in 2001 and 80% thereafter. When
our customers roam onto Nextel's portion of the Nextel digital mobile network,
80% of the aggregate service revenue generated by such customers is paid to
Nextel WIP. 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 Nextel digital mobile network. For the year ended
December 31, 1999, we earned approximately $8.5 million from Nextel customers
roaming on our portion of the Nextel digital mobile network and paid Nextel WIP
approximately $1.2 million for our subscribers roaming on Nextel's portion.
ANALOG MANAGEMENT AGREEMENT
Through the analog management agreement and the expansion territory
management agreement, we permit Nextel WIP to use SMR frequencies that are
covered by our licenses and licenses being transferred to us and that are not
being used by us to operate our portion of the Nextel digital mobile network, to
operate analog systems and to offer analog service. If we need to use these
frequencies for our portion of the Nextel digital mobile network, we may
terminate Nextel WIP's right to use any of these frequencies upon at least six
months notice. The analog management agreement requires Nextel WIP to, among
other things, comply with all applicable FCC rules and regulations governing the
licenses covering the managed frequencies.
ASSET AND STOCK TRANSFER AND REIMBURSEMENT AGREEMENTS
On January 29, 1999, we purchased from Nextel WIP assets located in our
markets at a cost of approximately $115.8 million through the asset transfer
reimbursement agreement. We also reimbursed Nextel WIP for operating losses
incurred by Nextel WIP prior to January 29, 1999 in the amount of
$15.1 million. On September 9, 1999, one of our subsidiaries entered into an
expansion territory asset transfer and reimbursement agreement with Nextel WIP
to acquire for $10.6 million certain assets, properties, rights and interests to
be used in connection with the construction and operation of additional
territories.
MASTER SITE LEASE AGREEMENT
On January 29, 1999 we entered into a master site lease agreement with
Nextel WIP for the lease of space on approximately 40 telecommunications towers.
We paid Nextel WIP monthly rental payments based on the number of sites subject
to the master site lease, and for the year ended December 31, 1999, we were
charged approximately $586,000 by Nextel WIP under these arrangements.
Nextel has reported that in April 1999, it and SpectraSite entered into an
agreement whereby SpectraSite purchased certain existing telecommunications
towers from Nextel, including those we leased. We have executed a master site
lease agreement with SpectraSite to replace our master lease with Nextel WIP.
Nextel WIP has agreed to compensate us for the difference between the lease
rates we pay to SpectraSite and the lease rates we would have paid to Nextel WIP
under our former master lease agreement.
TRANSITION SERVICES AGREEMENT
Under the transition services agreement, certain accounting, payroll,
customer care, purchasing, human resources and billing functions are made
available to us by Nextel WIP during a defined transition period. 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
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of service. In the event we desire any services from Nextel WIP following the
expiration of the transition services agreement, Nextel WIP 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 WIP's cost of providing such transition
services. For the year ended December 31, 1999, we were charged approximately
$2.7 million for these services. We have terminated the majority of the services
provided under the transition services agreement as of December 31, 1999.
SWITCH SHARING AGREEMENT
Nextel WIP provides certain telecommunications switching services to us
which permit us to link cell sites to, and electronically access, certain
switching equipment used and maintained by 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, while we develop our own infrastructure, we will pay
Nextel WIP monthly switching fees based on the estimated cost of providing such
services as of January 1, 2001 subject to adjustment. For the year ended
December 31, 1999, we were charged approximately $2.4 million 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
WIP and its affiliates for switching services should decrease.
Nextel WIP is obligated, on the terms set forth in the switch sharing
agreement, to cause its affiliates 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. 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 AND LIMITING LIABILITY OF, AND RECOURSE TO,
NEXTEL
All of our operating agreements are with Nextel WIP, not Nextel. Pursuant to
the terms of the agreement specifying obligations and limiting liability of, and
recourse to, Nextel, the maximum cumulative, aggregate cash liability of Nextel
and its controlled affiliates, other than Nextel WIP, 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 million.
The amount of the cap 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 to enable Nextel WIP 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 any commitments that Nextel
may make in the future to enable Nextel WIP to subsidize required upgrades and
to buy our stock from our other stockholders under certain circumstances, will
not be subject to the cap. This agreement will survive the expiration or
termination of any and all of the operating agreements.
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MOTOROLA PURCHASE AGREEMENTS
Under the iDEN infrastructure equipment purchase agreement and the
subscriber purchase and distribution agreement between us and Motorola, 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 Nextel digital mobile network, as well as telephones and other
accessories.
We obtained pricing for the Motorola equipment and telephones 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 telephones and accessories and over the same
period approximately $145 million worth of Motorola equipment. For the years
ended December 31, 1999 and 1998, we purchased approximately $40.7 million
(includes $22 million of purchases from the Motorola vendor credit) and
$47.5 million, respectively, of infrastructure and other equipment, telephones,
warranties and services from Motorola.
We received, in connection with our purchases of Motorola equipment, an
aggregate $22 million credit from Motorola in return for the issuance of
13,076,376 shares of Series A preferred stock to Motorola as part of the
capitalization transactions consummated on January 29, 1999 and September 9,
1999.
EAGLE RIVER SUBLEASE
On August 1, 1999, one of our subsidiaries entered into an assignment and
assumption of lease agreement with Eagle River, one of our stockholders,
pursuant to which we assumed Eagle River's obligations in connection with our
leased property in Kirkland, Washington.
DLJ MERCHANT BANKING RELATIONSHIP
Donaldson, Lufkin & Jenrette Securities Corporation served as an initial
purchaser of our senior discount notes and received a customary underwriting
discount. Donaldson, Lufkin & Jenrette Securities Corporation also acted as our
financial advisor and as arranger, and DLJ Capital Funding, Inc., an affiliate
of Donaldson, Lufkin & Jenrette Securities Corporation, acted as syndication
agent under our credit facility, and received customary fees and reimbursements
in connection therewith. DLJ Merchant Banking and certain related parties, all
of which are affiliates of Donaldson, Lufkin & Jenrette Securities Corporation,
own a significant amount of our equity and are represented on our board of
directors. The aggregate amount of all fees paid to the DLJ entities in
connection with the capitalization transactions was approximately
$14.7 million. Donaldson, Lufkin & Jenrette Securities Corporation is a co-lead
manager of this offering and we may from time to time enter into other
investment banking relationships with it or one of its affiliates. See
"Underwriting."
OTHER TRANSACTIONS WITH SENIOR MANAGEMENT
We have entered into restricted stock purchase agreements with each of
Messrs. Chapple, Thompson, Thaler, Aas, Satterlee, Fanning and Manning pursuant
to which we sold an aggregate of 8,834,994 shares of Class A common stock to
these executive officers at a price of $0.002 per share. See "--Restricted Stock
Purchase Agreements and Change of Control Arrangements." In addition, on
January 29, 1999, Mr. Thompson obtained an interest-free secured loan of
$2.2 million from us, evidenced by a non-negotiable promissory note due and
payable on January 29, 2003.
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We also granted options to purchase shares of Class A common stock under our
employee stock option plan to the following officers and directors on the date,
for the number of shares and with an exercise price indicated opposite each
person's name:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING EXERCISE
NAME GRANT DATE OPTIONS PRICE
---- ---------- ---------------- --------
<S> <C> <C> <C>
John Chapple............................................ 12/31/99 105,000 $ 1.85
John Thompson........................................... 1/29/99 210,000 1.67
12/31/99 105,000 1.85
David Thaler............................................ 12/31/99 60,000 1.85
David Aas............................................... 12/31/99 60,000 1.85
Perry Satterlee......................................... 12/31/99 120,000 1.85
Mark Fanning............................................ 12/31/99 90,000 1.85
Donald Manning.......................................... 1/29/99 180,000 1.67
12/31/99 90,000 1.85
</TABLE>
In addition, we have authorized the grant to Steven Dodge, of an option, to
be effective as of the closing of this offering, to purchase 25,000 shares of
Class A common stock, which option will vest in three equal annual installments
and have an exercise price equal to the price at which shares of Class A common
stock are initially offered to the public in this offering.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of shares of our common stock as of January 15, 2000,
consisting of Class A and Class B common stock, and as adjusted to reflect the
sale of the Class A common stock offered hereby, by:
- each stockholder known to us to be a beneficial owner of more than 5% of
the outstanding shares of our common stock;
- each of our directors;
- each of our named executive officers; and
- all executive officers, and directors as a group.
Our Class B common stock is convertible into shares of our Class A common
stock at any time on a one-for-one basis upon a transfer to a person other than
Nextel, a majority-owned Nextel subsidiary or a person or entity controlling
Nextel. The holders of our Class A and Class B common stock are entitled to one
vote per share on all matters in which they are entitled to vote. All of our
Class B common stock is held by Nextel WIP and is subject to restrictions on its
transfer contained in the amended shareholders' agreement.
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
securities convertible into common stock 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, we believe that each stockholder named
in the table has sole voting and investment power with respect to the shares set
forth opposite such stockholder's name, except to the extent shared by a spouse
under applicable law.
Unless otherwise noted, the address for each stockholder below is: c/o
Nextel Partners, Inc., 4500 Carillon Point, Kirkland, WA 98033.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
NUMBER OF SHARES COMMON STOCK OUTSTANDING
SHARES OF UNDERLYING OPTIONS OR --------------------------------
NAME AND ADDRESS COMMON STOCK WARRANTS BEFORE OFFERING AFTER OFFERING
- ---------------- -------------- --------------------- --------------- --------------
<S> <C> <C> <C> <C>
Parties to Amended and Restated
Shareholders' Agreement(1)(10)...... 213,210,600 2,704,260 100.0 91.2
Nextel WIP Corp.
2001 Edmund Halley Drive
Reston, VA 20191.................... 77,782,626 -- 36.5% 32.9%
Entities affiliated with DLJ Merchant
Banking Partners II, L.P.(2)
277 Park Avenue
New York, NY 10172.................. 27,287,310 1,245,822 13.3 12.0
Madison Dearborn Capital Partners
II, L.P.
Three First National Plaza, Suite
3800
Chicago, IL 60602................... 26,030,466 1,188,438 12.7 11.4
Eagle River Investments, LLC
2300 Carillon Point
Kirkland, WA 98033.................. 19,500,012 -- 9.1 8.2
The Huff Alternative Income Fund, L.P.
1776 On The Green
67 Park Place
Morristown, NJ 07960................ 14,239,380 -- 6.7 6.0
</TABLE>
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<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
NUMBER OF SHARES COMMON STOCK OUTSTANDING
SHARES OF UNDERLYING OPTIONS OR --------------------------------
NAME AND ADDRESS COMMON STOCK WARRANTS BEFORE OFFERING AFTER OFFERING
- ---------------- -------------- --------------------- --------------- --------------
<S> <C> <C> <C> <C>
Motorola, Inc.
1303 East Algonquin Road, 11th Floor
Schaumburg, IL 60196................ 13,076,376 -- 6.1 5.5
John Chapple(3)....................... 3,336,024 -- 1.6 1.4
John Thompson(4)...................... 2,210,664 210,000 1.1 1.0
David Thaler.......................... 1,254,000 -- * *
David Aas............................. 1,064,130 -- * *
Perry Satterlee(5).................... 1,003,332 -- * *
Mark Fanning.......................... 903,486 -- * *
Andrew Rush(6)........................ 27,287,310 1,245,822 13.3 12.0
Dennis Weibling(7).................... 97,282,638 -- 45.6 41.1
Timothy Donahue(8).................... 77,782,626 -- 36.5 32.9
Andrew Sinwell(9)..................... 26,030,466 1,188,438 12.7 11.4
Steven Dodge.......................... -- -- -- --
Directors and officers as a group (12
persons)(10)........................ 160,432,050 2,704,260 75.6% 68.1%
</TABLE>
- --------------------------
*Less than 1%
(1) All of our stockholders prior to this offering are parties to a
shareholders' agreement that will survive the closing of this offering and
that contains an agreement to vote for certain of our directors and imposes
restrictions with respect to the sale, transfer or other disposition of our
capital stock by these parties. See "Related-Party
Transactions--Shareholders' Agreement" for a description of this agreement.
All parties to this agreement disclaim beneficial ownership of shares not
owned directly by them or by an entity otherwise affiliated with them.
(2) Consists of shares held directly by DLJ Merchant Banking Partners 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, DLJ EAB
Partners, L.P., DLJ First ESC, L.P. and DLJ ESC II, L.P.
(3) Includes 736,667 shares held by JRC Coho LLC, an entity controlled by
Mr. Chapple.
(4) Includes 509,166 shares held by JDT-JRT, LLC, an entity controlled by
Mr. Thompson.
(5) Includes 165,000 shares held by PSS-MSS L.P., an entity controlled by Mr.
Satterlee.
(6) Consists of shares held by entities affiliated with DLJ Merchant Banking
Partners II, L.P., all of which are funds managed by DLJ Merchant Banking,
of which Mr. Rush is a Managing Director. Mr. Rush disclaims beneficial
ownership of such shares.
(7) Consists of shares held by Eagle River Investments, LLC, of which
Mr. Weibling serves as President, and by Nextel WIP, of which Mr. Weibling
serves as a director. Mr. Weibling disclaims beneficial ownership of such
shares.
(8) Consists of shares held by Nextel WIP, of which Mr. Donahue is president,
chief executive officer and director. Mr. Donahue disclaims beneficial
ownership of such shares.
(9) Consists of shares held by Madison Dearborn Partners II, L.P., of which
Mr. Sinwell serves as a director. Mr. Sinwell disclaims beneficial ownership
of such shares.
(10) See footnotes 3 through 9 above. Also includes an option to purchase up to
60,000 shares of Class A common stock granted to Mr. Manning, which option
is exercisable within 60 days of the date of this prospectus.
See "Description of Capital Stock" for a description of certain agreements
relating to potential change of control events.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
14% SENIOR DISCOUNT NOTES
In January 1999, we sold $800 million aggregate principal amount at maturity
14% senior discount notes due February 1, 2009. The notes were issued at a
discount to their aggregate principal amount at maturity and generated aggregate
gross proceeds to us of approximately $406 million. In July 1999 these notes
were exchanged by us for registered notes having the same financial terms and
covenants as the notes issued in January 1999. 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 million by
February 1, 2004. Cash interest will not accrue on the notes prior to
February 1, 2004. As of December 31, 1999, the accreted value of the outstanding
senior notes was approximately $460 million.
These notes:
- are subject to the provisions of an indenture;
- are senior unsecured obligations of ours;
- will mature on February 1, 2009; and
- bear interest at the rate of 14% per annum, which interest is to be paid
semi-annually on February 1 and August 1 of each year, commencing
August 1, 2004.
We may redeem the notes, in whole or in part, at any time on or after
February 1, 2004. If we choose this optional redemption, we are required to
redeem the notes at the redemption prices set forth below, plus an amount in
cash equal to all accrued and unpaid interest and liquidated damages, if any, to
the redemption date:
<TABLE>
<CAPTION>
REDEMPTION PRICE
(EXPRESSED AS PERCENTAGES OF THE PRINCIPAL
YEAR AMOUNT AT MATURITY OF THE NOTES)
- -------------------------------- ------------------------------------------
<S> <C>
2004............................ 107.000%
2005............................ 104.667%
2006............................ 102.333%
2007 and thereafter............. 100.000%
</TABLE>
Prior to February 1, 2002, we 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:
- we receive net proceeds of at least $75 million from one or more sales of
our capital stock, other than redeemable stock, prior to February 1, 2002;
- at least 65% of the aggregate accreted value of the notes originally
issued remain outstanding immediately after the redemption; and
- the redemption occurs within 60 days of such sale.
In the indenture relating to the notes, we agreed to certain restrictions
that limit our and our subsidiaries' ability to:
- incur additional debt;
- pay dividends, acquire our shares, make certain investments or redeem
outstanding debt which is subordinate in right of payment to the notes;
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- designate unrestricted subsidiaries;
- enter into transactions with affiliates;
- engage in any business other than telecommunications;
- create liens;
- pay dividends, make loans or advances to our subsidiaries or transfer any
of our property or assets to our subsidiaries;
- issue or sell shares of capital stock of our subsidiaries; and
- sell assets.
In addition, in the event of a change of control as defined in the
indenture, each holder of notes will have the right to require us to repurchase
all or part of such holder's notes at a price equal to 101% of the accreted
value plus any liquidated damages 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 any liquidated damages to any purchase date after February 1, 2004.
Events of default under the indenture include but are not limited to:
- the failure to pay principal of or premium, if any, on, any note when due;
- the failure to pay any interest on any note when due, such failure
continuing for 30 days;
- the default in the payment of principal and interest on notes required to
be purchased; and
- certain events of bankruptcy, insolvency or reorganization.
If an event of default, other than events of bankruptcy, insolvency or
reorganization, occurs and is continuing, the maturity date of all of the notes
may be accelerated. If a bankruptcy, insolvency or reorganization occurs, the
outstanding notes will automatically become immediately due and payable.
DESCRIPTION OF CREDIT FACILITY
Nextel Partners Operating Corp., one of our wholly owned subsidiaries,
entered into a credit facility in January 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. This credit facility was amended and restated
in September 1999. The credit facility includes a $175 million term loan, a
$150 million term loan and a $100 million reducing revolving credit facility.
Subject to Nextel Partners Operating Corp.'s right in the future to seek an
increase of up to $50 million, the credit facility will not exceed
$425 million. The $175 million term loan matures on January 29, 2008 and the
$150 million term loan matures on July 29, 2008. The revolving credit facility
will terminate on January 29, 2007.
On January 29, 1999, Nextel Partners Operating Corp. borrowed the full
amount of the $175 million term loan and on September 9, 1999, it borrowed the
full amount of the $150 million term loan. As of December 31, 1999, no amounts
were outstanding under the $100 million revolving credit facility.
The $175 million and the $150 million term loans both bear interest, at our
option, at the administrative agent's alternate base rate or reserve-adjusted
LIBOR plus, in each case, applicable margins. The applicable margin for the
$175 million term loan is 4.75% over LIBOR and 3.75% over the base rate of the
higher of 0.5% per annum above the latest federal funds rate or the prime 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
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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 applicable margin for the $150 million term
loan is 4.25% over LIBOR and 3.25% over the base rate.
We pay a commitment fee calculated at a rate equal to 2.0% per annum,
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.
Prior to the date on which our portion of the Nextel 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.
PREPAYMENTS. The term loans are subject to mandatory prepayment:
- with 100% of the net cash proceeds from the issuance of debt, subject to
exceptions;
- with 100% of the net cash proceeds of asset sales, subject to exceptions;
- after December 31, 2002, with 50% of Nextel Partners Operating Corp.'s
excess earnings over interest expense, taxes, capital expenditures,
payments made in connection with the credit facility, and other
adjustments; and
- after January 29, 2004, with 50% of the net cash proceeds from the
issuance of equity by us.
Nextel Partners Operating Corp.'s obligations under the credit facility is
secured by:
- 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
- a first-priority pledge of its capital stock and the stock of its current
and future subsidiaries, including the subsidiary holding our FCC
licenses.
Our other subsidiaries have guaranteed the obligations of Nextel Partners
Operating Corp. under the credit facility.
The credit facility contains customary covenants and restrictions on our and
our subsidiaries' ability to engage in certain activities, including but not
limited to:
- limitations on the incurrence of liens and indebtedness;
- restrictions on sale lease-back transactions, consolidations, mergers,
sale of assets, capital expenditures, transactions with affiliates and
investments; and
- severe restrictions on dividends and distributions on, and redemptions and
repurchases of, capital stock, and other similar distributions.
In addition, Nextel Partners Operating Corp. is required to comply with
specified financial ratios and tests, including:
- certain defined ratios of senior debt and total debt to EBITDA as
adjusted;
- a minimum interest coverage ratio;
- a minimum fixed charge coverage ratio;
- a maximum leverage ratio; and
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- minimum service revenues, subscriber units and covered population
equivalents.
As of December 31, 1999, Nextel Partners Operating Corp. was in compliance
with all of its required covenants.
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:
- the change of control of us or Nextel Partners Operating Corp.;
- the early termination of our right to use the Nextel brand name or right
to acquire equipment incorporating iDEN technology;
- the termination of, revocation of, or failure to renew by the FCC of
licenses material to our business;
- the early termination or failure to renew of operating agreements with
Nextel WIP;
- certain material breaches of obligations under these operating agreements
or default by Nextel WIP of certain obligations to provide agreed upon
services; or
- the failure of certain of our stockholders to make funding or contribution
obligations in accordance with the subscription and contribution
agreement.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon completion of this offering, we will be authorized to issue up to
500,000,000 shares of Class A common stock, $.001 par value, 100,000,000 shares
of Class B convertible common stock, $.001 par value, and 113,110,000 shares of
preferred stock, $.001 par value. The following summary of our common stock and
preferred stock is not complete and may not contain all the information you
should consider before investing in the Class A common stock. This description
is subject to and qualified in its entirety by provisions of our restated
certificate of incorporation and bylaws, which are included as exhibits to the
registration statement of which this prospectus is a part, and by provisions of
applicable Delaware law.
COMMON STOCK
The common stock is classified into two classes: Class A common stock and
Class B convertible common stock.
As of January 15, 2000, assuming conversion of all outstanding shares of
Series A, Series C and Series D preferred stock, there were 135,427,974 shares
of Class A common stock outstanding that were held of record by 41 stockholders
and 77,782,626 shares of Class B common stock outstanding that were held of
record by one stockholder. After giving effect to the sale of Class A common
stock offered in this offering, there will be 236,710,600 shares of Class A and
Class B common stock outstanding, assuming no exercise of outstanding options or
warrants. As of January 15, 2000, there were outstanding options to purchase a
total of 5,049,600 shares of Class A common stock and outstanding warrants to
purchase a total of 2,434,260 shares of Class A common stock.
The holders of Class A common stock and Class B common stock will generally
vote as a single class on all matters upon which stockholders have a right to
vote, subject to the requirements of applicable laws. The holders of Class A and
Class B common stock are entitled to one vote per share on all matters to be
voted on by the stockholders except that holders of Class A common stock vote
separately as a class if deciding whether to require Nextel WIP to purchase all
the outstanding shares of Class A common stock or whether to participate in a
sale by Nextel WIP of its holdings of our stock, as described below. Any
amendment to the restated certificate of incorporation that would change the
provisions regarding Nextel WIP's ability or obligation to purchase all
outstanding shares of Class A common stock, including the redemption
alternative, the appraisal and challenge process, payment terms, or that would
change the ability of Class A stockholders to participate in a sale of our
equity by Nextel WIP, requires both the consent of Nextel WIP and the vote of
the holders of a majority of the Class A common stock voting separately as a
class.
Subject to preferences that may be granted to any outstanding shares of
preferred stock, the holders of Class A and Class B common stock are entitled to
receive ratably only those dividends our board of directors declares out of
funds legally available for the payment of dividends as well as any other
distributions to the stockholders.
If we are liquidated, dissolved or wound-up, the holders of common stock are
entitled to share pro rata all of our assets remaining after payment of our
liabilities and liquidation preferences of any then-outstanding shares of
preferred stock. Holders of common stock have no preemptive rights and there are
no redemption or sinking fund provisions applicable to the common stock. In the
event of a merger or consolidation, holders of Class A and Class B common stock
are entitled to receive the same kind and amount of consideration per share. All
outstanding shares of common stock are fully paid and non-assessable, and the
shares of Class A common stock to be issued in this offering will be fully paid
and non-assessable.
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Shares of Class B common stock are convertible into shares of Class A common
stock on a one-for-one basis at the option of any holder of Class B common stock
concurrently with a sale or other transfer of such shares to a transferee that
does not hold any shares of Class B common stock prior to such transfer. Shares
of Class A common stock are immediately and automatically convertible into an
equal number of shares of Class B common stock upon the acquisition of such
shares of Class A common stock by Nextel, by any of its majority-owned
subsidiaries, or by any person or group that controls Nextel.
PREFERRED STOCK
GENERAL
Upon the closing of this offering, all outstanding shares of Series A
preferred stock will be converted into 125,834,646 shares of Class A common
stock and all outstanding shares of Series C and D preferred stock will be
converted into an aggregate of 77,782,626 shares of Class B common stock.
Thereafter, pursuant to our restated certificate of incorporation, our board of
directors will have the authority, without further action by the stockholders,
to issue up to 100,000,000 shares of preferred stock in one or more series and
to fix the relative designations, powers, preferences and privileges of the
preferred stock, any or all of which may be greater than the rights of the
common stock. Our board of directors, without stockholder approval, can issue
preferred stock with voting, conversion or other rights that could adversely
affect the voting power and other rights of the holders of common stock.
Preferred stock could thus be issued quickly with terms that could delay or
prevent a change in control of us or make removal of our management more
difficult. Additionally, the issuance of preferred stock may decrease the market
price of the Class A common stock and may adversely affect the voting and other
rights of the holders of Class A common stock. We have no present plans to issue
any preferred stock.
SERIES B PREFERRED STOCK
Upon the closing of this offering, our only preferred stock that will remain
issued and outstanding is 13,110,000 shares of our Series B preferred stock.
With respect to rights on liquidation, dissolution or winding up, the
Series B preferred stock ranks senior to the Class A and Class B common stock.
In addition, upon any liquidation of us, holders of the Series B preferred stock
will be entitled to receive a liquidation preference of approximately
$21.9 million, plus dividends of 12% per year.
The Series B preferred stock does not have any voting rights except with
respect to the following, in which case it shall vote as a separate class:
- amendments to our bylaws or restated certificate of incorporation,
including the authorization of additional shares of Series B preferred
stock;
- the authorization of securities senior to the Series B preferred stock;
- approval of mergers or consolidations adverse to the rights of the holders
of the Series B preferred stock, subject to exceptions; or
- redemption of any outstanding shares of common or preferred stock, subject
to exceptions.
Except as set forth above, the holders of Series B preferred stock are not
entitled to receive dividends on their shares of preferred stock, and have no
conversion rights.
We may redeem the Series B preferred stock, in whole but not in part, at any
time in exchange for an aggregate amount equal to its accrued liquidation
preference. If the Series B preferred stock has not been redeemed by us by
February 11, 2010, we will be required to redeem it in exchange for an aggregate
amount equal to its accrued liquidation preference. Our ability to redeem the
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Series B preferred stock may be limited by the provisions of both the indenture
governing our outstanding notes and our credit facility.
WARRANTS
As of January 15, 2000, we had warrants outstanding to purchase 2,434,260
shares of Class A common stock at an exercise price of less than $0.01 per
share.
CERTAIN OBLIGATIONS UNDER OUR CHARTER
The following is a discussion of provisions of our restated certificate of
incorporation that, under certain circumstances, allow Nextel WIP, or allow a
majority of our Class A stockholders to cause Nextel WIP, to purchase all of our
outstanding Class A common stock. In any such event, Nextel WIP will have the
choice of paying for any shares of Class A common stock in cash, in shares of
Nextel common stock, or in a combination of cash and Nextel common stock. We
believe that registration of common stock of Nextel that may be issued is not
required in connection with this offering because Nextel WIP has the right to
pay for our Class A common stock with cash, there is no certainty that an event
giving rise to a purchase possibility will take place, and no holder of Class A
common stock will have an opportunity to make a volitional act with respect to
acceptance of Nextel common stock. Any purchase will be a result of provisions
contained in our restated certificate of incorporation. If Nextel WIP purchases
all of our Class A common stock, we will cease to be a publicly traded company.
The following table sets forth the triggering events and the consideration
to be paid with regard to the ability of Nextel WIP to purchase all outstanding
shares of our Class A common stock:
<TABLE>
<CAPTION>
TRIGGERING EVENT CONSIDERATION PAID
- ---------------- ------------------
<S> <C> <C> <C>
- - January 29, 2008, subject to certain - Cash, Nextel stock or a combination of
postponements by our board of directors both, at Nextel WIP's option
- - If Nextel changes its digital transmission - Cash, Nextel stock or a combination of
technology for our frequency range, the both, at Nextel WIP's option
change is materially adverse to us and
Nextel WIP determines not to provide us
free of charge the equipment necessary to
provide our subscribers with service
comparable to what they had been receiving
- - If Nextel WIP requires a change in our - Cash, Nextel stock or a combination of
business, operations or systems, the change both, at Nextel WIP's option
is materially adverse to us, Nextel WIP
does not subsidize us for the costs of such
change and we decline to implement the
required change
- - Termination of our operating agreements - Cash, Nextel stock or a combination of
with Nextel WIP as a result of our breach both, at Nextel WIP's option
</TABLE>
If Nextel WIP is able to purchase all of our outstanding Class A common
stock for any reason other than as a result of the termination of the operating
agreements, then the purchase price will be the fair market value of the
Class A common stock. Under our restated certificate of incorporation, "fair
market value" is determined by the appraisal process described below, and is
defined as the price that a buyer would be willing to pay for all of our
outstanding capital stock, excluding the Series B preferred stock, in an
arm's-length transaction and includes a control premium. In the event of a
termination of the operating agreements as a result of our breach, then
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Nextel WIP has the ability to purchase all of our outstanding Class A common
stock for an amount based on 80% of the average closing price on the Nasdaq
National Market of our Class A common stock for the 20 trading days prior to the
date of termination.
The following table sets forth the triggering events and the consideration
to be paid with regard to the ability of a majority of our stockholders to cause
Nextel WIP to purchase all outstanding Class A common stock. If a triggering
event occurs and a majority of our Class A common stockholders determine to
require Nextel WIP to purchase all of our outstanding Class A common stock, all
stockholders will be required to sell their shares to Nextel WIP. We currently
have no majority stockholder.
<TABLE>
<CAPTION>
TRIGGERING EVENT CONSIDERATION PAID
- ---------------- ------------------
<S> <C> <C> <C>
- - Change of control of Nextel - Cash, Nextel stock or a combination of
both, at Nextel WIP's option
- - If prior to January 29, 2003, Nextel WIP - Cash, Nextel stock or a combination of
exercises its right under the shareholders' both, at Nextel WIP's option
agreement to preempt a public offering of
our stock by DLJ Merchant Banking or
Madison Dearborn Partners and buys all of
our shares owned by DLJ Merchant Banking or
Madison Dearborn Partners
- - If we do not implement a change in our - Cash, Nextel stock or a combination of
business, operations or systems required by both, at Nextel WIP's option
Nextel WIP, the change is materially
adverse to us, and our board of directors
provides non-Nextel affiliated stockholders
with the opportunity to require Nextel WIP
to buy their shares of Class A common stock
and a majority of the stockholders vote to
do so
- - Termination of our operating agreements - Cash, Nextel stock or a combination of
with Nextel WIP as a result of a breach by both, at Nextel WIP's option
Nextel WIP
</TABLE>
If the event giving rise to the stockholders' right to cause Nextel WIP to
buy all of the outstanding shares of Class A common stock:
- is a change in control of Nextel, the purchase price that Nextel WIP is
required to pay for shares of Class A common stock is the fair market
value of the Class A common stock, as determined by the appraisal process
described below;
- is the preemption of a public offering of our stock by DLJ Merchant
Banking or Madison Dearborn Partners, the purchase price that Nextel WIP
is required to pay for shares of Class A common stock is the same per
share price that was paid by Nextel WIP to purchase the shares from DLJ
Merchant Banking or Madison Dearborn Partners;
- is the election of a majority of our non-Nextel stockholders to require
Nextel WIP to buy all shares of Class A common stock after our failure to
implement changes in our business, operations or systems required by
Nextel WIP, the purchase price that Nextel WIP is required to pay for
shares of Class A common stock is an amount that would equal a 20% rate of
return on each tranche of invested capital in us, from the date of its
contribution, whether contributed in cash or in kind, through the purchase
date, which value will be divided over all our capital stock; or
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- is the termination of our operating agreement with Nextel WIP as a result
of a breach by Nextel WIP, the purchase price that Nextel WIP is required
to pay for shares of Class A common stock is an amount based on 120% of
the average closing price on the Nasdaq National Market of our Class A
common stock for the 20 trading days prior to the date of termination.
REDEMPTION ALTERNATIVE. If Nextel WIP elects to purchase or is required to
purchase our shares pursuant to our restated certificate of incorporation,
Nextel WIP is entitled to cause the transaction to be effected as a redemption
by us of the Class A common stock.
APPRAISAL AND CHALLENGE PROCESS. When the fair market value of our Class A
common stock is to be determined using an appraisal, our restated certificate of
incorporation sets out a procedure binding on all our stockholders. Our board
first selects a nationally recognized investment banker or appraiser and then
Nextel WIP selects one. If the higher of the two values so determined is more
than 110% of the lower value, a third appraiser will be asked to value us. In
any event, the fair market value that will determine the per share price that
Nextel WIP will pay will be somewhere between the values determined by the first
two appraisers.
Our restated certificate of incorporation also allows either Nextel WIP or
our stockholders to challenge the value so determined. Our restated certificate
of incorporation sets a floor and a ceiling, binding on both Nextel WIP and all
other stockholders, for the price to be paid if there is a challenge. The
maximum value that can result from a challenge to the appraisal value is a value
equal to a 30% rate of return on each tranche of capital invested in us. The
lowest price that could result from a challenge would be a value that would
equal a 10% rate of return on each tranche of capital invested in us. Any
stockholder that joins the challenge is bound by the results of the challenge
process and receives the value so determined, not the value determined by the
appraiser.
In any purchase by Nextel WIP of all our outstanding stock, stockholders
will not otherwise be entitled to any statutory appraisal rights under Delaware
law.
RIGHT/OBLIGATION TO PARTICIPATE IN SALE BY NEXTEL WIP AND NEXTEL. Holders
of our Class A common stock also have the right and/or obligation to participate
in any sale by Nextel WIP of all of its shares of our capital stock to a third
party occurring after January 29, 2011. Pursuant to the amended shareholders'
agreement, prior to January 29, 2011, Nextel WIP cannot transfer its shares of
our capital stock to a third party. In the event that the holders of a majority
of the Class A common stock elect to participate in such sale, then pursuant to
our restated certificate of incorporation, all holders of Class A common stock,
including purchasers in this offering, will be required to participate.
SHARE LEGEND. Certificates for Class A common stock are required by our
restated certificate of incorporation to bear the following legend:
The Class A common stock evidenced hereby is subject to provisions of
the corporation's restated certificate of incorporation that allow an entity
to purchase or cause the corporation to redeem all of the outstanding
Class A common stock or allow a majority of the Class A common stockholders
to cause such entity to purchase or cause the corporation to redeem all of
the outstanding Class A common stock, in each such instance at a purchase
price determined in accordance with the provisions of the restated
certificate of incorporation. Copies of the restated certificate of
incorporation are available at the principal office of the corporation and
will be furnished without cost to stockholders on request.
OUR RESTATED CERTIFICATE OF INCORPORATION. Prospective investors in the
Class A common stock should know that our restated certificate of incorporation
has been filed as an exhibit to this registration statement and is incorporated
by reference into this prospectus.
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REGISTRATION RIGHTS
Following this offering, entities affiliated with DLJ Merchant Banking and
Madison Dearborn Partners will have the following registration rights, provided
in each case that the aggregate proceeds from the sale of the amount of
securities demanded to be registered must be expected to exceed $50,000,000:
- DLJ Merchant Banking and Madison Dearborn Partners may collectively demand
one registration, at our expense, of up to all of their shares if the
stockholder making the request then holds at least 5% of our outstanding
common stock at the time of demand, assuming conversion of any outstanding
warrants, options and convertible stock; and
- DLJ Merchant Banking and Madison Dearborn Partners may collectively demand
a second and third registration, at their expense, if the stockholder
making the request then holds at least 2.5% of our outstanding common
stock at the time of demand, assuming conversion of any outstanding
warrants, options and convertible stock.
If DLJ Merchant Banking or Madison Dearborn Partners exercises any of their
demand rights, all of the other parties to our shareholders' agreement would be
entitled to include their shares in such registration, subject to cutback by the
underwriters in any underwritten offering.
Additionally, under the terms of the shareholders' agreement, if we propose
to register any of our securities under the Securities Act, either for our own
account or for the account of other security holders exercising registration
rights, the parties to the shareholders' agreement are entitled to notice of the
registration and to include their shares of common stock in the registration at
our expense. All of these registration rights are subject to the right of the
underwriters of the offering to limit the number of shares included in such
registration. Each of Nextel WIP, DLJ Merchant Banking and its affiliates,
Madison Dearborn, Eagle River, and the management stockholders have entered into
a lock-up agreement and have waived their registration rights for a period of
18 months following this offering.
SELECTED ANTI-TAKEOVER MATTERS
RESTATED CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS. Our restated
certificate of incorporation and bylaws include provisions that may have the
effect of deterring, delaying or preventing a change of control of us. Our
bylaws provide that special meetings of our stockholders may only be called by
our board of directors, president, or holders of not less than 50% of our
outstanding capital stock, which could delay or prevent such meetings from
taking place altogether.
Our restated certificate of incorporation provides for 113,110,000
authorized shares of preferred stock and grants our board of directors broad
power to establish the rights and preferences of authorized and unissued, or
"blank check," preferred stock. Upon the closing of this offering, only
13,110,000 shares of preferred stock will be designated and issued and, thus, we
will have 100,000,000 authorized shares of "blank check" preferred stock
remaining. Preferred shares repurchased or redeemed by us may be reissued. The
existence of authorized but unissued preferred stock may enable our board of
directors to render more difficult or discourage an attempt to obtain control
over us by means of a merger, tender offer, proxy contest or otherwise. For
example, if in the due exercise of its fiduciary obligations, the board of
directors were to determine that a takeover proposal is not in our best
interests, our board of directors could cause shares of preferred stock to be
issued without stockholder approval in one or more private offerings or other
transactions that might dilute the voting or other rights of the proposed
acquirer or insurgent stockholder or stockholder group. The issuance of shares
of preferred stock pursuant to our board of directors' authority described above
could have the effect of delaying, deferring or preventing a change in control
of us.
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SHAREHOLDERS' AND OPERATING AGREEMENT PROVISIONS. Certain provisions of the
amended shareholders' agreement may also have the effect of deterring, delaying
or preventing a change of control of us. These include rights of first offer and
first refusal among the parties to that agreement, restrictions on any such
party transferring their shares to a telecommunications company or a person or
entity controlling a telecommunications company, and agreements of the parties,
other than DLJ Merchant Banking, to vote for certain designees to serve on our
board.
The approval rights granted to the Nextel WIP designee on our board as well
as certain rights granted to Nextel WIP, could also have these effects. For
example, among other things, if a business transaction or combination would
broaden our business, it would require approval by Nextel WIP and its designee
on our board.
DELAWARE ANTI-TAKEOVER LAW. Section 203 of the Delaware General Corporation
Law prohibits certain "business combination" transactions between a Delaware
corporation and any "interested stockholder" owning 15% or more of the
corporation's outstanding voting stock for a period of three years after the
date on which such stockholder became an interested stockholder, unless:
- the board of directors approves, prior to such date, either the proposed
business combination or the proposed acquisition of stock which resulted
in the stockholder becoming an interested stockholder;
- upon consummation of the transaction in which the stockholder becomes an
interested stockholder, the interested stockholder owned at least 85% of
those shares of the voting stock of the corporation which are not held by
the directors, officers or certain employee stock plans; or
- on or subsequent to the date on which such stockholder became an
interested stockholder, the business combination with the interested
stockholder is approved by the board of directors and also approved at a
stockholders' meeting by the affirmative vote of the holders of at least
two-thirds of the outstanding shares of the corporation's voting stock
other than shares held by the interested stockholder.
Under Delaware law, a "business combination" includes a merger, asset sale
or other transaction resulting in a financial benefit to the interested
stockholder. Section 203 does not apply, however, to those stockholders who own
15% or more of our voting stock prior to this offering.
FCC-RELATED REDEMPTION RIGHTS
Our certificate of incorporation allows us to redeem shares of our stock
from any stockholder in order to maintain compliance with applicable federal and
state telecommunications laws and regulations.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is The Bank of New
York. The transfer agent's address is 101 Barclay Street, 12W, New York, New
York 10286, and its telephone number is (212) 635-7134.
NATIONAL MARKET LISTING
Our Class A common stock has been approved for quotation on the Nasdaq
National Market under the symbol "NXTP."
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LIMITATION ON DIRECTORS' LIABILITIES
The Delaware General Corporation Law authorizes corporations to limit or
eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breach of directors' fiduciary duty of
care. The duty of care requires that, when acting on behalf of the corporation,
directors must exercise an informed business judgment based on all material
information reasonably available to them. In the absence of the limitations of
personal liability authorized by the Delaware statute, directors could be
accountable to corporations and their stockholders for monetary damages for
conduct that does not satisfy their duty of care. Although the statute does not
change directors' duty of care, it enables corporations to limit available
relief to equitable remedies such as injunction or rescission. The restated
certificate of incorporation limits the liability of our directors to our
stockholders to the fullest extent permitted by the Delaware statute.
Specifically, our directors will not be personally liable for monetary damages
for breach of a director's fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law regarding
liability for any unlawful payment of dividends or unlawful stock purchase
or redemption; or
- for any transaction from which a director derived an improper personal
benefit. The inclusion of this provision in the restated certificate of
incorporation may have the effect of reducing the likelihood of derivative
litigation against directors and may discourage or deter stockholders or
management from bringing a lawsuit against directors for beach of their
duty of care, even though such an action, if successful, might otherwise
have benefited us and our stockholders.
In addition, we anticipate entering into indemnity agreements with all of
our directors indemnifying them to the fullest extent permitted under Delaware
law.
Certain of our outside directors may also be covered by indemnification
arrangements under the organizational documents of their employers and/or by
liability insurance policies provided by their employers.
To the extent the provisions of our restated certificate of incorporation
provide for indemnification of directors for liabilities arising under the
Securities Act, those provisions are, in the opinion of the SEC, against public
policy as expressed in the Securities Act and are therefore unenforceable.
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SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our
Class A common stock. Future sales of substantial amounts of our Class A common
stock in the public market could adversely affect the market price of our
Class A common stock.
Upon completion of this offering, assuming no exercise of outstanding
options or warrants and no conversion into shares of Class A common stock of the
77,782,626 shares of Class B common stock that will be outstanding after this
offering, we will have outstanding 158,927,974 shares of Class A common stock.
Of these shares, the 23,500,000 shares that we expect to sell in this offering,
will be freely tradable in the public market without restriction under the
Securities Act, unless such shares are held by our "affiliates," as that term is
defined in Rule 144 under the Securities Act.
The remaining 135,427,974 shares of Class A common stock that will be
outstanding after this offering will be restricted shares. We issued and sold
these restricted shares in private transactions in reliance on exemptions from
registration under the Securities Act. Restricted shares may be sold in the
public market only if they are registered or if they qualify for an exemption
from registration under Rule 144 under the Securities Act.
As a result of the contractual restrictions described below and the
provisions of Rule 144, the restricted shares will be available for sale in the
public market as follows:
- On the date of the expiration of the 180-day lock-up agreements described
below, 11,152,780 shares of the restricted securities will be eligible for
immediate sale in the public market under Rule 144, subject to the
transfer provisions in the shareholders' agreement.
- On September 9, 2000, an additional 2,081,278 shares of the restricted
securities will be eligible for immediate sale in the public market under
Rule 144, subject to the transfer provisions in the shareholders'
agreement.
- On December 21, 2000, an additional 11,152,780 shares of the restricted
securities will be eligible for immediate sale in the public market under
Rule 144, subject to the transfer provisions in the shareholders'
agreement.
- On the date of the expiration of the 18-month lock-up agreement described
below, an additional 67,155,600 shares of the restricted securities will
be eligible for immediate sale in the public market under Rule 144,
subject to the transfer provisions of the shareholders' agreement, and
subject in some cases to certain volume, manner of sale and other
limitations under Rule 144.
- On September 9, 2001, December 31, 2001 and September 9, 2002, 6,299,446
shares, 31,286,644 shares and 6,299,446 shares, respectively, of the
restricted securities will be eligible for immediate sale in the public
market under Rule 144, subject to the transfer provisions of the
shareholders' agreement, and subject in some cases to certain volume,
manner of sale and other limitations under Rule 144.
EMPLOYEE STOCK OPTION AND STOCK PURCHASE PLANS
We have reserved 16,545,354 shares of Class A common stock for issuance
under our stock option plan. As of January 15, 2000, there were a total of
5,049,600 shares of Class A common stock subject to outstanding options under
our stock option plan, 210,000 of which were vested. All of these vested options
are subject to a lock-up agreement. There were no shares of stock reserved for
issuance pursuant to our employee stock purchase plan as of January 15, 2000;
upon completion of this offering, 3,000,000 shares of Class A common stock will
be reserved for issuance under this plan. Within 90 days after the completion of
this offering, we intend to file registration
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statements on Form S-8 under the Securities Act to register all of the shares of
common stock issued or reserved for future issuance under our stock option plan
and our employee stock purchase plan. After the effective dates of the
registration statements on Form S-8, shares purchased upon exercise of options
granted pursuant to our stock option plan and employee stock purchase plan
generally would be available for resale in the public market.
LOCK-UP AGREEMENTS
Pursuant to certain "lock-up" agreements, we and several of our stockholders
have agreed not to offer, sell, contract to sell, announce an intention to sell
or otherwise dispose of, directly or indirectly, or file with the SEC a
registration statement under the Securities Act relating to, any shares of
common stock or securities convertible into or exchangeable or exercisable for
any common stock without the prior written consent of Goldman, Sachs & Co. for a
period of 180 days after the date of this prospectus.
In addition, Nextel WIP, DLJ Merchant Banking and its affiliates, Madison
Dearborn Partners, Eagle River and the management stockholders have entered into
a lock-up agreement with us pursuant to which they have agreed generally not to
transfer their shares or exercise their registration rights for a period of
18 months following this offering.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year would be entitled to sell in any three-month period
up to the greater of
- 1% of the then-outstanding shares of Class A common stock, approximately
1,589,280 shares immediately after this offering; and
- the average weekly trading volume of the Class A common stock during the
four calendar weeks preceding the filing of a Form 144 with respect to
such sale.
Sales under Rule 144 are also subject to certain manner of sale and notice
requirements and to the availability of current public information about us.
RULE 144(K)
Under Rule 144(k), a person who has not been one of our affiliates during
the preceding 90 days and who has beneficially owned the restricted shares for
at least two years is entitled to sell them without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
RULE 701
Any of our employees, directors, officers, consultants or advisors who
purchase shares from us in connection with a compensatory stock or option plan
or written agreement before the effective date of this offering is entitled to
rely on the resell provisions of Rule 701, subject to the lock-up provisions
described above. In general, Rule 701 permits non-affiliates to sell their
Rule 701 shares without having to comply with the public information, holding
period, volume limitation or notice provisions of Rule 144 and permits
affiliates to sell their Rule 701 shares without having to comply with the
holding period of Rule 144.
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REGISTRATION RIGHTS
Following this offering and the expiration of the 18-month lock-up
agreement, DLJ Merchant Banking and Madison Dearborn Partners, who together will
own 53,317,776 shares of Class A common stock upon completion of this offering,
will have rights to demand that we register their shares with the SEC.
Additionally, under the terms of the shareholders' agreement, if we propose to
register any of our securities under the Securities Act, either for our own
account or for the account of other security holders exercising registration
rights, the parties to the shareholders' agreement are entitled to notice of the
registration and to include their shares of common stock in the registration at
our expense. All of these registration rights are subject to the right of the
underwriters of the offering to limit the number of shares included in such
registration. Each of Nextel WIP, DLJ Merchant Banking and its affiliates,
Madison Dearborn, Eagle River, and the management stockholders have entered into
a lock-up agreement and have waived their registration rights for a period of
18 months following this offering.
AMENDED SHAREHOLDERS' AGREEMENT
The amended shareholders' agreement imposes numerous restrictions with
respect to the sale, transfer or other disposition of our capital stock by the
parties to the shareholders' agreement. Generally, prior to the completion of
our portion of the Nextel digital mobile network and the achievement of positive
EBITDA for two consecutive fiscal quarters, excluding the effects of any option
markets acquired by us, Eagle River and the management stockholders may transfer
shares only to family members, affiliates and certain other permitted
transferees; provided, however, that after this offering, each such stockholder
may sell up to 30% of its shares subject to certain rights of first offer and
rights of first refusal available to DLJ Merchant Banking, Madison Dearborn
Partners, Eagle River, Motorola, Nextel WIP, the management stockholders and
their permitted transferees. Nextel WIP may not transfer its shares (other than
to permitted transferees, or to us, in return for frequencies that it
repurchases) prior to January 29, 2011. Other stockholders who are parties to
the amended shareholders' agreement may transfer their shares to third parties,
subject to the rights of first offer and rights of first refusal described
above.
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MATERIAL U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS
Following is a general discussion of material U.S. federal income and estate
tax consequences of the ownership and disposition of the Class A common stock
applicable to non-U.S. holders of Class A common stock. For purposes of this
discussion, a non-U.S. holder is any holder or other beneficial owner of
Class A common stock that, for U.S. federal income tax purposes, is not a U.S.
person. This discussion does not address all aspects of U.S. federal income and
estate taxation that may be relevant in light of a non-U.S. holder's particular
facts and circumstances, such as being a U.S. expatriate, and does not address
any tax consequences arising under the laws of any state, local or non-U.S.
taxing jurisdiction. Furthermore, the following discussion is based on current
provisions of the Internal Revenue Code of 1986 and administrative and judicial
interpretations thereof, all as in effect on the date of this prospectus, and
all of which are subject to change, possibly with retroactive effect. We have
not and will not seek a ruling from the Internal Revenue Service with respect to
the U.S. federal income and estate tax consequences described below, and as a
result, there can be no assurance that the Internal Revenue Service will agree
with and not challenge any of the conclusions set forth in this discussion. For
purposes of this discussion, the term U.S. person means:
- a citizen or resident of the United States;
- a corporation, partnership or other entity treated as a corporation or a
partnership for U.S. federal income tax purposes created or organized in
the United States or under the laws of the United States or any state
thereof including the District of Columbia;
- an estate whose income is included in gross income for U.S. federal income
tax purposes regardless of its source; or
- a trust whose administration is subject to the primary supervision of a
U.S. court and which has one or more U.S. persons who have the authority
to control all substantial decisions of the trust.
DIVIDENDS
We have not paid any dividends on our common stock, and we do not plan to
pay any dividends on our common stock for the foreseeable future. However, if we
do pay dividends on our common stock, those dividends generally will constitute
dividends for U.S. federal income tax purposes to the extent paid from our
current or accumulated earnings and profits, as determined under U.S. federal
income tax principles. To the extent such dividends exceed our current and
accumulated earnings and profits, the dividends will constitute a return of
capital that will be applied against and will reduce your basis in our Class A
common stock, but not below zero, and then will be treated as gain from the sale
of the stock. Dividends paid to a non-U.S. holder that are not effectively
connected with a U.S. trade or business of the non-U.S. holder will, to the
extent paid out of earnings and profits, be subject to U.S. withholding tax at a
30% rate or, if a tax treaty applies, a lower rate specified by the treaty.
Under currently applicable Treasury regulations, dividends paid to an address
outside the United States are presumed to be paid to a resident of such country,
unless the payor has knowledge to the contrary, for purposes of withholding
discussed above, and, under the current interpretation of these Treasury
regulations, for purpose of determining the applicability of a tax treaty rate.
Under Treasury regulations scheduled to be effective for payments after
December 31, 2000, to receive a reduced treaty rate, a non-U.S. holder must
furnish to us or our paying agent a duly completed Form W-8BEN, or substitute
form, certifying to its qualification for such rate.
Dividends that are effectively connected with the conduct of a trade or
business within the United States of a non-U.S. holder are generally exempt from
U.S. federal withholding tax, provided that the non-U.S. holder furnishes to us
or our paying agent a duly completed Form 4224 or Form W-8ECI, or substitute
form, certifying the exemption. A Form 4224 is replaced with a
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Form W-8ECI for payments after December 31, 2000. However, dividends exempt from
U.S. withholding because they are effectively connected with the conduct of a
trade or business within the United States are subject to U.S. federal income
tax on a net income basis at the regular graduated U.S. federal income tax
rates. Any such effectively connected dividends received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30 % rate or a lower rate specified by an applicable
income tax treaty.
GAIN ON DISPOSITION OF CLASS A COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax
on any gain realized upon the sale or other disposition of Class A common stock
unless:
- the gain is effectively connected with a trade or business of the non-U.S.
holder in the United States. In this case, the non-U.S. holder will,
unless an applicable treaty provides otherwise, be taxed on its net gain
derived from the sale under regular graduated U.S. federal income tax
rates. If the non-U.S. holder is a foreign corporation, it may be subject
to an additional branch profits tax equal to 30% of its effectively
connected earnings and profits within the meaning of the Internal Revenue
Code for the taxable year, as adjusted for certain items, unless it
qualifies for a lower rate under an applicable income tax treaty and duly
demonstrates such qualification;
- the non-U.S. holder is an individual who holds his or her Class A common
stock as a capital asset, which generally means as an asset held for
investment purposes, and who is present in the United States for a period
or periods aggregating 183 days or more during the calendar year in which
the sale or disposition occurs and certain other conditions are met; or
- we are or have been a U.S. real property holding corporation for U.S.
federal income tax purposes at any time within the shorter of the
five-year period preceding the disposition or the holder's holding period
for its Class A common stock. We believe that we are not and will not
become a U.S. real property holding corporation for U.S. federal income
tax purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, we would be required to report annually to the Internal Revenue
Service the amount of dividends, if any, paid on the Class A common stock, the
name and address of the recipient, and the amount, if any, of tax withheld. A
similar report would be sent to the recipient. Pursuant to applicable income tax
treaties or other agreements, the Internal Revenue Service may make its reports
available to tax authorities in the recipient's country of residence.
Dividends paid to a non-U.S. holder, other than an exempt holder, at an
address within the United States may be subject to backup withholding at a rate
of 31% if the non-U.S. holder fails to certify its foreign status or otherwise
establish an exemption. Backup withholding will generally not apply to dividends
paid to non-U.S. holders at an address outside the United States on or prior to
December 31, 2000 unless the payer has knowledge that the payee is a U.S.
person. Under the recently finalized Treasury regulations regarding withholding
and information reporting, payment of dividends to non-U.S. holders at an
address outside the United States after December 31, 2000 may be subject to
backup withholding at a rate of 31% unless such non-U.S. holder satisfies
various certification requirements.
Under current Treasury regulations, the payment of the proceeds of the
disposition of Class A common stock to or through the U.S. office of a broker is
subject to information reporting and backup withholding at a rate of 31% unless
the holder certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. Generally, the payment of the proceeds of the
disposition by a non-U.S. holder of Class A common stock outside the United
States to or through
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a foreign office of a broker will not be subject to backup withholding but will
be subject to information reporting requirements if the broker is:
- a U.S. person;
- a controlled foreign corporation for U.S. federal income tax purposes; or
- a foreign person 50% or more of whose gross income for certain periods is
from the conduct of a U.S. trade or business,
unless the broker has documentary evidence in its files of the holder's non-U.S.
status and certain other conditions are met, or the non-U.S. holder otherwise
establishes an exemption. Neither backup withholding nor information reporting
generally will apply to a payment of the proceeds of a disposition of Class A
common stock by or through a foreign office of a foreign broker not subject to
the preceding sentence.
In general, the recently finalized Treasury regulations, described above, do
not significantly alter substantive withholding and information reporting
requirements but would alter procedures for claiming benefits of an income tax
treaty and change the certification procedures relating to the receipt by
intermediaries of payments on behalf of the beneficial owner of shares of
Class A common stock. Non-U.S. holders should consult their tax advisors
regarding the effect, if any, of those final Treasury regulations on an
investment in the Class A common stock. Those final Treasury regulations are
generally effective for payments made after December 31, 2000.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the Internal
Revenue Service.
ESTATE TAX
An individual non-U.S. holder who owns Class A common stock at the time of
his or her death, or who had made certain lifetime transfers of an interest in
Class A common stock while retaining certain powers, rights or interests in the
stock, will be required to include the value of that Class A common stock in his
or her gross estate for U.S. federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
The foregoing discussion is a summary of the principal U.S. federal income
and estate tax consequences of the ownership, sale or other disposition of
Class A common stock by non-U.S. holders. Accordingly, investors are urged to
consult their own tax advisors with respect to the income and estate tax
consequences of the ownership and disposition of Class A common stock, including
the application and effect of the laws of any state, local, foreign or other
taxing jurisdiction.
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UNDERWRITING
We and the underwriters for the U.S. offering (the "U.S. Underwriters")
named below have entered into an underwriting agreement with respect to the
shares of Class A common stock being offered in the United States. Subject to
certain conditions, each U.S. Underwriter has severally agreed to purchase the
number of shares of Class A common stock indicated in the following table.
Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette Securities Corporation,
Credit Suisse First Boston Corporation, Deutsche Bank Securities Inc., First
Union Securities, Inc., Morgan Stanley & Co. Incorporated and DLJDIRECT Inc. are
the representatives of the U.S. Underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ -----------------
<S> <C>
Goldman, Sachs & Co.........................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Credit Suisse First Boston Corporation......................
Deutsche Bank Securities Inc................................
First Union Securities, Inc.................................
Morgan Stanley & Co. Incorporated...........................
DLJDIRECT Inc...............................................
----------
Total.....................................................
==========
</TABLE>
If the U.S. Underwriters sell more shares of Class A common stock than the
total number set forth in the table above, the U.S. Underwriters have an option
to buy up to an additional shares of Class A common stock from us
to cover such sales. They may exercise that option for 30 days. If any shares of
Class A common stock are purchased pursuant to this option, the U.S.
Underwriters will severally purchase shares of Class A common stock in
approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the U.S. Underwriters by us. Such amounts are shown
assuming both no exercise and full exercise of the U.S. Underwriters' option to
purchase additional shares of Class A common stock.
<TABLE>
<CAPTION>
Paid by Nextel Partners
---------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share................................................... $ $
Total....................................................... $ $
</TABLE>
Shares of Class A common stock sold by the underwriters to the public will
initially be offered at the initial public offering price set forth on the cover
of this prospectus. Any shares of Class A common stock sold by the underwriters
to securities dealers may be sold at a discount of up to $ per share
from the initial public offering price. Any such securities dealers may resell
any shares of Class A common stock purchased from the underwriters to certain
other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares of Class A common stock are not
sold at the initial public offering price, the representatives may change this
offering price and the other selling terms.
We have entered into an underwriting agreement with the underwriters for the
international offering for the sale of shares outside of the United
States. The terms and conditions of both offerings are the same and the sale of
shares in both offerings are conditioned on each other. Goldman Sachs
International, Donaldson, Lufkin & Jenrette International, Credit Suisse First
Boston
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(Europe) Limited, Deutsche Bank AG London, First Union Securities, Inc., and
Morgan Stanley & Co. International Limited are representatives of the
underwriters for the international offering outside the United States (the
"International Underwriters"). We have granted the International Underwriters a
similar option to purchase up to an aggregate of an additional shares.
The underwriters for both of the offerings have entered into an agreement in
which they have agreed to restrictions on where and to whom they and any dealer
purchasing from them may offer shares as a part of the distribution of the
shares. The underwriters have also agreed that they may sell shares among each
of the underwriting groups.
Our company, all of our directors and executive officers and certain of our
stockholders have agreed with the underwriters not to dispose of or hedge any of
their common stock or securities convertible into or exchangeable for shares of
Class A common stock during the period from the date of this prospectus
continuing through the date 180 days after the date of this prospectus, except
with the prior written consent of Goldman, Sachs & Co. This agreement does not
apply to the issuance of shares under our existing employee benefit plans. See
"Shares Eligible for Future Sale" for a description of certain transfer
restrictions.
In addition, Nextel WIP, DLJ Merchant Banking, Madison Dearborn Partners,
Eagle River and the management stockholders have each entered into a lock-up
agreement with us and have agreed generally not to transfer their shares or
exercise their registration rights for a period of 18 months after the date of
this prospectus.
Prior to this offering, there has been no public market for our shares of
Class A common stock. The initial public offering price will be negotiated among
us and the underwriters. Among the factors to be considered in determining the
initial public offering price of the shares of Class A common stock, in addition
to prevailing market conditions, will be our historical performance, estimates
of our business potential and earnings prospects, an assessment of our
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.
Our Class A common stock has been approved for quotation on the Nasdaq
National Market under the symbol "NXTP."
In connection with this offering, the underwriters may purchase and sell
shares of Class A common stock in the open market. These transactions may
include short sales, stabilizing transactions and purchases to cover positions
created by short sales. Short sales involve the sale by the underwriters of a
greater number of shares of Class A common stock than they are required to
purchase in this offering. Stabilizing transactions consist of certain bids or
purchases made for the purpose of preventing or retarding a decline in the
market price of the Class A common stock while this offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares of
Class A common stock sold by or for the account of such underwriter in
stabilizing or short covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the Class A common stock. As a result, the price of
the Class A common stock may be higher than the price that otherwise might exist
in the open market. If these activities are commenced, they may be discontinued
by the underwriters at any time. These transactions may be effected on the
Nasdaq National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed 5%
of the total number of shares of Class A common stock offered.
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We currently anticipate that we will request the underwriters to reserve up
to 10% of the shares of our Class A common stock for sale at the initial public
offering price to persons designated by us through a directed share program. The
number of shares available for sale to the general public will be reduced to the
extent such persons purchase such reserved shares. Any reserved shares not so
purchased will be offered by the underwriters to the general public on the same
basis as other shares offered hereby.
We estimate that our share of the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $1,000,000.
Certain of the underwriters and their affiliates have in the past provided,
and may in the future from time to time provide, investment banking and general
financing and banking services to us and our affiliates for which they have in
the past received, and may in the future receive, customary fees and
reimbursement of expenses. Donaldson, Lufkin & Jenrette Securities Corporation
and First Union Securities, Inc. (formerly known as First Union Capital Markets)
served as initial purchasers of our senior discount notes and received a
customary underwriting discount. Donaldson, Lufkin & Jenrette Securities
Corporation also acted as our financial advisor and as arranger, and DLJ Capital
Funding, Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation, acted as syndication agent under our credit facility, and received
customary fees and reimbursements in connection therewith. DLJ Merchant Banking
and certain related parties, all of which are affiliates of Donaldson, Lufkin &
Jenrette Securities Corporation, currently own 13.3% of our equity. See
"Principal Stockholders" and "Related-Party Transactions."
Also because of our relationship with Donaldson, Lufkin & Jenrette
Securities Corporation, the offering is being conducted in accordance with
Rule 2720 of the National Association of Securities Dealers. That rule requires
that the initial public offering price can be no higher than that recommended by
a "qualified independent underwriter," as defined by the NASD.
Goldman, Sachs & Co. will serve in this capacity and will perform due diligence
investigations and review and participate in the preparation of the registration
statement of which this prospectus forms a part. Goldman, Sachs & Co. has
received $10,000 from us as compensation for such role.
We have agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
This prospectus may be used by the underwriters and other dealers in
connection with offers and sales of the shares of Class A common stock,
including sales of shares initially sold by the underwriters in the offering
being made outside of the United States, to persons located in the United
States.
96
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed on for Nextel
Partners by Summit Law Group, PLLC, Seattle, Washington. Certain legal matters
will be passed upon for the underwriters by Latham & Watkins, New York, New
York. Certain other legal matters will be passed upon for us by our special FCC
counsel, Willkie Farr & Gallagher, Washington, D.C.
EXPERTS
The consolidated financial statements of Nextel Partners, Inc. and
Subsidiaries as of and for the years ended December 31, 1999 and 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.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1. This
prospectus, which forms part of the registration statement, does not contain all
of the information included in that registration statement. Certain information
is omitted and you should refer to the registration statement and its exhibits.
With respect to references made in this prospectus to any of our contracts or
other documents, such references are not necessarily complete and you should
refer to the exhibits attached to the registration statement for copies of the
actual contract or document. You may review a copy of the registration
statement, including its exhibits and schedules, at the SEC's public reference
facilities in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the SEC located at 7 World Trade
Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You may also obtain copies
of such materials from the Public Reference Section of the SEC, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The SEC maintains a website (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants,
such as us, that file electronically with the SEC.
97
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999, and Pro forma Stockholders' Equity as of
December 31, 1999 (unaudited)............................. F-3
Consolidated Statements of Operations for the years ended
December 31,
1998 and 1999............................................. F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1998 and 1999............ F-5
Consolidated Statements of Cash Flows for the years ended
December 31,
1998 and 1999............................................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Nextel Partners, Inc.:
We have audited the accompanying consolidated balance sheets of Nextel
Partners, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999
and 1998 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nextel Partners, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Seattle, Washington,
February 4, 2000
F-2
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1998 AND 1999
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDER'S
EQUITY
AS OF
DECEMBER 31,
1998 1999 1999
--------- ---------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 16 $ 154,273
Short-term investments.................................... -- 239,456
Accounts receivable, net of allowance of $254 and $1,193,
respectively............................................ 1,546 7,172
Due from Nextel WIP....................................... -- 1,183
Subscriber equipment inventory............................ 1,353 1,695
Other current assets...................................... 325 8,519
Restricted cash........................................... -- 175,000
-------- ----------
Total current assets........................................ 3,240 587,298
-------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost...................... 112,334 268,766
Less--accumulated depreciation............................ 4,386 16,543
-------- ----------
Property, plant and equipment, net...................... 107,948 252,223
-------- ----------
OTHER NON-CURRENT ASSETS:
FCC operating licenses, net of accumulated amortization of
$200 and $718, respectively............................. 133,180 151,056
Debt issuance costs and other assets...................... 3,298 22,550
Receivable from officer................................... -- 2,200
-------- ----------
Total non-current assets.................................... 136,478 175,806
-------- ----------
TOTAL ASSETS................................................ $247,666 $1,015,327
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 1,043 $ 33,968
Accrued expenses.......................................... 4,554 24,535
Due to Nextel WIP......................................... 3,398 --
-------- ----------
Total current liabilities................................... 8,995 58,503
-------- ----------
LONG-TERM OBLIGATIONS
Credit facility--term B and C............................. -- 325,000
14% Senior discount notes, due 2009....................... -- 460,484
Other long-term liabilities............................... -- 724
-------- ----------
Total long-term obligations................................. -- 786,208
Total liabilities........................................... 8,995 844,711
-------- ----------
COMMITMENTS AND CONTINGENCIES (See Note 6)
REDEEMABLE PREFERRED STOCK, Series B redeemable 2010, par
value $.001 per share, 12% cumulative annual dividend;
13,110,000 shares issued and outstanding.................. $ 24,401
=========
STOCKHOLDERS' EQUITY
Preferred stock, Series A convertible, par value $.001 per
share, 125,834,646 shares issued and outstanding........ -- 21 $ --
Preferred stock, Series B redeemable or convertible to
Series C preferred stock 2010, par value $.001 per
share, 12% cumulative annual dividend; 13,110,000 shares
issued and outstanding.................................. -- 2 --
Preferred stock, Series C convertible, par value $.001 per
share 64,672,626 shares issued and outstanding.......... -- 11 --
Preferred stock, Series D convertible, par value at $.001
per share, 13,110,000 shares issued and outstanding..... -- 2 --
Common stock, Class A, par value $.001 per share,
9,533,328, 9,593,328 and 135,427,974 shares,
respectively, issued and outstanding, and paid-in
capital................................................. 1,604 145,420 353,583
Warrants outstanding...................................... -- 3,847 3,847
Common stock, Class B, par value $.001 per share
convertible, 77,782,626 shares issued and outstanding,
and paid-in capital..................................... -- -- 127,051
Other paid-in capital..................................... 260,761 357,028 --
Accumulated deficit....................................... (22,553) (134,966) (137,517)
Subscriptions receivable from stockholders................ -- (83,048) (83,048)
Deferred compensation..................................... (1,141) (117,701) (117,701)
-------- ---------- ---------
Total stockholders' equity.................................. 238,671 170,616 $ 146,215
-------- ---------- =========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $247,666 $1,015,327
======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1999
-------- -----------
<S> <C> <C>
REVENUES:
Service revenues ($8,536 received from Nextel WIP in
1999)................................................... $ 3,745 $ 28,136
Equipment revenues........................................ 1,564 4,584
-------- -----------
Total revenues.......................................... 5,309 32,720
-------- -----------
OPERATING EXPENSES:
Cost of service revenues ($4,922 paid to Nextel WIP in
1999)................................................... 6,108 18,807
Cost of equipment revenues................................ 2,935 10,742
Selling, general and administrative ($2,831 paid to
Nextel WIP in 1999).................................... 13,531 34,862
Stock based compensation.................................. 447 27,256
Depreciation and amortization............................. 4,586 12,689
-------- -----------
Total operating expenses................................ 27,607 104,356
-------- -----------
OPERATING LOSS.............................................. (22,298) (71,636)
-------- -----------
OTHER INCOME (EXPENSE):
Interest expense, net..................................... -- (65,362)
Interest income........................................... -- 24,585
-------- -----------
Total other (expense)................................... -- (40,777)
-------- -----------
LOSS BEFORE INCOME TAX PROVISION............................ (22,298) (112,413)
Income tax provision...................................... -- --
-------- -----------
Net loss.................................................. $(22,298) $ (112,413)
======== ===========
LOSS PER SHARE:
Basic and diluted loss per share.......................... $ (38.18)
===========
Weighted average shares outstanding....................... 2,944,218
===========
PRO FORMA LOSS PER SHARE: (unaudited)
Series B Redeemable preferred stock dividend.............. $ (2,551)
===========
Basic and diluted loss per share.......................... $ (0.66)
===========
Weighted average shares outstanding....................... 170,107,513
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK
AND
PREFERRED STOCK PAID-IN CAPITAL OTHER
---------------------- --------------------- WARRANTS PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT OUTSTANDING CAPITAL DEFICIT
----------- -------- --------- --------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE
January 1, 1998....................... -- $-- -- $ -- $ -- $ 8,255 $ (255)
Equity contributions.................. -- -- -- -- -- 252,506 --
Issuance of common stock under
restricted stock purchase plan...... -- -- 9,533,328 1,604 -- -- --
Vesting of deferred compensation...... -- -- -- -- -- -- --
Net loss.............................. -- -- -- -- -- -- (22,298)
----------- --- --------- -------- ------ --------- ---------
BALANCE
December 31, 1998..................... -- -- 9,533,328 1,604 -- 260,761 (22,553)
Issuance of common stock.............. -- -- 60,000 61 -- -- --
Issuance of Series A preferred
stock............................... 125,834,646 21 -- -- -- 208,142 --
Issuance of warrants.................. -- -- -- -- 3,847 -- --
Subscriptions receivable.............. -- -- -- -- -- -- --
Proceeds from stockholders............ -- -- -- -- -- -- --
Reclass of other paid-in capital to
Preferred Series B, C, and D........ -- -- -- -- -- (133,180) --
Issuance of Series B preferred
stock............................... 13,110,000 2 -- -- -- 21,848 --
Issuance of Series C preferred
stock............................... 64,672,626 11 -- -- -- 110,731 --
Issuance of Series D preferred
stock............................... 13,110,000 2 -- -- -- 22,264 --
Return of capital to Nextel WIP....... -- -- -- -- -- (130,900) --
Deferred compensation................. -- -- -- 143,755 -- -- --
Vesting of deferred compensation...... -- -- -- -- -- -- --
Net loss.............................. -- -- -- -- -- -- (112,413)
Equity issuance costs................. -- -- -- -- -- (2,638) --
Motorola credit....................... -- -- -- -- -- -- --
----------- --- --------- -------- ------ --------- ---------
BALANCE
December 31, 1999..................... 216,727,272 $36 9,593,328 $145,420 $3,847 $ 357,028 $(134,966)
=========== === ========= ======== ====== ========= =========
<CAPTION>
SUBSCRIPTIONS DEFERRED
RECEIVABLE COMPENSATION TOTALS
-------------- -------------- ---------
<S> <C> <C> <C>
BALANCE
January 1, 1998....................... $ -- $ -- $ 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)
--------- --------- ---------
BALANCE
December 31, 1998..................... -- (1,141) 238,671
Issuance of common stock.............. -- (61) --
Issuance of Series A preferred
stock............................... -- -- 208,163
Issuance of warrants.................. -- -- 3,847
Subscriptions receivable.............. (157,203) -- (157,203)
Proceeds from stockholders............ 52,145 -- 52,145
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............................... -- -- 110,742
Issuance of Series D preferred
stock............................... -- -- 22,266
Return of capital to Nextel WIP....... -- -- (130,900)
Deferred compensation................. -- (143,755) --
Vesting of deferred compensation...... -- 27,256 27,256
Net loss.............................. -- -- (112,413)
Equity issuance costs................. -- -- (2,638)
Motorola credit....................... 22,010 -- 22,010
--------- --------- ---------
BALANCE
December 31, 1999..................... $ (83,048) $(117,701) $ 170,616
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (22,298) $(112,413)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities..........................
Depreciation and amortization............................. 4,586 12,689
Amortization of debt issuance costs....................... -- 2,122
Interest accretion for senior discount notes, net of
capitalized interest.................................... -- 44,496
Stock-based compensation.................................. 447 27,256
Allowance for doubtful accounts........................... 254 939
Gain on sale of assets ................................... -- (27)
Change in current assets and liabilities:
Accounts receivable..................................... (1,800) (6,565)
Subscriber equipment inventory.......................... (1,353) (342)
Other current assets.................................... (325) (8,194)
Accounts payable and accrued expenses................... 2,300 56,419
Due from/to Nextel WIP.................................. 3,398 (4,581)
--------- ---------
Net cash provided by (used in) operating activities....... (14,791) 11,799
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan to officer........................................... -- (2,200)
Capital expenditures...................................... (104,334) (133,210)
Proceeds from sale of assets.............................. -- 2,246
FCC licenses.............................................. -- (2,850)
Purchase of short-term investments........................ -- (239,456)
--------- ---------
Net cash used in investing activities................... (104,334) (375,470)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.................................. 16 --
Equity contributions from Nextel WIP...................... 119,125 --
Proceeds from borrowings.................................. -- 731,376
Restricted cash transfer.................................. -- (175,000)
Proceeds from equity contributions........................ -- 119,740
Return of capital to Nextel WIP........................... -- (130,900)
Equity costs.............................................. -- (2,638)
Debt issuance costs....................................... -- (24,650)
--------- ---------
Net cash provided by financing activities............... 119,141 517,928
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 16 154,257
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. -- 16
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 16 $ 154,273
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Contribution of FCC licenses from Nextel WIP.............. $ 133,380 $ 8,884
========= =========
Accrued debt and equity issuance costs.................... $ 3,298 $ --
========= =========
Equipment purchased from Motorola's equity contribution
credit.................................................. $ -- $ 22,010
========= =========
Capitalized interest on accretion of senior discount
notes................................................... $ -- $ 9,612
========= =========
CASH PAID FOR INTEREST, NET OF CAPITALIZED AMOUNT........... $ -- $ 17,302
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
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.
and its subsidiaries ("Nextel") through Nextel WIP Corp. ("Nextel WIP"), an
indirect wholly owned subsidiary of Nextel, and Eagle River Investments LLC
("Eagle River") through intercompany advances amounting to $3.4 million at
December 31, 1998, which were repaid by using proceeds from the Capitalization
Transactions. The only common stock issuance of the Partners shell entity in
1998 consisted of issuance of restricted stock to key employees of the Partners
shell entity as part of its compensation plan and to Eagle River.
Prior to January 29, 1999, Nextel formed and began to operate the digital
wireless communication service business in upstate New York and Hawaii 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.
INITIAL CAPITALIZATION TRANSACTIONS
On January 29, 1999, Nextel WIP contributed the Nextel Carve-Out to the
Company in exchange for 13,110,000 shares of Series B Preferred Stock,
52,440,000 shares of Series C Preferred Stock, 13,110,000 shares of Series D
Preferred Stock and cash of $130.9 million. Simultaneously, the Company sold
equity securities in a private placement 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 104,879,826 shares of Series A Preferred
Stock (valued at $170.9 million) and warrants to purchase 2,434,260 shares of
Class A Common Stock for an exercise price of $.000167 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.
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 filed for approval with
the FCC to transfer to the Company all the rights to the use of and benefits of
these licenses. Prior to receiving approval from the FCC, the Company has the
right to use the frequencies pursuant to a frequency management agreement (the
"Frequency Management Agreement") between the Company and Nextel WIP. On or
about October 29, 1999, the FCC issued an order approving the transfer of FCC
licenses from Nextel to the Company. This order was issued and made public by
the FCC.
EXPANSION TERRITORY CAPITALIZATION TRANSACTIONS
On September 9, 1999, Nextel Partners Operating Corporation ("OPCO"), a
wholly owned subsidiary of Nextel Partners, entered into an Expansion Territory
Asset Transfer and
F-7
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. FORMATION, CAPITALIZATION AND BASIS OF PRESENTATION (CONTINUED)
Reimbursement Agreement with Nextel WIP to acquire certain assets, properties,
rights and interests to be used in connection with the construction and
operation of additional territories ("Expansion Territory") for $10.6 million.
To accomplish the build-out and operation of the Expansion Territory, the
Company issued 5,330,142 shares of Series C Preferred Stock to Nextel WIP having
an aggregate implied value of $8.9 million in exchange for the contribution of
certain licenses and an extension of an operating agreement governing the
build-out of the Network in the Expansion Territory. Pending receipt of FCC
approval, the Company has the right to use the frequencies pursuant to the
Frequency Management Agreement. Upon receipt of FCC approval, the Frequency
Management Agreement will expire. The Company also issued Series A and C
Preferred Stock for equity contributions of $50 million. The issuance of
Series A Preferred Stock consisted of 20,954,820 shares (valued at
$37.2 million) and Series C Preferred stock of 6,902,484 shares (valued at
$12.8 million). The equity securities were issued in exchange for cash of
$15.5 million, an irrevocable cash equity commitment of $31.0 million to be
received over the subsequent two-year period, and a vendor credit from Motorola
of $3.6 million towards the purchase of infrastructure equipment. As of
December 31, 1999, the Company has used the credit from both the Initial and
Expansion Territory Capitalization Transactions in its entirety.
The following summarizes the dollar amount and number of shares issued as
part of the Initial and Expansion Territory Capitalization Transactions
described above.
<TABLE>
<CAPTION>
SHARES EQUITY
ISSUED CONTRIBUTIONS
----------- -------------
<S> <C> <C>
Series A Preferred Stock.................................... 125,834,646 $208,160,194
Series B Preferred Stock.................................... 13,110,000 21,850,000
Series C Preferred Stock.................................... 64,672,626 110,740,170
Series D Preferred Stock.................................... 13,110,000 22,266,000
Subscriptions Receivable.................................... -- (157,203,019)
Warrants to purchase Class A common shares issued for a
purchase price of $.000167 per share...................... 2,434,260 3,847,000
</TABLE>
Approximately $2.6 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
F-8
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. FORMATION, CAPITALIZATION AND BASIS OF PRESENTATION (CONTINUED)
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 WIP Preferred--Series B Redeemable or
Convertible 0.00% 5.61%
Nextel WIP Preferred--Series C Convertible 31.93% 27.66%
Nextel WIP Preferred--Series D Convertible 0.00% 5.61%
----- -----
Subtotal--Nextel WIP 31.93% 38.88%
===== =====
DLJ Merchant Banking Partners II, Preferred--Series A Convertible
L.P. and affiliates ("DLJ and warrants to buy Class A
Merchant Banking") common stock 14.09% 12.20%
===== =====
Madison Dearborn Capital Partners Preferred--Series A Convertible
II, L.P. and warrants to buy Class A
common stock 13.44% 11.64%
===== =====
Eagle River Common--Class A 0.37% 0.32%
Eagle River Preferred--Series A Convertible 9.25% 8.02%
----- -----
Subtotal--Eagle River 9.62% 8.34%
===== =====
Motorola Preferred--Series A Convertible 6.46% 5.59%
===== =====
Management Common--Class A 4.36% 3.78%
Management Preferred--Series A Convertible .49% .43%
----- -----
Subtotal--Management 4.85% 4.21%
===== =====
</TABLE>
BASIS OF PRESENTATION
In substance, the Capitalization Transactions on January 29, 1999
constituted (1) the incorporation of the Nextel Carve-Out, (2) the formal
assumption by the Nextel Carve-Out of Partners' liabilities, (3) a
$130.9 million distribution to Nextel WIP, and (4) sales of Nextel Carve-Out
securities to outsiders in exchange for cash and irrevocable commitments.
Accordingly, the accompanying financial statements reflect the accounts of the
Nextel Carve-Out at Nextel WIP's historical cost basis for all periods
presented. These accounts include Nextel WIP'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 WIP 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
F-9
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. FORMATION, CAPITALIZATION AND BASIS OF PRESENTATION (CONTINUED)
Transactions, as Nextel WIP 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 accompanying financial statements also reflect the acquisition of the
Expansion Territory for $10.6 million from Nextel WIP and related Capitalization
Transactions on September 9, 1999 as described above.
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
OPCO, a wholly owned subsidiary of Partners. Substantially all of the assets,
liabilities, operating losses and cash flows of the Company are within OPCO and
its wholly owned subsidiaries.
Partners' digital network ("Nextel 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"). Partners' principal business
objective is to offer high-capacity, high-quality, advanced communication
services in its territories throughout the United States targeted towards
mid-sized and smaller markets. Various operating agreements entered into by
subsidiaries of the Company and Nextel WIP (see Note 9) provide for support
services to be provided by Nextel WIP. Additionally, the Company plans to use
Nextel WIP's back-office systems initially to support customer activation,
billing and customer care as well as other services during a transition period.
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 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 mobile telephone handsets
and accessories.
As previously discussed, the Company is reliant on Nextel WIP for the
provision of certain services. For the foreseeable future, the Company will need
to rely on Nextel WIP 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
F-10
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
In December 1999, the Board of Directors of the Company authorized the
filing of a registration statement with the Securities and Exchange Commission
(the "SEC") that would permit the Company to sell shares of the Company's common
stock in connection with a proposed initial public offering ("IPO"). If the
offering is consummated under the terms presently anticipated, all the
outstanding shares of the Company's Series A Preferred stock will automatically
convert into 125,834,646 shares of Class A Common stock and all outstanding
shares of the Company's Series C and D Preferred stock will automatically
convert into 77,782,626 shares of Class B Common stock, upon the closing of the
proposed IPO. The pro forma stockholders' equity at December 31, 1999 is
adjusted for the conversion of preferred stock. In addition, the Series B
Redeemable Preferred stock held by Nextel WIP becomes subject to mandatory cash
redemption 375 days after February 1, 2009, upon effectiveness of this
registration statement. The pro forma stockholders' equity at December 31, 1999
is adjusted to reflect a change to accumulated deficit representing the 12%
dividend accrued as of December 31, 1999, and the reclassification of the
Series B Preferred stock, plus accrued dividends, from stockholders' equity to
the section of the balance sheet between liabilities and stockholders' equity.
NET LOSS PER SHARE AND PRO FORMA NET LOSS PER SHARE
In accordance with SFAS No. 128, "Computation of Earnings Per Share," basic
earnings per share is computed by dividing net loss by the weighted average
number of shares of common stock outstanding during the period. Diluted earnings
per share is computed by dividing net loss by the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Common equivalent shares consist of shares of common stock issuable upon the
conversion of the convertible preferred stock (using the if-converted method)
and shares issuable upon the exercise of stock options and warrants (using the
treasury stock method); common equivalent shares are excluded from the
calculation as their effects are antidilutive. The Company has not had any
issuances or grants for nominal consideration as defined under Staff Accounting
Bulletin 98. Diluted net loss per share for all periods shown does not include
the effects of the convertible preferred stock and shares issuable upon the
exercise of stock options, warrants and restricted stock as the effect of their
inclusion is antidilutive during each period.
Pro forma basic and diluted net loss per share is computed based on the
weighted average number of shares of common stock outstanding giving effect to
the conversion of convertible preferred stock outstanding that will
automatically convert upon completion of the Company's initial public offering
(using the if-converted method from the original issue date). In addition, net
loss
F-11
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
NET LOSS PER SHARE AND PROFORMA NET LOSS PER SHARE (CONTINUED)
available to common stockholders increased by the amount of the accrued dividend
on the Series B Redeemable Preferred stock. Pro forma diluted net loss per share
excludes the impact of stock options, warrants and restricted stock as the
effect of their inclusion would be antidilutive. Per share information is not
included for periods prior to 1999 because the capitalization transactions that
occurred on January 29, 1999 substantially altered the capital structure.
PROPOSED STOCK DIVIDEND
The Board of Directors and the stockholders of the Company have approved a
6-for-1 stock dividend on the Company's common stock. The dividend will be
effective immediately prior to the consummation of the initial public offering.
Accordingly, all common and convertible preferred shares have been adjusted to
reflect the dividend.
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.
SHORT-TERM INVESTMENTS
Marketable debt securities and certificates of deposit with original
purchase maturities greater than three months are classified as short-term
investments. Marketable debt securities include corporate commercial paper,
which the Company holds to maturity. These held to maturity securities are
valued on the Company's balance sheet at amortized cost.
RESTRICTED CASH
Restricted cash reflects the cash collateral account maintained under the
credit facility equal to the $175.0 million borrowings outstanding at
December 31, 1999 under one of the Company's term loans. These funds will not be
available until the FCC has approved the transfer of control to the Company of
the licenses held by Nextel WIP License Corp., a wholly owned subsidiary of
Nextel WIP.
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
F-12
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 Nextel 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 $13.7 million and
$6.3 million for the years ended December 31, 1999 and 1998, respectively.
FCC 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 Personal Communications Services
("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 approximately
$518,000 and $200,000 was recorded in relation to these markets for the years
ended December 31, 1999 and 1998, respectively.
INTEREST RATE RISK MANAGEMENT
The Company uses derivative financial instruments consisting of interest
rate swap and interest rate protection agreements in the management of its
interest rate exposures. In April 1999, the Company entered into an interest
rate swap agreement for $60 million to partially hedge interest rate exposure
with respect to its $175 million term loan. This interest rate swap agreement
has the effect of converting certain of the Company's variable rate obligations
to fixed or other variable rate obligations. Amounts paid or received under the
interest rate swap agreement is accrued as interest rates change and is
recognized over the life of the swap agreement as an adjustment to interest
expense. The fair value of the swap agreement is not recognized in the
consolidated financial statements, since the swap agreement meets the criteria
for hedge accounting.
F-13
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 is 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.
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 $3.0 and $1.5 million for
the years ended December 31, 1999 and 1998, respectively.
DEBT ISSUANCE COSTS
In relation to the issuance of long-term debt discussed in Note 4, the
Company has incurred a total of $24.6 million ($1.3 million had been incurred as
of December 31, 1998) in deferred financing costs related to the issuance of the
Senior Redeemable Discount Notes and the bank credit facility. These debt
issuance costs will be amortized over the terms of the underlying obligation
using the effective interest rate method. For the year ended December 31, 1999,
$2.1 million 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"
("SFAS123"), 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
years ended December 31, 1999 and 1998 compensation expense under SFAS 123 and
APB Opinion No. 25 were substantially identical. In the future, the Company will
disclose pro forma net loss as if compensation expense costs had been determined
consistent with SFAS 123.
INCOME TAXES
Deferred tax assets and liabilities are determined based on the temporary
differences 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
F-14
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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. This new standard requires 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 has not had 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 has not had 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 137 issued
August 1999, postpones for one year the mandatory effective date for SFAS 133 to
January 1, 2001. The Company has not evaluated the effects of this change on its
financial position or results of operations.
REVENUE RECOGNITION IN FINANCIAL STATEMENTS--In November of 1999, the SEC
released Staff Accounting Bulletin Number 101--Revenue Recognition in Financial
Statements. This bulletin will become effective for the Company for the quarter
ended March 31, 2000. This bulletin establishes more clearly defined revenue
recognition criteria, than previously existing accounting pronouncements, and
specifically addresses revenue recognition requirements for nonrefundable fees,
such as activation fees, collected by a company upon entering into an
arrangement with a customer, such as an arrangement to provide telecommunication
services. The Company believes that the effects of this bulletin will not be
material to its financial position or the results of its operations.
F-15
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Building and improvements................................... $ 320 $ 1,082
Equipment................................................... 87,523 171,567
Furniture and fixtures...................................... 2,926 5,128
Less--accumulated depreciation and amortization............. (4,386) (16,543)
-------- --------
86,383 161,234
Construction in progress.................................... 21,565 90,989
-------- --------
$107,948 $252,223
======== ========
</TABLE>
4. LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
14% Senior Redeemable Discount Notes due 2009, net of
unamortized discount of $339.5 million at December 31,
1999...................................................... $ -- $460,484
Bank Credit Facility--Term B Loan, interest at Company's
option, calculated on Administrative Agent's alternate
base rate or reserve adjusted London Interbank Offered
Rate ("LIBOR")............................................ -- 175,000
Bank Credit Facility--Term C Loan, interest at Company's
option, calculated on Administrative Agent's alternate
base rate or reserve adjusted LIBOR....................... -- 150,000
-------- --------
Total Long-term Debt........................................ $ -- $785,484
======== ========
</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.
F-16
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. LONG-TERM DEBT: (CONTINUED)
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 all of its assets, (iv) create liens on assets, and
(v) enter into certain transactions with affiliates or related persons. As of
December 31, 1999, the Company was in compliance with applicable covenants.
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 remains outstanding immediately after the
occurrence of such redemption.
In accordance with the requirements of SFAS 107 -- "Disclosure about Fair
Value of Financial Instruments", the Company estimates the fair market value of
its Senior Redeemable Discount Notes to be approximately $536 million, based
upon quoted market prices of the Notes.
BANK CREDIT FACILITY
On January 29, 1999, the Company, through OPCO, entered into a credit
facility ("Term B Loan") 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 Term B Loan includes a $175 million term loan facility and
initially, a $100 million revolving credit facility. The Term B Loan has a
maturity of nine years. The revolving credit facility terminates eight years
from the initial funding.
On September 9, 1999, the Company, through OPCO entered into an Amended and
Restated Credit Agreement (the "Amended and Restated Credit Agreement") with a
syndicate of banks and other financial institutions with DLJ Capital
Funding, Inc., as syndication agent. The parties agreed to amend and restate in
its entirety the credit agreement to, among other things, obtain from certain of
the Lenders an additional term loan commitment ("Term C Loan") in the maximum
aggregate principal amount of $150.0 million. The Term C Loan facility has a
maturity of nine years.
The Term B and Term C Loans bear 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 B Loan is
4.75% over LIBOR and 3.75% over the base rate of the higher of 0.5% per annum
above the latest federal funds rate or the prime rate. For the revolving credit
facility, which is part of Term B Loan, 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
F-17
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. LONG-TERM DEBT: (CONTINUED)
the base rate. The applicable margin for the Term C Loan is 4.25% over LIBOR and
3.25% 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 Nextel 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 B and C Loans are 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),
(iv) with 50% of the net cash proceeds from the issuance of equity at any time
after the fifth anniversary of the credit facility, and (v) with 100% of net
casualty proceeds, subject to certain exceptions.
The Company's obligations under the Term B and C Loans are secured by a
first-priority perfected lien on all property and assets, tangible and
intangible, of the Company's subsidiaries including a pledge of the capital
stock of all the Company's subsidiaries. The Company and its subsidiaries
guarantee the obligations of OPCO under the Term B and C Loans. 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 Term B and C Loans.
The Term B and C Loans contain covenants and restrictions on the ability of
the Company to engage in certain activities, including but not limited to:
(i) limitations on the incidence 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 Term B and C Loans contain financial covenants requiring
the Company to maintain (i) certain defined ratios of senior debt and total debt
to EBITDA (net loss before interest expense, interest income, depreciation,
amortization and deferred compensation expense) 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 December 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 and September 9, 1999, as
discussed above, for the years subsequent to December 31, 1998, scheduled annual
maturities of long-term debt
F-18
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. LONG-TERM DEBT: (CONTINUED)
outstanding as of December 31, 1999, under existing long-term debt agreements
are as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $ --
2001........................................................ --
2002........................................................ --
2003........................................................ 1,688
2004........................................................ 3,250
Thereafter.................................................. 1,120,062
----------
1,125,000
Less- unamortized discount.................................. (339,516)
----------
$ 785,484
==========
</TABLE>
5. INCOME TAXES:
Deferred tax assets and liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards................................ $14,731 $ 39,138
Intangibles................................................. -- 6,781
Other....................................................... -- 441
Valuation allowance......................................... (8,182) (37,664)
------- --------
6,549 8,696
------- --------
Deferred tax liabilities:
Property, plant and equipment............................... (6,097) (8,696)
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 December 31, 1998
deferred tax assets and liabilities 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. At December 31, 1999, the
Company had approximately $105.8 million of consolidated NOL carryforwards for
federal income tax purposes expiring through 2019, based on actual stand-alone
tax returns filed for 1998 and estimates prepared for December 31, 1999. 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
F-19
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5. INCOME TAXES: (CONTINUED)
would have included anticipated recurring operating losses resulting from the
development of the Company's business. At December 31, 1999, the Company
recorded a valuation allowance of approximately $37.7 million, based on actual
stand-alone results, because available objective evidence creates sufficient
uncertainty regarding the realization of the net deferred tax assets. Such
factors include the anticipated recurring operating losses resulting from the
development of the Company's business.
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.
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 one 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, 1999, 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>
2000........................................................ $12,257
2001........................................................ 12,037
2002........................................................ 11,195
2003........................................................ 8,275
2004........................................................ 4,605
Thereafter.................................................. 8,638
-------
$57,007
=======
</TABLE>
Total rental expense was approximately $9.7 million and $3 million for the
years ended December 31, 1999 and 1998, respectively.
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.
F-20
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
6. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Pursuant to the credit 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 credit facility.
Failure of the Company to obtain such FCC approval prior to January 29, 2000,
would constitute an event of default under the credit 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 WIP.
7. CAPITAL STOCK AND STOCK RIGHTS:
Pursuant to the Restated Certificate of Incorporation, the Company has the
authority to issue 1,020 million shares of capital stock, divided into five
classes as follows: (i) 600 million shares of Common Stock, par value, $.001 per
share; (ii) 150 million shares of Series A Convertible Preferred Stock, par
value $.001 per share ("Series A Preferred Stock"); (iii) 150 million shares of
Series B Redeemable or Convertible Preferred Stock, par value $.001 per share
("Series B Preferred Stock"); (iv) 90 million shares of Series C Convertible
Preferred Stock, stated value $.001 per share ("Series C Preferred Stock"); and
(v) 30 million shares of Series D Convertible Preferred Stock, par value, $.001
per share ("Series D Preferred Stock"). The number of authorized shares
described above will change upon the filing of a Restated Certificate of
Incorporation immediately prior to consummation of the proposed initial public
offering.
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 A Common Stock (other than Class B
Common Stock) are callable at the option of Nextel WIP or may be put to
Nextel WIP at the option of the holders.
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 upon a transfer by Nextel or Nextel WIP to a third party who is not
a holder of Class B 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;
F-21
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
7. CAPITAL STOCK AND STOCK RIGHTS: (CONTINUED)
2. the Series A Preferred Stock;
3. the Series C and Series D Preferred Stock
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 D and Series B Preferred Stock do not have any voting
rights other than 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 and will convert
into one share of Class A common stock upon the closing of the proposed initial
public offering.
SERIES B PREFERRED STOCK--The Series B Preferred Stock is subject to
mandatory redemption by the Company 375 days after February 1, 2009. 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 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 will be convertible into one share of
Class B Common Stock upon the closing of the proposed initial public offering.
F-22
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
7. CAPITAL STOCK AND STOCK RIGHTS: (CONTINUED)
COMMON STOCK RESERVED FOR ISSUANCE
As of the closing of the Capitalization Transactions and as of December 31,
1999, the Company had reserved Common Stock for future issuance as detailed
below.
<TABLE>
<CAPTION>
AS OF AS OF
JANUARY 29, DECEMBER 31,
1999 1999
------------ --------------
<S> <C> <C>
Preferred Stock conversion rights.............. 183,539,826 216,727,272
Warrants outstanding........................... 2,434,260 2,434,260
Employee options outstanding................... 1,572,000 5,049,600
Employee options available for grant........... 10,771,332 8,495,754
----------- -----------
Total.......................................... 198,317,418 232,706,886
=========== ===========
</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 8,774,994 shares of Class A Common Stock to senior
managers of the Company and 758,334 shares of Class A Common Stock to Eagle
River at $.00167 per share. During 1999 an additional 60,000 shares were issued
to senior management of the Company at $.00167 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 Company's
network. As of December 31, 1999 and 1998, 4,689,906 and 2,679,282 shares,
respectively, were considered fully vested, including the 758,334 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 years ended December 31, 1999 and 1998 was approximately
$27.3 million and $0.5 million, respectively.
NONQUALIFIED STOCK OPTION PLAN
In January 1999, the Company adopted the Nonqualified Stock Option Plan (the
"Plan"). Under the Plan, the Board of Directors may grant nonqualified stock
options to eligible employees at a price equal to the fair market value as of
the date of grant. Options have a term of up to 10 years and vest over 3 years
with 1/3 vesting at the end of each year. No more than 30% of the number of
authorized options will be granted in any year and no options under this plan
may be granted after January 1, 2003.
F-23
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
8. STOCK AND EMPLOYEE BENEFIT PLANS: (CONTINUED)
The following table includes all stock options granted by the Company
including options issued outside of the nonqualified stock option plan.
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS AVAILABLE EXERCISE
OUTSTANDING FOR ISSUANCE PRICE
------------ ------------ ---------
<S> <C> <C> <C>
Balance December 31, 1998........... -- -- --
Authorized.......................... -- 13,545,354 --
Granted............................. 5,066,400 (5,066,400) $ 1.78
Exercised........................... -- -- --
Canceled............................ (16,800) 16,800 $ 1.67
--------- ---------- ------
Balance December 31, 1999........... 5,049,600 8,495,754 $ 1.78
========= ==========
</TABLE>
The outstanding stock options all have an exercise price of $1.78 per share,
and average remaining contractual life of approximately nine years.
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 210,000 options for
the Company's unrestricted Class A Common Stock with an exercise price of $1.67
per share which was more than the estimated fair value at that time ($1.25 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 recognizes 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 executive.
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 $175,000 and $50,000 for the years ended December 31, 1999 and
1998. At December 31, 1999 and 1998, the Company had no other pension or post
employment benefit plans.
F-24
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
9. RELATED PARTY TRANSACTIONS:
Prior to January 29, 1999, Nextel WIP and Eagle River funded the operations
of the Company and accordingly all transactions were considered to be related
party transactions. The Company made a return of capital payment to Nextel WIP
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. In order to fund the operations
of the Company prior to the Capitalization Transactions, Nextel WIP 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.
MOTOROLA PURCHASE AGREEMENTS
Pursuant to the equipment purchase agreements between Partners and Motorola,
and prior to the Capitalization Transactions, pursuant to purchase agreements
between Nextel WIP and Motorola, 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 portion of the
Nextel 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 years ended December 31, 1999 and 1998, the Company purchased
approximately $40.7 million and $47.5 million, respectively, of infrastructure
and other equipment, handsets, warranties and services from Motorola.
THE JOINT VENTURE AGREEMENT
The Company, OPCO and Nextel WIP 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--Under the initial and option territory
capitalization transactions, Nextel has transferred SMR licenses to Nextel WIP
License Corp. and Nextel WIP Expansion Corp. (both Delaware corporations and
wholly owned subsidiaries of Nextel WIP). Upon approval of the FCC, Nextel WIP
will transfer the stock of Nextel WIP License Corp. and Nextel WIP Expansion
Corp. to Partners. These licenses will allow the Company to provide wireless
communication service to customers in 46 mid-sized and smaller markets
throughout the United States.
NEXTEL WIP VENDOR RELATIONSHIPS--If requested by the Company, Nextel WIP has
agreed to use reasonable efforts to assist the Company in obtaining access to
many of the goods and services
F-25
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
9. RELATED PARTY TRANSACTIONS: (CONTINUED)
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 WIP APPROVAL RIGHTS--Subject to Nextel WIP maintaining a certain
percentage ownership in Partners, and without the approval of Nextel WIP, 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 WIP has agreed that during the term of the Joint Venture
Agreement, Nextel will not provide digital wireless communication services
within the Company's territory (the "Territory") using 800 MHz frequencies.
Nextel 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 and do not involve the
use of iDEN or other digital transmission technology. In addition, Nextel may
offer digital services in the Territory using non-800 MHz frequencies provided
that these services are not offered under the licensed trademarks and do not
offer interconnection with landline telecommunication providers. 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 Company
territories. Nextel may continue to service national accounts, accounts with
virtual private networks and national indirect distributors within the
Territory.
STANDARD OF CARE--Nextel WIP 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 WIP has agreed to provide
services to the Company that are not provided to subsidiaries of Nextel,
Nextel WIP 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 WIP 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 year ended December 31,
1999, the Company was charged approximately $455,000 for these services.
TRADEMARK LICENSE AGREEMENT--Pursuant to a trademark license agreement (the
"Trademark License Agreement"), Nextel WIP 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,
F-26
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
9. RELATED PARTY TRANSACTIONS: (CONTINUED)
promotion and sale of OPCO services, and the marketing, promotion and sale of
certain equipment to be used by OPCO's customers. OPCO is obligated to pay
royalties to Nextel WIP for its use of the Licensed Marks, beginning on a date
(the "Royalty Commencement Date") that is the latter 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.
Either OPCO or Nextel WIP is allowed to, at any time upon or following the
termination of the Joint Venture Agreement, terminate the Trademark License
Agreement, and Nextel WIP 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 WIP and OPCO, Nextel WIP 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 others 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 year ended December 31, 1999, the
Company earned approximately $8.5 million from Nextel customers roaming on the
Company's system and was charged approximately $1.2 million 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 WIP, 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 WIP relating to the construction,
implementation and operation of the Nextel digital mobile network. Pending FCC
approval of the license transfer, Nextel WIP will represent the Company before
the FCC with respect to any matters relating to the managed frequencies. The
Frequency Management Agreement terminates upon FCC approval of the license
transfer.
MASTER SITE LEASE AGREEMENT--OPCO will lease from Nextel WIP, 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 WIP 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 will pay Nextel WIP monthly
F-27
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
9. RELATED PARTY TRANSACTIONS: (CONTINUED)
rental payments based on the number of telecommunication towers leased by OPCO.
For the year ended December 31, 1999, the Company was charged approximately
$586,000 by Nextel WIP 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 Nextel WIP 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 WIP will be entitled to assign or transfer the Master
Site Lease to any affiliate or any tower aggregator.
TRANSITION SERVICES AGREEMENT--Nextel WIP, through its affiliates, provides
certain services to OPCO for a limited period under a transition services
agreement entered into between OPCO and Nextel WIP (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 WIP,
OPCO pays monthly fees to Nextel WIP based on Nextel WIP's cost. For the year
ended December 31, 1999, the Company was charged approximately $2.7 million for
these services.
The services provided under the Transition Services Agreement have different
variable terms agreed to by OPCO and Nextel WIP. 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 WIP following the expiration
of the Transition Services Agreement, Nextel WIP 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 WIP provides certain telecommunications
switching services to OPCO pursuant to a switch sharing agreement entered into
between Nextel WIP 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 WIP in the
operation of the Nextel digital mobile network, which facilitates OPCO provision
of ESMR service to the Company's subscribers. Under the Switch Sharing
Agreement, OPCO pays Nextel WIP 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 year ended December 31, 1999, the Company was
charged approximately $2.4 million 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, OPCO and the Company, the maximum cumulative, aggregate cash
liability of Nextel and its controlled affiliates (other than Nextel WIP) 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 WIP to enable Nextel WIP to perform its obligations
relating to the Operating Agreements. Among other things, the Limitation on
Liability
F-28
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
9. RELATED PARTY TRANSACTIONS: (CONTINUED)
and Recourse Agreement also provides that Nextel will have no obligation to pay
any sum to the Company if the Company has not 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 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.
10. VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS):
<TABLE>
<CAPTION>
BALANCE
BEGINNING COSTS AND AT END OF
OF PERIOD EXPENSES WRITE-OFFS PERIOD
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year Ended December 31, 1998 Allowance for
doubtful accounts......................... $ -- $ 254 $ -- $ 254
==== ====== ==== ======
Year Ended December 31, 1999 Allowance for
doubtful accounts......................... $254 $1,833 $894 $1,193
==== ====== ==== ======
</TABLE>
11. SUBSEQUENT EVENTS
On January 21, 2000, Nextel transferred all of its interests in the licenses
from the Initial Capitalization Transaction to the Company.
On January 27, 2000, the Company filed a registration statement with the
Securities and Exchange to register an initial public offering of 23.5 million
shares of its Class A common stock.
F-29
<PAGE>
Inside Back Cover
[Four pictures, each depicting an individual using Nextel Partners' products and
services, with a center inset picture depicting a close-up of the telephone sold
to Nextel Partners' subscribers.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares of Class A common stock offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 9
Use of Proceeds................................ 22
Dividend Policy................................ 22
Capitalization................................. 23
Dilution....................................... 24
Selected Consolidated Financial Data........... 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 27
Business....................................... 34
Regulation..................................... 52
Management..................................... 56
Related-Party Transactions..................... 64
Principal Stockholders......................... 74
Description of Certain Indebtedness............ 76
Description of Capital Stock................... 80
Limitation on Directors' Liabilities........... 87
Shares Eligible For Future Sale................ 88
Material U.S. Tax Consequences to Non-U.S.
Holders...................................... 91
Underwriting................................... 94
Legal Matters.................................. 97
Experts........................................ 97
Where You Can Find More Information............ 97
Index to Consolidated Financial Statements..... F-1
</TABLE>
------------------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to an unsold allotment or subscription.
23,500,000 Shares
NEXTEL PARTNERS, INC.
Class A Common Stock
------------------
[LOGO]
------------------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANC ALEX. BROWN
FIRST UNION SECURITIES, INC.
MORGAN STANLEY DEAN WITTER
DLJDIRECT INC.
Representatives of the Underwriters
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions, payable by the registrant in connection
with the sale of the securities being registered. All amounts are estimates
except the Securities and Exchange Commission registration fee, the NASD filing
fee and The Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 135,558
NASD Filing Fee............................................. 30,500
Nasdaq National Market Filing Fee........................... 95,000
Printing Costs.............................................. 200,000
Legal Fees and Expenses..................................... 225,000
Accounting Fees and Expenses................................ 200,000
Blue Sky Fees and Expenses.................................. 10,000
Transfer Agent and Registrar Fees........................... 12,000
Miscellaneous............................................... 91,942
----------
Total..................................................... $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The registrant is a Delaware corporation. In its restated certificate of
incorporation, the registrant has adopted the provisions of Section 102(b)(7) of
the Delaware General Corporation Law (the "Delaware Law"), which enables a
corporation in its original certificate of incorporation or an amendment thereto
to eliminate or limit the personal liability of a director for monetary damages
for breach of the director's fiduciary duty, except (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware Law (providing
for liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions) or (iv) for any transaction from which a director will
personally receive a benefit in money, property or services to which the
director is not legally entitled.
The registrant has also adopted indemnification provisions in its restated
certificate of incorporation and bylaws pursuant to Section 145 of the Delaware
Law, which provides that a corporation may indemnify any persons, including
officers and directors, who are, or are threatened to be made, parties to any
threatened, pending or completed legal action, suit or proceedings, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation), by reason of the fact that such person was an
officer, director, employee or agent of the corporation, or is or was serving at
the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such officer, director, employee or agent acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to criminal proceedings, had no
reasonable cause to believe that his conduct was unlawful. A Delaware
corporation may indemnify officers or directors in an action by or in the right
of the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against expenses (including attorneys' fees) that
such officer or director actually and reasonably incurred.
II-1
<PAGE>
The registrant intends to enter into indemnification agreements with each of
the registrant's officers and directors.
The Underwriting Agreement (Exhibits 1.1(a) and (b) hereto) provides for
indemnification between the underwriters and the registrant from and against
certain liabilities arising in connection with the offering which is the subject
of this registration statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following is a description of all securities that the registrant has
sold within the past three years without registering the securities under the
Securities Act:
On November 20, 1998, the registrant sold 9,533,328 shares of its common
stock to six of its senior executive officers and one accredited investor at a
price of $0.002 per share for an aggregate offering price of $15,888.88. These
issuances were exempt from registration pursuant to Section 4(2) of the
Securities Act.
On January 29, 1999, the registrant sold 13,110,000 shares of Series B
preferred stock, 52,440,000 shares of Series C preferred stock and, 13,110,000
shares of Series D Preferred Stock to Nextel WIP, an accredited investor, in
exchange for certain licenses valued at $133.2 million. This issuance was exempt
from registration pursuant to Rule 506 of Regulation D under Section 4(2) of the
Securities Act.
On January 29, 1999, the registrant also sold to 34 accredited investors
equity securities in a private placement in the amount of $174.8 million. The
equity securities sold consisted of 104,879,826 shares of Series A preferred
stock (valued at $170.9 million) and warrants to purchase 2,434,260 shares of
Class A common stock for an exercise price of $.002 per share (valued at
$3.8 million). This issuance was exempt from registration pursuant to Rule 506
of Regulation D under Section 4(2) of the Securities Act.
On January 29, 1999, the registrant sold to 45 accredited investors
$800 million aggregate principal amount at maturity 14% senior discount notes
due February 1, 2009. This issuance was exempt from registration pursuant to
Rule 506 of Regulation D under Section 4(2) of the Securities Act. In July 1999
these notes were exchanged by the registrant for notes registered under the
Securities Act having the same financial terms and covenants as the notes issued
in January 1999.
On September 9, 1999, the registrant sold 5,330,142 shares of Series C
preferred stock to Nextel WIP having an aggregate implied value of $8.9 million
in exchange for the contribution of certain licenses and an extension of an
operating agreement. The registrant also sold to 38 of its existing accredited
investors shares of Series A and Series C preferred stock for $50 million. The
issuance consisted of 20,954,820 shares of Series A preferred stock (valued at
$37.2 million) and 6,902,484 shares of Series C preferred stock (valued at
$12.8 million). This issuance was exempt from registration pursuant to Rule 506
of Regulation D under Section 4(2) of the Securities Act.
On September 9, 1999, the registrant sold 60,000 shares of Series A common
stock to one of its senior executive officers at a price of $0.002 per share for
an aggregate offering price of $100. This issuance was exempt from registration
pursuant to Section 4(2) of the Securities Act
From November 1998 to December 31, 1999, the registrant granted to
approximately 300 individuals stock options to purchase up to 5,049,600 shares
of its Class A common stock pursuant to its stock option plan, with at a
weighted average exercise price of $1.78 per share. These issuances were exempt
from registration pursuant to Rule 701 under the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
1.1(a)# Form of U.S. Underwriting Agreement.
1.1(b)# Form of International Underwriting Agreement.
3.1* Restated Certificate of Incorporation.
3.1.1 Restated Certificate of Incorporation to be filed with the
Delaware Secretary of State in February 2000.
3.2* Bylaws.
4.1 See Exhibits 3.1 and 3.2 for provisions defining the rights
of the holders of common stock.
5.1# Form of opinion of Summit Law Group, PLLC.
10.1* Purchase Agreement dated January 22, 1999 by and among
Nextel Partners, Donaldson, Lufkin & Jenrette Securities
Corporation, Barclays Capital Inc., First Union Capital
Markets, BNY Capital Markets, Inc. and Nesbitt Burns
Securities Inc.
10.2 Amended and Restated Shareholders' Agreement by and among
Nextel Partners and the stockholders named therein.
10.3* Joint Venture Agreement dated as of January 29, 1999 by and
among Nextel Partners, Nextel Partners Operating Corp. and
Nextel WIP Corp.
10.4* Interim Management Agreement dated as of January 29, 1999 by
and between Nextel Partners Operating Corp. and Nextel WIP
Corp.
10.5* Analog Management Agreement dated as of January 29, 1999 by
and between Nextel Partners Operating Corp. and Nextel WIP
Corp.
10.6* Trademark License Agreement dated as of January 29, 1999 by
and between Nextel Partners Operating Corp. and Nextel WIP
Corp.
10.7* Roaming Agreement dated as of January 29, 1999 by and
between Nextel Partners Operating Corp. and Nextel WIP Corp.
10.8* Switch Sharing Agreement dated as of January 29, 1999 by and
between Nextel Partners Operating Corp. and Nextel WIP Corp.
10.9* Transition Services Agreement dated as of January 29, 1999
by and between Nextel Partners Operating Corp. and Nextel
WIP Corp.
10.10* iDEN Infrastructure Equipment Purchase Agreement dated as of
January 29, 1999 by and between Motorola, Inc. and Nextel
Partners Operating Corp.
10.11* Subscriber Purchase and Distribution Agreement dated as of
January 29, 1999 by and between Motorola, Inc. and Nextel
Partners Operating Corp.
10.12* Agreement Specifying Obligations of, and Limiting Liability
and Recourse to, Nextel dated as of January 29, 1999 by and
among Nextel Partners, Nextel Partners Operating Corp. and
Nextel Communications, Inc.
10.13* Asset and Stock Transfer and Reimbursement Agreement dated
as of January 29, 1999 by and between Nextel Partners
Operating Corp. and Nextel WIP Corp.
10.14* Employment Agreement dated as of January 29, 1999 by and
between Nextel Partners Operating Corp. and John Chapple.
10.15* Employment Agreement dated as of January 29, 1999 by and
between Nextel Partners Operating Corp. and John Thompson.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
10.16* Stock Option Agreement dated as of January 29, 1999 by and
between Nextel Partners and John Thompson.
10.17* Non-Negotiable Promissory Note dated January 29, 1999 by
John Thompson to Nextel Partners.
10.18* 1999 Nonqualified Stock Option Plan of Nextel Partners
10.19* Form of Restricted Stock Purchase Agreement dated as of
November 20, 1998 by and between Nextel Partners and each of
John Chapple, John Thompson, David Thaler, David Aas, Perry
Satterlee and Mark Fanning.
10.20* Form of Amendment No. 1 to Restricted Stock Purchase
Agreement dated as of January 29, 1999 by and between Nextel
Partners and each of John Chapple, John Thompson, David
Thaler, David Aas, Perry Satterlee and Mark Fanning.
10.21* Employment Agreement dated as of January 29, 1999 by and
between Nextel Partners Operating Corp. and David Aas.
10.22* Employment Agreement dated as of January 29, 1999 by and
between Nextel Partners Operating Corp. and Perry Satterlee.
10.23* Employment Agreement dated as of January 29, 1999 by and
between Nextel Partners Operating Corp. and David Thaler.
10.24* Subscription and Contribution Agreement dated as of January
29, 1999 by and among Nextel Partners and the Buyers named
therein.
10.25(1) Indenture dated January 29, 1999 by and between Nextel
Partners and The Bank of New York, as trustee, relating to
the 14% Senior Discount Notes due 2009.
10.26(2) Registration Rights Agreement dated as of January 29, 1999
by and among Nextel Partners, Donaldson, Lufkin & Jenrette
Securities Corporation, Barclays Capital Inc., First Union
Capital Markets, BNY Capital Markets, Inc. and Nesbitt Burns
Securities Inc.
10.27(3) Amended and Restated Credit Agreement dated as of
September 9, 1999 by and among Nextel Partners Operating
Corp., DLJ Capital Funding, Inc., The Bank of New York, Bank
of Montreal and certain other financial institutions.
10.28(4) Borrower Security and Pledge Agreement dated as of January
29, 1999 by and between Nextel Partners Operating Corp. and
Bank of Montreal.
10.29(5) Subsidiary Security and Pledge Agreement dated as of January
29, 1999 by and among the subsidiaries of Nextel Partners
and Bank of Montreal.
10.30(6) Parent Guaranty and Pledge Agreement dated as of January 29,
1999 by and between Nextel Partners and Bank of Montreal.
10.31(7) Subsidiary Guaranty dated as of January 29, 1999 by and
among the subsidiaries of Nextel Partners and Bank of
Montreal.
10.32# Restricted Stock Purchase Agreement dated September 9, 1999
by and between Nextel Partners and Donald J. Manning.
10.33# Agreement in Support of Charter Obligations dated as of
January 29, 1999 by and between Nextel Partners and Nextel
WIP Corp.
10.34# Assignment and Assumption of Lease dated as of August 1,
1999 by and between Nextel WIP Lease Corp. and Eagle River
Investments, LLC.
10.35# Lease Agreement dated May 11, 1999 by and between Nextel WIP
Lease Corp. and McCarran Center, LC.
10.36# First Amendment to Lease dated as of September 10, 1999 by
and between Nextel WIP Lease Corp. and McCarran Center, LC.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
10.37# Lease Agreement dated as of March 25, 1999 by and between
Nextel WIP Lease Corp. and Nesbitt Operating Associates,
L.P.
10.38# Employment Agreement dated as of January 29, 1999 by and
between Nextel Partners Operating Corp. and Mark P. Fanning.
10.39# Letter Agreement dated October 13, 1999 by and among Nextel
WIP Corp., Nextel Partners Operating Corp. and Nextel
Partners, Inc.
10.40# Expansion Territory Management Agreement dated as of
September 9, 1999 by and between Nextel Partners Operating
Corp. and Nextel WIP Corp.
10.41# Expansion Territory Asset Transfer and Reimbursement
Agreement dated as of September 9, 1999 by and between
Nextel Partners Operating Corp. and Nextel WIP Corp.
10.42# Assignment and Security Agreement dated as of September 9,
1999 by Nextel Partners Operating Corp. in favor of Bank of
Montreal.
10.43# First Amendment to Analog Management Agreement dated as of
September 9, 1999 by and between Nextel WIP Corp. and Nextel
Partners Operating Corp.
10.44# Form of Warrant for the Purchase of Shares of Class A Common
Stock of Nextel Partners dated January 29, 1999.
10.45# Employee Stock Purchase Plan.
10.46# Form of Indemnity Agreement.
10.47# Letter Agreement dated October 13, 1999 by and among Nextel
Communications, Inc., Nextel of New York, Inc., Nextel
Communications of the Mid-Atlantic, Inc., Nextel South
Corp., Nextel of Texas, Inc., Nextel West Corp., Nextel of
California, Inc., Tower Parent Corp., SpectraSite
Holdings, Inc., Tower Asset Sub, Inc., Nextel Partners
Operating Corp. and Nextel Partners.
10.48# Supplement No. 1 to iDEN Infrastructure Equipment Purchase
Agreement dated September 1999 by and between Nextel
Partners Operating Corp. and Motorola, Inc.
10.49# Expansion Subscription and Contribution Agreement dated as
of September 9, 1999 by and among Nextel Partners and the
Buyers named therein.
21# Subsidiaries of the registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Summit Law Group, PLLC (included in their opinion
filed as Exhibit 5.1).
24.1 Powers of Attorney (included on signature page to
Registration Statement on Form S-1).
27.1 Financial Data Schedule.
99.1# Consent To Be Named in Registration Statement dated
January 25, 2000 by Steven Dodge.
</TABLE>
- ------------------------
# Previously filed.
* Incorporated by reference to the Exhibit of the same number to Registration
Statement on Form S-4 declared effective July 30, 1999 (File Number
333-78459).
(1) Incorporated by reference to Exhibit 4.1 to Registration Statement on
Form S-4 declared effective July 30, 1999 (File Number 333-78459).
(2) Incorporated by reference to Exhibit 4.2 to Registration Statement on
Form S-4 declared effective July 30, 1999 (File Number 333-78459).
(3) Incorporated by reference to Exhibit 10.2 to the Report on Form 8-K dated
September 9, 1999 (File Number 333-78459).
II-5
<PAGE>
(4) Incorporated by reference to Exhibit 4.4 to Registration Statement on
Form S-4 declared effective July 30, 1999 (File Number 333-78459).
(5) Incorporated by reference to Exhibit 4.5 to Registration Statement on
Form S-4 declared effective July 30, 1999 (File Number 333-78459).
(6) Incorporated by reference to Exhibit 4.6 to Registration Statement on
Form S-4 declared effective July 30, 1999 (File Number 333-78459).
(7) Incorporated by reference to Exhibit 4.7 to Registration Statement on
Form S-4 declared effective July 30, 1999 (File Number 333-78459).
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Kirkland, State of Washington, on the 22nd day of February, 2000.
<TABLE>
<S> <C> <C>
NEXTEL PARTNERS, INC.
BY: *
-----------------------------------------
John Chapple, President and Chief
Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the registration statement has been signed by the following persons in
the capacities indicated below on the 22nd day of February, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
*
------------------------------------------- Chief Executive Officer, President (Principal
John Chapple Executive Officer) and Director
/s/ JOHN D. THOMPSON
------------------------------------------- Chief Financial Officer (Principal Financial
John D. Thompson and Accounting Officer)
*
------------------------------------------- Director
Timothy M. Donahue
*
------------------------------------------- Director
Andrew H. Rush
*
------------------------------------------- Director
Andrew E. Sinwell
*
------------------------------------------- Director
Dennis M. Weibling
------------------------------------------- Director
Steven Dodge
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ JOHN D. THOMPSON
--------------------------------------
John D. Thompson
AS ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
1.1(a)# Form of U.S. Underwriting Agreement.
1.1(b)# Form of International Underwriting Agreement.
3.1* Restated Certificate of Incorporation.
3.1.1 Restated Certificate of Incorporation to be filed with the
Delaware Secretary of State in February 2000.
3.2* Bylaws.
4.1 See Exhibits 3.1 and 3.2 for provisions defining the rights
of the holders of common stock.
5.1# Form of opinion of Summit Law Group, PLLC.
10.1* Purchase Agreement dated January 22, 1999 by and among
Nextel Partners, Donaldson, Lufkin & Jenrette Securities
Corporation, Barclays Capital Inc., First Union Capital
Markets, BNY Capital Markets, Inc. and Nesbitt Burns
Securities Inc.
10.2 Amended and Restated Shareholders' Agreement by and among
Nextel Partners and the stockholders named therein.
10.3* Joint Venture Agreement dated as of January 29, 1999 by and
among Nextel Partners, Nextel Partners Operating Corp. and
Nextel WIP Corp.
10.4* Interim Management Agreement dated as of January 29, 1999 by
and between Nextel Partners Operating Corp. and Nextel WIP
Corp.
10.5* Analog Management Agreement dated as of January 29, 1999 by
and between Nextel Partners Operating Corp. and Nextel WIP
Corp.
10.6* Trademark License Agreement dated as of January 29, 1999 by
and between Nextel Partners Operating Corp. and Nextel WIP
Corp.
10.7* Roaming Agreement dated as of January 29, 1999 by and
between Nextel Partners Operating Corp. and Nextel WIP Corp.
10.8* Switch Sharing Agreement dated as of January 29, 1999 by and
between Nextel Partners Operating Corp. and Nextel WIP Corp.
10.9* Transition Services Agreement dated as of January 29, 1999
by and between Nextel Partners Operating Corp. and Nextel
WIP Corp.
10.10* iDEN Infrastructure Equipment Purchase Agreement dated as of
January 29, 1999 by and between Motorola, Inc. and Nextel
Partners Operating Corp.
10.11* Subscriber Purchase and Distribution Agreement dated as of
January 29, 1999 by and between Motorola, Inc. and Nextel
Partners Operating Corp.
10.12* Agreement Specifying Obligations of, and Limiting Liability
and Recourse to, Nextel dated as of January 29, 1999 by and
among Nextel Partners, Nextel Partners Operating Corp. and
Nextel Communications, Inc.
10.13* Asset and Stock Transfer and Reimbursement Agreement dated
as of January 29, 1999 by and between Nextel Partners
Operating Corp. and Nextel WIP Corp.
10.14* Employment Agreement dated as of January 29, 1999 by and
between Nextel Partners Operating Corp. and John Chapple.
10.15* Employment Agreement dated as of January 29, 1999 by and
between Nextel Partners Operating Corp. and John Thompson.
10.16* Stock Option Agreement dated as of January 29, 1999 by and
between Nextel Partners and John Thompson.
10.17* Non-Negotiable Promissory Note dated January 29, 1999 by
John Thompson to Nextel Partners.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
10.18* 1999 Nonqualified Stock Option Plan of Nextel Partners
10.19* Form of Restricted Stock Purchase Agreement dated as of
November 20, 1998 by and between Nextel Partners and each of
John Chapple, John Thompson, David Thaler, David Aas, Perry
Satterlee and Mark Fanning.
10.20* Form of Amendment No. 1 to Restricted Stock Purchase
Agreement dated as of January 29, 1999 by and between Nextel
Partners and each of John Chapple, John Thompson, David
Thaler, David Aas, Perry Satterlee and Mark Fanning.
10.21* Employment Agreement dated as of January 29, 1999 by and
between Nextel Partners Operating Corp. and David Aas.
10.22* Employment Agreement dated as of January 29, 1999 by and
between Nextel Partners Operating Corp. and Perry Satterlee.
10.23* Employment Agreement dated as of January 29, 1999 by and
between Nextel Partners Operating Corp. and David Thaler.
10.24* Subscription and Contribution Agreement dated as of January
29, 1999 by and among Nextel Partners and the Buyers named
therein.
10.25(1) Indenture dated January 29, 1999 by and between Nextel
Partners and The Bank of New York, as trustee, relating to
the 14% Senior Discount Notes due 2009.
10.26(2) Registration Rights Agreement dated as of January 29, 1999
by and among Nextel Partners, Donaldson, Lufkin & Jenrette
Securities Corporation, Barclays Capital Inc., First Union
Capital Markets, BNY Capital Markets, Inc. and Nesbitt Burns
Securities Inc.
10.27(3) Amended and Restated Credit Agreement dated as of
September 9, 1999 by and among Nextel Partners Operating
Corp., DLJ Capital Funding, Inc., The Bank of New York, Bank
of Montreal and certain other financial institutions.
10.28(4) Borrower Security and Pledge Agreement dated as of January
29, 1999 by and between Nextel Partners Operating Corp. and
Bank of Montreal.
10.29(5) Subsidiary Security and Pledge Agreement dated as of January
29, 1999 by and among the subsidiaries of Nextel Partners
and Bank of Montreal.
10.30(6) Parent Guaranty and Pledge Agreement dated as of January 29,
1999 by and between Nextel Partners and Bank of Montreal.
10.31(7) Subsidiary Guaranty dated as of January 29, 1999 by and
among the subsidiaries of Nextel Partners and Bank of
Montreal.
10.32# Restricted Stock Purchase Agreement dated September 9, 1999
by and between Nextel Partners and Donald J. Manning.
10.33# Agreement in Support of Charter Obligations dated as of
January 29, 1999 by and between Nextel Partners and Nextel
WIP Corp.
10.34# Assignment and Assumption of Lease dated as of August 1,
1999 by and between Nextel WIP Lease Corp. and Eagle River
Investments, LLC.
10.35# Lease Agreement dated May 11, 1999 by and between Nextel WIP
Lease Corp. and McCarran Center, LC.
10.36# First Amendment to Lease dated as of September 10, 1999 by
and between Nextel WIP Lease Corp. and McCarran Center, LC.
10.37# Lease Agreement dated as of March 25, 1999 by and between
Nextel WIP Lease Corp. and Nesbitt Operating Associates,
L.P.
10.38# Employment Agreement dated as of January 29, 1999 by and
between Nextel Partners Operating Corp. and Mark P. Fanning.
10.39# Letter Agreement dated October 13, 1999 by and among Nextel
WIP Corp., Nextel Partners Operating Corp. and Nextel
Partners, Inc.
10.40# Expansion Territory Management Agreement dated as of
September 9, 1999 by and between Nextel Partners Operating
Corp. and Nextel WIP Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
10.41# Expansion Territory Asset Transfer and Reimbursement
Agreement dated as of September 9, 1999 by and between
Nextel Partners Operating Corp. and Nextel WIP Corp.
10.42# Assignment and Security Agreement dated as of September 9,
1999 by Nextel Partners Operating Corp. in favor of Bank of
Montreal.
10.43# First Amendment to Analog Management Agreement dated as of
September 9, 1999 by and between Nextel WIP Corp. and Nextel
Partners Operating Corp.
10.44# Form of Warrant for the Purchase of Shares of Class A Common
Stock of Nextel Partners dated January 29, 1999.
10.45# Employee Stock Purchase Plan.
10.46# Form of Indemnity Agreement.
10.47# Letter Agreement dated October 13, 1999 by and among Nextel
Communications, Inc., Nextel of New York, Inc., Nextel
Communications of the Mid-Atlantic, Inc., Nextel South
Corp., Nextel of Texas, Inc., Nextel West Corp., Nextel of
California, Inc., Tower Parent Corp., SpectraSite
Holdings, Inc., Tower Asset Sub, Inc., Nextel Partners
Operating Corp. and Nextel Partners.
10.48# Supplement No. 1 to iDEN Infrastructure Equipment Purchase
Agreement dated September 1999 by and between Nextel
Partners Operating Corp. and Motorola, Inc.
10.49# Expansion Subscription and Contribution Agreement dated as
of September 9, 1999 by and among Nextel Partners and the
Buyers named therein.
21# Subsidiaries of the registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Summit Law Group, PLLC (included in their opinion
filed as Exhibit 5.1).
24.1 Powers of Attorney (included on signature page to
Registration Statement on Form S-1).
27.1 Financial Data Schedule.
99.1# Consent To Be Named in Registration Statement dated
January 25, 2000 by Steven Dodge.
</TABLE>
- ------------------------
# Previously filed.
* Incorporated by reference to the Exhibit of the same number to Registration
Statement on Form S-4 declared effective July 30, 1999 (File Number
333-78459).
(1) Incorporated by reference to Exhibit 4.1 to Registration Statement on
Form S-4 declared effective July 30, 1999 (File Number 333-78459).
(2) Incorporated by reference to Exhibit 4.2 to Registration Statement on
Form S-4 declared effective July 30, 1999 (File Number 333-78459).
(3) Incorporated by reference to Exhibit 10.2 to Report on Form 8-K dated
September 9, 1999 (File Number 333-78459).
(4) Incorporated by reference to Exhibit 4.4 to Registration Statement on
Form S-4 declared effective July 30, 1999 (File Number 333-78459).
(5) Incorporated by reference to Exhibit 4.5 to Registration Statement on
Form S-4 declared effective July 30, 1999 (File Number 333-78459).
(6) Incorporated by reference to Exhibit 4.6 to Registration Statement on
Form S-4 declared effective July 30, 1999 (File Number 333-78459).
(7) Incorporated by reference to Exhibit 4.7 to Registration Statement on
Form S-4 declared effective July 30, 1999 (File Number 333-78459).
<PAGE>
Exhibit 3.1.1
RESTATED CERTIFICATE OF INCORPORATION
OF NEXTEL PARTNERS, INC.
(Originally incorporated on July 8, 1998
under the name WIP Parent Corp.)
Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Restated Certificate of Incorporation was adopted by the
Corporation's Board of Directors and its stockholders in accordance with Section
228 thereof. This Restated Certificate of Incorporation restates, integrates and
amends the provisions of the Certificate of Incorporation of the Corporation.
ARTICLE I
NAME
The name of the Corporation is Nextel Partners, Inc.
ARTICLE II
REGISTERED OFFICE; REGISTERED AGENT
The address of the registered office of the Corporation in Delaware is
9 East Loockerman Street, Dover, Kent County, Delaware 19901, and the name of
the Corporation's registered agent at such address is National Registered
Agents, Inc.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware (the "DGCL").
ARTICLE IV
AUTHORIZED CAPITAL
4.1. AUTHORIZED CAPITAL. The total authorized number of shares
of all classes of capital stock which the Corporation has authority to issue is
713,110,000 shares (the "Capital Stock"), consisting of:
<PAGE>
(a) 600,000,000 shares of common stock, of which 500,000,000
shares are designated as Class A Common Stock, par value $.001 per share (the
"CLASS A COMMON STOCK"), and 100,000,000 shares are designated as Class B
Convertible Common Stock, par value $.001 per share (the "CLASS B COMMON STOCK,"
and together with the Class A Common Stock, the "COMMON STOCK"); and
(b) 113,110,000 shares of preferred stock, of which 13,110,000
shares are designated as Series B Preferred Stock, par value $.001 per share
(the "SERIES B PREFERRED STOCK," and together with any other series of preferred
stock, the "PREFERRED STOCK").
4.2. ADDITIONAL SERIES OF PREFERRED STOCK, REACQUIRED
SHARES.
(a) Subject to approval by holders of shares of any series or
class of Preferred Stock to the extent such approval is required by its terms,
the Board of Directors of the Corporation (the "BOARD OF DIRECTORS") is hereby
expressly authorized, by resolution or resolutions, to provide, out of the
unissued shares of Preferred Stock, for series of Preferred Stock in addition to
the Series B Preferred Stock. Before any shares of any such Series are issued,
the Board of Directors shall fix, and is hereby expressly empowered to fix, by
resolution or resolutions, the number of shares of Preferred Stock constituting
such series, and the designations, powers, preferences and relative,
participating, optional or other specified rights and the qualifications,
limitations and restrictions thereof.
(b) Any shares of Preferred Stock redeemed or purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors, subject to the conditions
or restrictions on issuance set forth herein.
4.3. DIVIDENDS.
(a) Holders of outstanding shares of Common Stock shall be
entitled to receive dividends, out of funds legally available therefor, when, as
and if declared by the Board of Directors. Dividends shall be paid to such
holders on a pro rata basis based on the number of shares of Common Stock held
by such holders as of the record date set for such dividend payment (the
"DIVIDEND RECORD DATE"). Holders of outstanding shares of Series B Preferred
Stock shall not be entitled to receive dividends on their shares of Series B
Preferred Stock.
(b) Nothing herein contained shall in any way or under any
circumstances be construed or deemed to require the Board of Directors to
declare, or the Corporation to pay or set aside for payment, any dividends on
shares of the Preferred Stock, the Common Stock or any other class of Capital
Stock or series of Preferred Stock at any time.
2
<PAGE>
4.4. VOTING.
(a) Except as set forth in Section 4.4(b) or as otherwise
required by Delaware law, the holders of Class A Common Stock and Class B Common
Stock shall vote together on each matter submitted for a vote of holders of
Common Stock, and not by separate class or series. For purposes of any such vote
each holder of Common Stock shall be entitled to vote that number of shares of
the Common Stock held by such holder as of the record date set for such vote
(the "VOTING RECORD DATE"). Except as set forth in Section 4.4(b), or as
otherwise required by Delaware law, (i) the holders of Series B Preferred Stock
shall not be entitled to vote on any matter submitted to stockholders and (ii)
the shares of Series B Preferred Stock shall not be included for purposes of
determining the number of shares of Capital Stock of the Corporation voting or
entitled to vote on any such matter.
(b) So long as any shares of Series B Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote or,
notwithstanding any contrary provision of the Bylaws of the Corporation, written
consent of holders of at least a majority of the shares of Series B Preferred
Stock then outstanding (or such higher percentage as may be required by Delaware
law), such series voting or consenting, as the case may be, separately as one
class, given in person or by proxy, either in writing or by resolution adopted
at an annual or special meeting, (i) amend, alter or repeal any provision of
this Restated Certificate of Incorporation or the Bylaws (by merger or
otherwise) or of any provision (including the adoption of a new provision
thereof which would result in an alteration or circumvention of the voting and
other rights, preferences or privileges of the holders of such series of
Preferred Stock), or to authorize additional shares of such series of Preferred
Stock, (ii) authorize any Senior Securities, (iii) subject to Article V, merge
or consolidate with or into any Person (A) if the Corporation is the surviving
entity in the merger or consolidation and the specified rights, preferences or
privileges of the holders of such series of Preferred Stock are changed
adversely as a result of such transaction or (B) if the Corporation is not the
surviving entity in the merger or consolidation and the securities of the
surviving entity issued in exchange for the shares of such series of Preferred
Stock have specified rights, preferences and privileges that are not as
favorable as the specified rights, preferences and privileges of such series of
Preferred Stock, or (iv) make any payment on account of, or set apart for
payment any money for a sinking or other similar fund for, the purchase,
redemption or other retirement of, any shares of any class of Capital Stock of
the Corporation, or any options, warrants or other rights exercisable for or
convertible into any such Capital Stock, except (x) for any redemption of the
Series B Preferred Stock pursuant to Section 4.5(c), (y) for repurchases of
Common Stock (and options, warrants or other rights to acquire Common Stock)
from employees or former employees (or consultants) of the Corporation and (z)
to the extent necessary to prevent the loss or secure the renewal or
reinstatement of any license or franchise held by the Corporation or any of its
Subsidiaries from any governmental agency.
4.5. SERIES B PREFERRED STOCK. The Series B Preferred Stock
shall have the following powers, preferences and rights and qualifications,
limitations and restrictions (in addition to the powers, preferences and rights
and qualifications,
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limitations and restrictions applicable to the Series B Preferred Stock
specified elsewhere herein):
(a) RANKING. The Series B Preferred Stock shall, with respect
to rights on liquidation, dissolution or winding-up of the Corporation, (i) rank
senior to the Class A Common Stock, the Class B Common Stock and each other
class of Capital Stock or series of preferred stock of the Corporation hereafter
created the terms of which do not expressly provide that it ranks senior to or
on a parity with the Series B Preferred Stock or which do not specify any rank
relative to the Series B Preferred Stock as to rights on liquidation,
dissolution or winding-up of the Corporation, (ii) rank on a parity with each
class of Capital Stock or series of preferred stock of the Corporation hereafter
created the terms of which expressly provide that it ranks on a parity with the
Series B Preferred Stock as to rights on liquidation, dissolution or winding-up
of the Corporation and (iii) rank junior to each class of Capital Stock or
series of preferred stock of the Corporation hereafter created the terms of
which expressly provide that it ranks senior to the Series B Preferred Stock as
to rights on liquidation, dissolution or winding-up of the Corporation. The
holders of outstanding shares of Series B Preferred Stock shall not be entitled
to receive dividends on their shares of Series B Preferred Stock (other than
paid in connection with the liquidation, dissolution or winding-up of the
Corporation).
(b) LIQUIDATION.
(i) Upon any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, holders of Series B Preferred Stock
then outstanding shall be entitled to be paid, out of the assets of the
Corporation available for distribution to its stockholders, the
Accreted Liquidation Preference to the date fixed for liquidation,
dissolution or winding-up, before any payment shall be made on or any
assets distributed to the holders of shares of any class of Capital
Stock or series of preferred stock of the Corporation, the terms of
which do not expressly provide that it ranks senior to the Series B
Preferred Stock as to distributions upon the liquidation, dissolution
or winding-up of the Corporation.
(ii) If, upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, any amounts payable with
respect to the Series B Preferred Stock and any other class of Capital
Stock or series of preferred stock of the Corporation, the terms of
which expressly provide that it ranks on a parity with the Series B
Preferred Stock as to distributions upon the liquidation, dissolution
or winding-up of the Corporation, are not paid in full, the holders of
the Series B Preferred Stock and any other such class of Capital Stock
or series of preferred stock shall share equally and ratably in any
distribution of assets of the Corporation in proportion to the full
amount of the Accreted Liquidation Preference to which each is
entitled.
(iii) After payment of the full amount of the Accreted
Liquidation Preference to which they are entitled, the holders of
Series B Preferred Stock shall not be entitled to any further
participation in any distribution of assets of the Corporation.
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(iv) Neither the merger, consolidation or sale of all or
substantially all of the assets of the Corporation shall be deemed to
be a liquidation, dissolution or winding-up of the Corporation for
purposes of this Section 4.5(b).
(c) REDEMPTION.
(i) OPTIONAL REDEMPTION. The Series B Preferred Stock may be
redeemed (subject to contractual and other restrictions with respect
thereto existing on the Closing Date, compliance with covenants
contained in the Senior Notes Indenture and the legal availability of
funds therefor) at any time, at the Corporation's option, in whole but
not in part, in the manner provided in paragraph (iii) below, at a
redemption price equal to the amount of the Accreted Liquidation
Preference to the date fixed for redemption.
(ii) MANDATORY REDEMPTION. On the Mandatory Redemption Date,
the Corporation shall redeem from any source of funds legally available
therefor, in the manner provided in paragraph (iii) below, all of the
shares of Series B Preferred Stock then outstanding, at an aggregate
redemption price equal to the Accreted Liquidation Preference thereof.
The redemption price shall be payable in cash.
(iii) PROCEDURES FOR REDEMPTION.
(A) At least 30 days and not more than 60 days prior
to the date fixed for any redemption of the Series B Preferred
Stock, written notice (the "REDEMPTION NOTICE") shall be given
by first-class mail, postage prepaid, to each holder of record
on the record date fixed for such redemption of the Series B
Preferred Stock at such holder's address as the same appears
on the stock register of the Corporation, PROVIDED, that no
failure to give such notice nor any deficiency therein shall
affect the validity of the procedure for the redemption of any
shares of Series B Preferred Stock to be redeemed except as to
any holder to whom the Corporation has failed to give said
notice or whose notice was defective. The Redemption Notice
shall state: (1) the number of shares of Series B Preferred
Stock held, as of the appropriate record date, by the holder
that the Corporation intends to redeem; (2) the date fixed for
redemption (the "REDEMPTION DATE"); (3) the amount of the
redemption price per share of Series B Preferred Stock; (4)
that the holder is to surrender to the Corporation his
certificate or certificates representing the shares of Series
B Preferred Stock to be redeemed at the place or places where
certificates for shares of Series B Preferred Stock are to be
surrendered for redemption; and (5) that the Accreted
Liquidation Preference shall cease to accrue on such
Redemption Date unless the Corporation defaults in the payment
of the redemption price.
(B) Each holder of Series B Preferred Stock shall
surrender the certificate or certificates representing such
shares of Series B Preferred
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Stock to the Corporation, duly endorsed, in the manner and
at the place designated in the Redemption Notice. The full
redemption price for such shares of Series B Preferred Stock
shall be payable to the Person whose name appears on such
certificate or certificates as the owner thereof, and each
surrendered certificate shall be canceled and retired.
(C) Unless the Corporation defaults in the payment in
full of the applicable redemption price, the Accreted
Liquidation Preference shall cease to accrue on the Redemption
Date, and the holders of such redeemed shares shall cease to
have any further rights with respect thereto from and after
the Redemption Date, other than the right to receive the
redemption price, without interest.
4.6. COMMON STOCK. Except as provided in this Section 4.6, in
Sections 5.1(a)(i), 5.1(b)(i), 5.5 or otherwise, the Class A Common Stock and
the Class B Common Stock shall have the same rights and privileges and shall
rank equally, share ratably and be identical in all respects as to all matters.
(a) CLASS A COMMON STOCK RANKING. The Class A Common Stock
shall, with respect to dividend rights, rank on a parity with the Class B Common
Stock and each other class of common stock of the Corporation hereafter created.
The Class A Common Stock shall, with respect to rights on liquidation,
dissolution or winding-up of the Corporation, (i) rank on a parity with the
Class B Common Stock and each other class of common stock of the Corporation
hereafter created and (ii) rank junior to the Series B Preferred Stock and each
other class of Capital Stock or series of preferred stock of the Corporation
hereafter created the terms of which expressly provide that it ranks senior to
the Class A Common Stock or which do not specify any rank relative to the Class
A Common Stock as to rights on liquidation, dissolution or winding-up of the
Corporation.
(b) CLASS B COMMON STOCK RANKING. The Class B Common Stock
shall, with respect to dividend rights, rank on a parity with the Class A Common
Stock and each other class of common stock of the Corporation hereafter created.
The Class B Common Stock shall, with respect to rights on liquidation,
dissolution or winding-up of the Corporation, (i) rank on a parity with the
Class A Common Stock and each other class of common stock of the Corporation
hereafter created and (ii) rank junior to the Series B Preferred Stock and each
other class of Capital Stock or series of preferred stock of the Corporation
hereafter created the terms of which expressly provide that it ranks senior to
the Class B Common Stock or which do not specify any rank relative to the Class
B Common Stock as to rights on liquidation, dissolution or winding-up of the
Corporation.
(c) DIVIDENDS. Holders of Class A Common Stock and Class B
Common Stock shall be entitled to receive such dividends, payable in cash or
otherwise, as may be declared thereon by the Board of Directors from time to
time out of assets or funds of the Corporation legally available therefor,
provided that no dividend may be declared and paid to holders of Class A Common
Stock unless at the same time the Board of Directors shall also declare and pay
to the holders of Class B Common Stock a per share dividend equal to the
dividend declared and paid to holders of Class A Common
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Stock, and vice versa. Common stock dividends declared on the Class A Common
Stock shall be payable in Class A Common Stock, and common stock dividends
declared on Class B Common Stock shall be payable in Class B Common Stock.
(d) VOTING. On all matters upon which stockholders are
entitled or permitted to vote, every holder of Class A Common Stock shall be
entitled to one vote in person or by proxy for each share of Class A Common
Stock standing in such stockholder's name on the transfer books of the
Corporation and every holder of Class B Common Stock shall be entitled to one
vote in person or by proxy for each share of Class B Common Stock standing in
his or its name on the transfer books of the Corporation. Except as set forth in
Section 4.4(a) or as may otherwise be required by law, the holders of Class A
Common Stock and Class B Common Stock shall vote together as a single class.
(e) SUBDIVISIONS AND COMBINATIONS. If the Corporation in any
manner subdivides or combines the outstanding shares of one class of Common
Stock, the outstanding shares of the other class of Common Stock will be
likewise subdivided or combined.
(f) LIQUIDATION OR DISSOLUTION. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation,
holders of Class A Common Stock and holders of Class B Common Stock shall
receive a pro rata distribution of any remaining assets after payment or
provision for liabilities and the liquidation preference on stock, if any.
(g) MERGER AND CONSOLIDATION. In the event of the merger or
consolidation of the Corporation with or into any other entity pursuant to a
transaction in which the outstanding Common Stock of the Corporation is
converted into or exchanged for cash, securities or other property, holders of
Class A Common Stock and holders of Class B Common Stock shall receive the same
kind and amount of consideration per share payable to holders of Common Stock in
connection with such transaction.
4.7. CONVERSION RIGHTS OF COMMON STOCK.
(a) OPTIONAL CONVERSION OF CLASS B COMMON STOCK. Subject to
the procedures set forth herein, each share of Class B Common Stock shall be
convertible into Class A Common Stock, at the option of any Class B Stockholder
concurrently with a sale or other transfer of such shares of Class B Common
Stock to any Person other than a Class B Stockholder, in each case at any time
and from time to time, at the Class A Conversion Rate.
(b) MANDATORY CONVERSION OF CLASS A COMMON STOCK. Subject to
the procedures set forth herein, shares of Class A Common Stock acquired by any
Nextel Shareholder shall immediately and automatically be converted into an
equal number of shares of Class B Common Stock at the Class B Conversion Rate.
(c) PROCEDURES FOR CONVERSION OF CLASS B COMMON STOCK. A
holder of shares of Class B Common Stock desiring to exercise such holder's
option to convert
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pursuant to Section 4.7(a) shall surrender to the Corporation, at its principal
office or such other office or agency maintained by the Corporation for such
purpose, the certificates representing the shares of Class B Common Stock to be
converted, accompanied by a written notice stating that such holder elects to
convert such shares in accordance herewith. If required by the Corporation,
certificates surrendered for conversion shall be endorsed or accompanied by a
written instrument of transfer, in form satisfactory to the Corporation, duly
executed by the registered holder or his or its attorney duly authorized in
writing. As soon as practicable after the surrender of such certificates and
receipt of such notice, the Corporation shall issue to such holder the number of
shares of Class A Common Stock into which such shares of Class B Common Stock
are convertible. All shares of Class A Common Stock delivered upon conversion of
the Class B Common Stock will upon delivery be duly and validly issued, fully
paid and non-assessable, free of all liens and charges and not subject to any
preemptive rights. Certificates representing shares of Class A Common Stock
issued upon conversion shall be delivered to such holder at the address of such
holder as it appears on the records of the transfer agent for the Corporation
(or the records of the Corporation if it serves as its own transfer agent). Such
conversion shall be deemed to have been made at the close of business on the
date of the receipt of such notice and of such surrender of the certificates
representing the shares of Class B Common Stock to be converted, and the rights
of the holder thereof shall cease on such date of receipt and surrender, except
for the right to receive the shares of Class A Common Stock issuable upon
conversion thereof, and payment of any declared but unpaid dividends thereon.
(d) NO CHARGE OR TAX. The issuance and delivery of
certificates for shares of Common Stock upon the conversion of shares of Class B
Common Stock pursuant to this Section 4.7 shall be made without charge to the
holder of shares of Class B Common Stock for any issue or transfer tax, or other
incidental expense in respect of the issuance or delivery of such certificates
or the securities represented thereby, all of which taxes and expenses shall be
paid by the Corporation.
(e) FCC APPROVAL. Notwithstanding anything herein to the
contrary, if FCC or other regulatory approval is required to be obtained prior
to the conversion of shares of Common Stock pursuant to Section 4.7(a) or
4.7(b), the holder thereof may nevertheless elect to convert any or all of such
holder's shares of Common Stock by written notice given to the Corporation in
accordance with Section 4.7(c), or the mandatory conversion may nevertheless
proceed in accordance with Section 4.7(b), as applicable, provided that in any
event such conversion shall not become effective until the close of business on
the date of the receipt of the last of any such approvals and of the surrender
of the certificates representing the shares of Common Stock to be converted, and
the rights of the holder thereof shall continue in full force and effect pending
the receipt of all such approvals.
(f) CERTAIN ADJUSTMENTS. If there occurs any capital
reorganization or any reclassification of the Common Stock, the consolidation or
merger of the Corporation with or into another Person (other than a merger or
consolidation of the Corporation in which the Corporation is the continuing
corporation and which does not result in any reclassification or change of
outstanding shares of the Common Stock) or the sale or
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conveyance of all or substantially all of the assets of the Corporation, then
each share of Class B Common Stock shall thereafter be convertible into the same
kind and amount of securities (including shares of stock) or other assets (or
both) which were issuable or distributable to the holders of outstanding Class A
Common Stock upon such reorganization, reclassification, consolidation, merger,
sale or conveyance, in respect of that number of shares of Class A Common Stock
into which such share of Class B Common Stock might have been converted
immediately prior to such reorganization, reclassification, consolidation,
merger, sale or conveyance; and, in any such case, appropriate adjustments (as
determined in good faith by the Board of Directors, whose determination shall be
conclusive) shall be made to assure that the provisions set forth herein shall
thereafter be applicable, as nearly as reasonably practicable, in relation to
any securities or other assets thereafter deliverable upon conversion of the
Class B Common Stock.
(g) NOTICE OF ADJUSTMENTS. Whenever the securities or other
property deliverable upon the conversion of the Class B Common Stock shall be
adjusted pursuant to the provisions hereof, the Corporation shall promptly give
written notice thereof to each holder of shares of Class B Common Stock at such
holder's address as it appears on the transfer books of the Corporation and
shall forthwith file, at the Corporation's principal executive office and with
any transfer agent or agents for the Class B Common Stock, a certificate, signed
by the President or one of the Vice Presidents of the Corporation, and by its
Chief Financial Officer, Treasurer or one of its Assistant Treasurers,
identifying the securities or other property deliverable per share of Class B
Common Stock (calculated to the nearest cent or to the nearest 1/100 of a share)
and setting forth in reasonable detail the method of calculation and the facts
requiring such adjustment and upon which such calculation is based. Each
adjustment shall remain in effect until a subsequent adjustment is required.
(h) NOTICE OF CERTAIN EVENTS. In case the Corporation shall
propose at any time or from time to time (i) to declare or pay any dividend
payable in stock of any class to the holders of Common Stock in accordance with
Section 4.6(c) or to make any other distribution to the holders of Common Stock,
(ii) to offer to the holders of Common Stock rights or warrants to subscribe for
or to purchase any additional shares of Common Stock or shares of stock of any
class or any other securities, rights or options, (iii) to subdivide, split or
effect any combination or reclassification of its Common Stock, (iv) to effect
any consolidation, merger or sale, transfer or other disposition of all or
substantially all of the property, assets or business of the Corporation which
would, if consummated, adjust the Class A Conversion Rate, the Class B
Conversion Rate or the securities issuable upon conversion of shares of Class B
Common Stock, or (v) to effect the liquidation, dissolution or winding up of the
Corporation, then, in each such case, the Corporation shall mail to each holder
of shares of Class B Common Stock, at such holder's address as it appears on the
transfer books of the Corporation, a written notice of such proposed action,
which shall specify (A) the date on which a record is to be taken for the
purpose of such dividend or distribution of rights or warrants or, if a record
is not to be taken, the date as of which the holders of shares of Common Stock
of record to be entitled to such dividend or distribution of rights or warrants
are to be determined, or (B) the date on which such reclassification,
consolidation, merger, sale, conveyance,
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dissolution, liquidation or winding up is expected to become effective, and such
notice shall be so given as promptly as possible but in any event at least 20
Business Days prior to the applicable record, determination or effective date,
specified in such notice.
(i) RESERVATION OF COMMON STOCK.
(i) The Corporation covenants that it will at all times
reserve and keep available, free from preemptive rights, for issuance
upon the conversion of the shares of Class A Common Stock and Class B
Common Stock the maximum number of its authorized but unissued shares
of Class B Common Stock and Class A Common Stock, respectively, as is
reasonably anticipated to be sufficient to permit the conversion of all
outstanding shares of Class A Common Stock and Class B Common Stock,
and shall take all action required to increase the authorized number of
shares of Class A Common Stock and Class B Common Stock if at any time
there shall be insufficient authorized but unissued shares of Class A
Common Stock and Class B Common Stock to permit such reservation or to
permit the conversion of all outstanding shares of Class A Common Stock
and Class B Common Stock.
(ii) Prior to the delivery of any securities which the
Corporation shall be obligated to deliver upon conversion of the Class
A Common Stock and Class B Common Stock, the Corporation shall comply
with all applicable federal and state laws and regulations which
require action to be taken by the Corporation.
(iii) In connection with the conversion of any shares of Class
A Common Stock and Class B Common Stock, no fractions of shares of
Common Stock shall be issued, but in lieu thereof the Corporation shall
pay a cash adjustment in respect of such fractional interest in an
amount equal to such fractional interest multiplied by the price per
share of Common Stock on the Business Day on which such shares of Class
A Common Stock and Class B Common Stock are deemed to have been
converted.
ARTICLE V
CERTAIN RIGHTS AND OBLIGATIONS OF NWIP
5.1. NWIP CALL RIGHT; PUT RIGHT.
(a) NWIP CALL RIGHT.
(i) On the terms and subject to the conditions hereof, upon
(A) January 29, 2008, (B) the exercise by NWIP of its call right under
Section 7.03 or 7.04(d) of the Shareholders' Agreement or (C)
termination of the Joint Venture Agreement in accordance with Section
12.9D thereof, NWIP shall have the right (the "NWIP Call Right") to
purchase all (but not less than all) of the shares of Class A Common
Stock then outstanding, provided, that if the NWIP
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Call Right pertains to clause (A) above, the Board of Directors (by
majority vote with the NWIP Designee abstaining) will have the right
to postpone the exercise of the NWIP Call Right for 365 days on each
of two occasions and for 180 days on one additional occasion by giving
written notice of such election to NWIP within five Business Days
after delivery of the applicable NWIP Call Notice (or after the
one-year or six-month anniversary of the postponement of the exercise
of the NWIP Call Right, as the case may be, in the event that the NWIP
Call Right is postponed); provided, that NWIP shall not be obligated
to consummate the transaction contemplated by the NWIP Call Right that
has been so postponed, unless NWIP so notifies the stockholders and
the Corporation not later than 90 days following the expiration of the
relevant postponement period.
(ii) To exercise the NWIP Call Right under Section
5.1(a)(i)(A), NWIP must give written notice (the "NWIP Call Notice") by
first-class mail, postage prepaid, to the stockholders and the
Corporation no later than the 90th day following the later of (i)
January 29, 2008, and (ii) if applicable, the relevant postponement
period. Such NWIP Call Right will expire on the later of (x) the 91st
day following January 29, 2008, and (y) if applicable, the 91st day
following the relevant postponement period, if NWIP has not delivered
an NWIP Call Notice by such time. To exercise the NWIP Call Right under
Section 5.1(a)(i)(B), NWIP must give the NWIP Call Notice to the Class
A Stockholders and the Corporation in accordance with the time periods
set forth in the relevant section of the Shareholders' Agreement. The
NWIP Call Right under Section 5.1(a)(i)(C) will automatically be
exercised upon the termination of the Joint Venture Agreement pursuant
to Section 12.9D thereof, and the Class A Stockholders shall thereupon
be obligated to sell their shares of Class A Common Stock in accordance
with either, at NWIP's election, Section 5.3 (an "Article V Purchase")
or Section 5.4 (an "Article V Redemption").
(iii) The purchase price payable for all outstanding shares of
Class A Common Stock purchased pursuant to the exercise of the NWIP
Call Right under Section 5.1(a)(i)(A) or Section 5.1(a)(i)(B) (the
"NWIP Call Price") shall be the portion allocable to the Class A Common
Stock of the Corporation's Fair Market Value determined in accordance
with Section 5.7, provided, that if the exercise of the NWIP Call Right
is pursuant to NWIP's rights under Section 7.03 of the Shareholders'
Agreement, Fair Market Value shall be determined as if neither the
Corporation nor the NDS needed to implement the Technology Change (as
defined in Section 7.03 of the Shareholders' Agreement) and without
diminishing the value of the Corporation due to the fact that the
Technology Change had not been implemented. The purchase price payable
for all outstanding shares of Class A Common Stock purchased pursuant
to the exercise of the NWIP Call Right under Section 5.1(a)(i)(C) shall
be 80% of the portion allocable to the Class A Common Stock of the
Company Equity Value (as defined in the Joint Venture Agreement).
(iv) The NWIP Call Notice shall state: (A) the applicable
event under Section 5.1(a)(i) giving rise to the NWIP Call Right; (B)
the name and address of
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the NWIP Appraiser; and (C) the proposed date on which (or the period
following the determination of Fair Market Value during which) NWIP
will deposit cash or Nextel Shares with the Payment Agent for the
purpose of funding the Article V Purchase or the Article V Redemption.
NWIP's election to exercise the NWIP Call Right shall be irrevocable
upon delivery of the NWIP Call Notice. The Corporation Appraiser shall
be named by the Board of Directors within 20 days of receipt of the
NWIP Call Notice.
(b) PUT RIGHT.
(i) Within 60 days after the occurrence of a Put Event (other
than a Nextel Sale), the Corporation shall notify the Class A
Stockholders of the date and time of a special meeting of the Class A
Stockholders, which date will not be more than 120 days after the date
of the Put Event (or such later date as required by applicable law,
including any requirement to provide the Class A Stockholders with an
effective registration statement relating to the Nextel Shares). Within
five days after the occurrence of a Nextel Sale, the Corporation shall
notify the Class A Stockholders of the occurrence of such Nextel Sale,
and at any time thereafter Class A Stockholders holding 20% or more of
the outstanding Class A Common Stock shall have the right to require
that the Corporation notify the Class A Stockholders of the date and
time of a special meeting of such Class A Stockholders, which date will
not be more than 20 days after the date the Corporation receives such
request (or such later date as required by applicable law, including
any requirement to provide such stockholders with an effective
registration statement relating to Nextel Shares). At such meeting the
Class A Stockholders will have the right (the "Put Right") to require
NWIP to purchase all (but not less than all) of the shares of Class A
Common Stock then outstanding at a price determined in accordance with
clause (iii) below, provided, that if the Put Event is a Nextel Sale,
the Class A Stockholders, by majority vote, may adjourn such meeting
until a date not to exceed 545 days after the Nextel Sale. "Put Event"
means any of the following events:
(A) a Nextel Sale;
(B) the purchase by NWIP of Common Stock in
accordance with its Preemption Right with respect to a
Qualifying DLJ/MDP Demand under Section 5.03 of the
Shareholders' Agreement (a "NWIP Preemption Put");
(C) the exercise of a put right granted by the Board
of Directors to the Class A Stockholders pursuant to Section
7.04 of the Shareholders' Agreement; or
(D) the termination of the Joint Venture Agreement in
accordance with Section 12.9E thereof.
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(ii) If the Class A Stockholders vote to exercise the Put
Right at the meeting held pursuant to clause (i) above, no later than
(A) in the case of a Nextel Sale, 545 days after such Put Event or (B)
in the case of a Put Event other than a Nextel Sale, the 90th day after
the Put Event (or such later date if such meeting is delayed pursuant
to clause (i) above), the Class A Stockholders shall be obligated to
sell their shares of Class A Common Stock to NWIP, and NWIP shall be
obligated to purchase such shares, in accordance with either, at NWIP's
election, Section 5.3 or Section 5.4.
(iii) The purchase price paid by NWIP for the Class A Common
Stock purchased pursuant to this Section 5.1(b) (the "Put Price") shall
be determined as follows:
(A) If the Put Event is a Nextel Sale, the Put Price
will be the portion allocable to the Class A Common Stock of
the Fair Market Value of the Corporation as determined in
accordance with Section 5.7;
(B) If the Put Event is an NWIP Preemption Put, the
Put Price will be the same per share price that was paid by
NWIP to purchase the shares subject to the Qualifying DLJ/MDP
Demand;
(C) If the Put Event is the exercise of put rights
under Section 7.04 of the Shareholders' Agreement, the Put
Price will be the portion allocable to the Class A Common
Stock of the Investment Formula Price; and
(D) If the Put Event is the termination of the Joint
Venture Agreement in accordance with Section 12.9E thereof,
the Put Price will be 120% of the portion allocable to the
Class A Common Stock of the Company Equity Value (as defined
in the Shareholders' Agreement).
(iv) If NWIP is required to purchase all outstanding shares of
Class A Common Stock as set forth in this Section 5.1(b), unvested or
out-of-the-money derivative securities of the Corporation shall be
treated as follows: (A) in the case of an NWIP Preemption Put, all
unvested or out-of-the-money options and warrants issued by the
Corporation that are granted at any time during the period from 30 days
before the Corporation's announcement of its intention to proceed with
a Demand Registration (as defined in the Shareholders' Agreement) until
the date on which the pre-emptive purchase by NWIP is closed, and are
not granted consistently with ordinary past practice of the
Corporation's employee compensation programs or policies, shall be
terminated; (B) all other unvested or out-of-the-money options or
warrants (as appropriate) will be converted to substantially identical
options or warrants to acquire shares of common stock of Nextel on the
same substantive economic terms (based on the per common share price of
the Corporation in the pre-emptive purchase and the per common share
price of Nextel on the pre-emptive purchase date) and other terms as
applied to the Corporation options or warrants and all shares of Common
Stock subject to
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vesting under the Restricted Stock Purchase Agreements; and (C) all
shares of Common Stock issuable upon exercise of options granted under
the 1999 Stock Option Plan, in each case that are beneficially owned
by the Management Stockholders, shall be purchased by NWIP pursuant to
this Section 5.1(b) (it being understood that NWIP's acquisition of
all the outstanding shares of Class A Common Stock pursuant to this
Section 5.1(b) shall constitute a "Change in Control of the Company"
for purposes of the Restricted Stock Purchase Agreements and the 1999
Stock Option Plan).
(v) Upon the consummation of a Section 5.5 Sale, all the Put
Rights shall terminate except for the Put Right with respect to a
Nextel Sale, which right shall not terminate until the one-year
anniversary of the date of the consummation of the Section 5.5 Sale.
5.2.A DELIVERY OF NEXTEL SHARES.
(a) Any payment for Class A Common Stock purchased by NWIP
from the Class A Stockholders pursuant to this Article V may be made, at NWIP's
election, by delivery of listed Nextel common stock (the "Nextel Shares"),
provided, that NWIP delivers such Nextel Shares within 180 days of the date of
the Article V Closing, and provided, further, that in connection with the
delivery of the Nextel Shares, NWIP (and Nextel with respect to Section 5.2A(c))
agrees to comply with the requirements set forth in this Section 5.2A.
Notwithstanding the immediately preceding sentence, if NWIP elects to deliver
Nextel Shares, which election NWIP may change at any time prior to the delivery
of such shares, NWIP will use its reasonable best efforts to deliver Nextel
Shares as promptly as practicable, provided, that (x) if NWIP fails to deliver
the Nextel Shares or cash within 60 days of the date such payment is due, it
shall pay interest on the purchase price at a rate of 10% per annum from the
date such payment is due and (y) if NWIP fails to deliver the Nextel Shares in
accordance with this Section 5.2A, NWIP shall deliver cash no later than the
180th day following the date such payment is due.
(b) NWIP shall not be deemed to have delivered Nextel Shares
or to have discharged its payment obligations hereunder unless, at the time of
delivery of such Nextel Shares, (i) NWIP delivers to the Board of Directors and
the holders of Class A Common Stock an SEC "no-action" letter or an opinion of
counsel reasonably acceptable to the Board of Directors (excluding the NWIP
Designee) that provides that, assuming that the shareholder receiving the Nextel
Shares is not an Affiliate of Nextel, the shares to be received by that
shareholder can be freely sold without complying with the registration
requirements of the Securities Act or (ii) the SEC has declared effective a
registration statement on the appropriate form, Nextel has caused such shares to
be quoted on the NASDAQ National Market and the recipient shall have a
continuous period of 60 days from the date of delivery to sell such shares under
such registration statement.
(c) For purposes of any payment by NWIP in Nextel Shares, the
value of Nextel Shares will be based on the average Closing Price of Nextel
common stock for the ten Trading Days immediately preceding the date of delivery
of the Nextel Shares. If
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NWIP elects to consummate a transaction with Nextel Shares instead of cash, NWIP
will take all reasonable steps requested by the Board of Directors (with any
NWIP Designee abstaining) to permit the purchase to be tax deferred to the
relevant stockholders.
5.2.B ARTICLE V TRANSACTION NOTICE. Within ten days of receipt
by the Corporation of a NWIP Call Notice, written notice (the "Article V
Transaction Notice") shall be given by the Corporation to each Record Holder by
first-class mail, postage prepaid, to the address as shown on the records of the
Corporation, on the Record Date fixed by the Article V Transaction Notice, which
date shall not be less than ten nor more than 20 days following the date of such
notice. The Article V Transaction Notice shall state: (1) the number of shares
of Class A Common Stock held, as of the Record Date, by the Record Holder; (2)
the date proposed for the Article V Transaction (if NWIP elects, in accordance
with Section 5.3, to fund an Article V Purchase, such date shall be the "Article
V Purchase Date," if NWIP elects, in accordance with Section 5.4, to fund an
Article V Redemption, such date shall be the "Article V Redemption Date"); and
(3) that the Record Holder is to surrender to the Payment Agent the certificates
representing such holder's shares of Class A Common Stock to be purchased or
redeemed, as applicable, at the place where certificates for shares of Class A
Common Stock are to be surrendered for purchase or redemption, as applicable.
5.3. ARTICLE V PURCHASE.
(a) On or before the Article V Purchase Date, NWIP shall
notify the Corporation whether NWIP has elected to fund an Article V Purchase or
an Article V Redemption. If NWIP elects to fund an Article V Purchase, NWIP
shall comply with the provisions of this Section 5.3.
(b) On or before the Article V Purchase Date, NWIP shall
deposit the full amount of the Option Price for all of the issued and
outstanding shares of Class A Common Stock with the Payment Agent to pay, on
NWIP's behalf, the Option Price. Cash, if any, and Nextel Shares, if any,
deposited with the Payment Agent shall be delivered in trust for the benefit of
the Record Holders. NWIP shall provide the Payment Agent with irrevocable
instructions to pay the NWIP Call Price or the Put Price, as the case may be,
for the Class A Common Stock to the Record Holders upon surrender of the
certificates representing their shares of Class A Common Stock.
(c) Payment for shares of Class A Common Stock shall be mailed
to each such Record Holder at the address set forth in the Corporation's records
or at the address provided by each such Record Holder or, if no address is set
forth in the Corporation's records for any such Record Holder or provided by
such Record Holder, to such Record Holder at the address of the Corporation, but
only upon receipt from such Record Holder of certificates evidencing shares of
Class A Common Stock. At the request of NWIP, the Corporation shall provide, or
shall cause its transfer agent to provide, to NWIP or to the Payment Agent, free
of charge, a complete list of the Record Holders, including the number of shares
of Class A Common Stock held of record and the address of each Record Holder.
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5.4. ARTICLE V REDEMPTION.
(a) On or before the Article V Redemption Date, NWIP shall
notify the Corporation whether NWIP has elected to fund an Article V Purchase or
an Article V Redemption. If NWIP elects to fund an Article V Redemption, NWIP
shall comply with the provisions of this Section 5.4.
(b) On or before the Article V Redemption Date, NWIP shall
deposit the full amount of the Option Price for all of the issued and
outstanding shares of Class A Common Stock with the Payment Agent to pay, on
NWIP's behalf, the Option Price. Cash, if any, and Nextel Shares, if any,
deposited with the Payment Agent shall be delivered in trust for the benefit of
the Record Holders. Immediately upon the deposit by NWIP of the full amount of
the Option Price for all of the issued and outstanding shares of Class A Common
Stock, then, notwithstanding that any certificate for shares of Class A Common
Stock subject to redemption shall not have been surrendered for cancellation,
all shares of Class A Common Stock shall no longer be deemed to be outstanding
on and after the Article V Redemption Date, and all rights with respect to such
shares shall forthwith cease and terminate at the close of business on the
Article V Redemption Date, except only the right of the Record Holders to
receive the Option Price for all of the issued and outstanding shares of Class A
Common Stock, without interest.
(c) Unless the Corporation defaults in the payment in full of
the applicable redemption price, the holders of such redeemed shares shall cease
to have any further rights with respect thereto from and after the Article V
Redemption Date, other than the right to receive the redemption price, without
interest.
5.5. SPECIAL NEXTEL SALE RIGHTS.
(a) The Class B Stockholders may collectively transfer all,
but not less than all, of their shares of Common Stock to a third party after
January 29, 2011 (a "Section 5.5 Sale"), but only after complying with this
Section 5.5. If the Class B Stockholders wish to consummate a Section 5.5 Sale,
the Class B Stockholders shall provide written notice (a "Section 5.5 Notice")
of such Section 5.5 Sale to the Class A Stockholders and the Corporation not
later than the 45th day prior to the proposed Section 5.5 Sale (or such later
date as required by applicable law). The Section 5.5 Notice shall identify (i)
the third party transferee (the "Section 5.5 Purchaser"), (ii) the number of
shares owned by the Class B Stockholders subject to the Section 5.5 Sale and the
form and amount of consideration per share for which a transfer is proposed to
be made (the "Section 5.5 Sale Price"), and (iii) all other material terms and
conditions of the Section 5.5 Sale. Within five Business Days of the receipt of
such Section 5.5 Notice, the Corporation shall notify all Class A Stockholders
of the date and time of a special meeting of such stockholders, which date will
not be more than 25 days after receipt of the Section 5.5 Notice (or such later
date as required by applicable law). At such meeting all Class A Stockholders
shall be entitled to vote whether to sell their shares to the Section 5.5
Purchaser on the same terms and conditions as the Class B Stockholders. If such
Class A Stockholders elect to sell their shares to the Section 5.5 Purchaser by
the affirmative vote of at least 50% of the then outstanding Class A Common
Stock held by
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all Class A Stockholders, all Class A Stockholders shall be required to
participate in the Section 5.5 Sale on the terms and conditions set forth in the
Section 5.5 Notice and to tender all of their shares as set forth below. Within
five days (or such later date as required by applicable law) following such
vote, the Corporation shall deliver to a representative of the Class B
Stockholders designated in the Section 5.5 Notice a notice indicating whether
the Class A Stockholders will participate in the Section 5.5 Sale. If the Class
A Stockholders elect to participate in the Section 5.5 Sale, then, on or prior
to the date of such sale, they shall deliver to the representative of the Class
B Stockholders certificates representing all shares held by the Class A
Stockholders, duly endorsed, together with all other documents required to be
executed in connection with such Section 5.5 Sale or, if such delivery is not
permitted by applicable law, an unconditional agreement to deliver such shares
pursuant to this Section 5.5(a) at the closing for such Section 5.5 Sale against
delivery to the Class A Stockholders of the consideration therefor. If any Class
A Stockholder should fail to deliver such certificates or, in lieu thereof (as
provided above) an unconditional agreement to deliver such shares at the closing
for such Section 5.5 Sale, to the Class B Stockholders, such Class A Stockholder
have shall have irrevocably agreed that, upon the closing of the Section 5.5
Sale, such shares shall no longer be deemed to be outstanding and all rights of
a shareholder with respect to such shares will terminate except the right to
receive the Section 5.5 Sale Price and the Corporation shall (subject to
reversal under Section 5.5(b)) cause the books and records of the Corporation to
show that such shares are bound by the provisions of this Section 5.5 and that
such shares shall be transferred to the Section 5.5 Purchaser immediately upon
surrender for transfer by the holder thereof or as otherwise provided in this
Section 5.5(a).
(b) If, within 270 days after the Class A Stockholders give
notice of their election to sell their shares pursuant to this Section 5.5, the
Class B Stockholders have not consummated the Section 5.5 Sale, then (i) the
Class A Stockholders shall not be required to sell their shares to the Section
5.5 Purchaser, (ii) the representative of the Class B Stockholders shall return
to each of the Class A Stockholders all certificates representing shares that
such Class A Stockholder delivered for transfer pursuant hereto, together with
any documents in the possession of the Class B Stockholders executed by the
Class A Stockholders in connection with such proposed transfer, and (iii) all of
the provisions of this Restated Certificate of Incorporation or otherwise
applicable at such time with respect to shares owned by the Class A Stockholders
shall again be in effect. No Class B Stockholder (nor any member of the Nextel
Group) shall have any liability or responsibility to the Corporation or any
Class A Stockholder upon or by reason of any termination or failure to
consummate a Section 5.5 Sale except as expressly set forth above in this
Section 5.5.
(c) Promptly after the consummation of the Section 5.5 Sale by
the Section 5.5 Purchaser, the Section 5.5 Purchaser shall give notice thereof
to the Class A Stockholders, and shall remit to each of the Class A Stockholders
who have surrendered their certificates the total consideration for the shares
of Class A Common Stock transferred pursuant hereto.
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(d) The sale obligations of the Class A Stockholders under
this Section 5.5 shall be subject to the following conditions:
(i) upon the consummation of such sale, all of the Class A
Stockholders participating therein will receive the same form and
amount of consideration per share, or if any Class A Stockholders are
given an option as to the form and amount of consideration to be
received, all Class A Stockholders participating therein will be given
the same option;
(ii) no Class A Stockholder shall be obligated to pay any
expenses incurred in connection with a consummated sale; and
(iii) no Class A Stockholder shall be required to provide any
representations, indemnities or other agreements in connection with
such sale.
(e) In connection with any Section 5.5 Sale in which the Class
A Stockholders elect to participate, the Board of Directors shall engage an
investment banking firm of nationally recognized standing to evaluate whether,
as a result of transactions, relationships, and understandings between Nextel
and the Section 5.5 Purchaser, the Section 5.5 Sale Price is not less than the
fair market value of the shares of Class A Common Stock to be sold to the
Section 5.5 Purchaser. If such investment banking firm is unable to render an
opinion to such effect, the Board of Directors shall submit the Section 5.5 Sale
price to arbitration in accordance with Section 12.7 of the Joint Venture
Agreement, and the Section 5.5 Sale Price as determined in such arbitration
shall be binding on NWIP and the Class A Stockholders. If the arbitrators
determine that the Section 5.5 Sale Price is greater than or equal to the fair
market value of the shares of Class A Common Stock, the Class A Stockholders
shall pay the fees and expenses of the arbitrators, otherwise NWIP shall pay
such fees and expenses.
(f) The Class B Stockholders shall not be permitted to
transfer their shares to the Section 5.5 Purchaser unless NWIP shall have
assigned (or caused the assignment) for $1.00 to the Corporation not later than
the closing day of the Section 5.5 Sale any FCC licenses acquired by NWIP (or
its Subsidiaries) pursuant to Section 4.16 of the Joint Venture Agreement.
5.6. GENERALLY APPLICABLE PROVISIONS. Each of the NWIP Call
Right and the Put Right, whether effected as an Article V Purchase or an Article
V Redemption, shall be governed by the following provisions:
(a) TRANSFER OF TITLE. Transfer of title to NWIP of all of the
issued and outstanding shares of Class A Common Stock shall occur automatically
on the Article V Closing Date, subject to the payment by or for the account of
NWIP to the Payment Agent, on or before such date, of the amount owing to the
Record Holders, and thereafter NWIP shall be the sole holder of all issued and
outstanding shares of Class A Common Stock, notwithstanding the failure of any
Class A Stockholders to tender the certificates representing such shares to the
Payment Agent for payment therefor in accordance with Section 5.3(b) or Section
5.4(b). The Corporation shall instruct its transfer agent not to
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accept any shares of Class A Common Stock for transfer on and after the Article
V Closing Date, except for the shares of Class A Common Stock transferred to
NWIP. The Corporation shall take all actions reasonably requested by NWIP to
assist in effectuating the transfer of shares of Class A Common Stock in
accordance with this Section 5.6(a). After the Article V Closing Date, the
Record Holders shall have no rights in connection with such Class A Common Stock
other than the right to receive the Option Price therefor. The Corporation shall
cause its books and records to show that such shares are bound by the provisions
of this Section 5.6(a) and that such shares shall be transferred to NWIP
immediately upon deposit by NWIP with the Payment Agent of the amount owing to
the Record Holders.
(b) LEGEND. Any certificates evidencing shares of Class A
Common Stock issued by the Corporation shall bear a legend in substantially the
following form:
THE CLASS A COMMON STOCK EVIDENCED HEREBY IS SUBJECT TO
PROVISIONS OF THE CORPORATION'S RESTATED CERTIFICATE OF
INCORPORATION THAT ALLOW AN ENTITY TO PURCHASE OR CAUSE THE
CORPORATION TO REDEEM ALL OF THE OUTSTANDING CLASS A COMMON
STOCK OR ALLOW A MAJORITY OF THE CLASS A COMMON STOCKHOLDERS
TO CAUSE SUCH ENTITY TO PURCHASE OR CAUSE THE CORPORATION TO
REDEEM ALL OF THE OUTSTANDING CLASS A COMMON STOCK, IN EACH
SUCH INSTANCE AT A PURCHASE PRICE DETERMINED IN ACCORDANCE
WITH THE PROVISIONS OF THE RESTATED CERTIFICATE OF
INCORPORATION. COPIES OF THE RESTATED CERTIFICATE OF
INCORPORATION ARE AVAILABLE AT THE PRINCIPAL OFFICE OF THE
CORPORATION AND WILL BE FURNISHED WITHOUT COST TO STOCKHOLDERS
ON REQUEST.
Upon the termination or expiration (other than by exercise) of the NWIP
Call Right and the Put Right, the Corporation shall, at the request of any
holder of shares of Class A Common Stock bearing the legend set forth above,
remove such legend from such shares.
(c) NO CONFLICTING ACTION. The Corporation shall not take, or
permit any Person within its control to take, any action inconsistent with the
rights of NWIP and the obligations of the Corporation under this Article V. The
Corporation shall not enter into any agreement, arrangement or understanding,
either oral or written, that is inconsistent with the rights of NWIP under this
Article V.
(d) AMENDMENT. This Article V may not be amended or repealed
without the affirmative vote or, notwithstanding any contrary provisions of the
Bylaws of
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the Corporation, written consent of NWIP and holders of at least a majority of
the shares of Class A Common Stock then outstanding, voting or consenting, as
the case may be, separately as one class, given in person or by proxy, either in
writing or by resolution adopted at an annual or special meeting.
(e) TERMINATION. The NWIP Call Right shall terminate on the
earliest to occur of: (i) the Article V Closing Date; (ii) if the NWIP Call
Right is not exercised, 11:59 p.m., New York time, on the last day on which the
NWIP Call Right may be exercised hereunder; and (iii) the failure by NWIP to
deposit Nextel Shares or cash with the Payment Agent as required by this Article
V. The Corporation shall promptly notify each Record Holder in writing upon the
occurrence of the events described in Section 5.6(e)(iii).
(f) DELAY DUE TO FCC APPROVAL. The closing for the purchase of
the shares of Class A Common Stock pursuant to this Article V (the "Article V
Closing") shall occur as promptly as practicable (but in no event later than 30
days) after receipt by the Class A Stockholders of the NWIP Call Notice or
exercise by the Class A Stockholders of the Put Right, provided that if the
purchase of any Class A Stockholder's shares is subject to prior regulatory
approval or requires the determination of Fair Market Value in accordance with
Section 5.7, the Corporation and such shareholder will use their reasonable best
efforts to obtain the necessary regulatory approvals and the 30-day period shall
be extended until the later of (i) the expiration of five Business Days after
all such regulatory approvals shall have been received and (ii) the
determination of Fair Market Value. At the Article V Closing, each Class A
Stockholder shall deliver to the Corporation or NWIP, as the case may be,
certificates representing such Class A Stockholder's shares, duly endorsed,
together with all other documents required to be executed in connection with the
sale of such shares (it being understood that in no event shall a Class A
Stockholder be obligated to make any representations and warranties, or to
provide any indemnities, with respect to any matters other than title to the
shares held by such Person, such title being free and clear of all liens and
encumbrances, and such Person's authority, authorization and right to enter into
and consummate the sale without contravention of any law or agreement, and
without the need for any third party (not including any governmental or
regulatory) consent or approval). At the Article V Closing or as otherwise
permitted by Section 5.2, NWIP shall deliver to each Class A Stockholder such
Class A Stockholder's portion of the Option Price, allocated pursuant to Section
5.7(g), to the address such Class A Stockholder shall have specified in writing.
If any Class A Stockholder should fail to deliver such certificates to NWIP and
NWIP has deposited such Class A Stockholder's proportionate share of the Option
Price for such certificates with the Payment Agent, such shares shall no longer
be deemed to be outstanding and all rights of such shareholder with respect to
such shares will terminate except the right to receive the Option Price. The
Corporation shall cause the books and records of the Corporation to show that
such Shares are bound by the provisions of this Section 5.6(f) and that such
Shares shall be transferred to the Corporation or NWIP, as the case may be,
immediately upon surrender for transfer by the holder thereof.
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(g) The Option Price payable pursuant to this Article V shall
be allocated to each Class A Stockholder based on such shareholder's Percentage
Ownership.
(h) WARRANTS; OPTIONS; RESTRICTED STOCK.
(i) Vested in-the-money options and warrants will be exercised
for cash prior to the Article V Closing or will be exchanged at such
closing for an amount equal to the Option Price (on a per share basis)
minus the exercise price of such option or warrant multiplied by the
number of shares subject to such options or which can be purchased
pursuant to such warrants.
(ii) Vested in-the-money options and warrants, together with
any shares of Common Stock or options then beneficially owned by the
Management Stockholders that vest upon the consummation of the NWIP
Call Right or Put Right in accordance with the Restricted Stock
Purchase Agreements or the 1999 Stock Option Plan, as the case may be,
will be included both in the determination of Percentage Ownership of
the Corporation and in the allocation of the NWIP Call Price among the
Class A Stockholders (it being understood that NWIP's acquisition of
all the outstanding shares of Class A Common Stock pursuant to this
Article V shall constitute a "Change in Control of the Company" for
purposes of the Restricted Stock Purchase Agreements and the 1999 Stock
Option Plan).
(iii) Any warrants, options or other securities (other than
the Class B Common Stock) exercisable or exchangeable for, or
convertible into, shares of Class A Common Stock that are not
exercised, exchanged or converted by the holders thereof at or prior to
the Article V Closing or otherwise in accordance with Section
5.1(b)(iv) shall be canceled effective upon such closing, and the
Corporation's books and records shall reflect such cancellation.
5.7. FAIR MARKET VALUE CALCULATION. For purposes of this
Article V, Fair Market Value will be determined as follows:
(a) "FAIR MARKET VALUE" of the Corporation means the price
that would be paid for all of the Corporation Capital Stock (excluding the
Series B Preferred Stock and any mandatorily redeemable pay-in-kind
non-convertible securities) by a willing buyer to a willing seller, in an
arm's-length transaction, as if the Corporation were a publicly traded and
non-controlled corporation and the buyer was acquiring all of such
Corporation Capital Stock of the Corporation, and assuming that the
Corporation was being sold in a manner designed to attract all possible
participants to the sales process (including Nextel and its Competitors,
subject to the provisions below) and to maximize stockholder value
(including, if necessary, through a public or private market sale or other
disposition (including tax-free spin-offs, if possible) of businesses
prohibited by legal restrictions to be owned by a particular buyer or class
of buyer), with both buyer and seller in possession of all material facts
concerning the Corporation and its business. In all cases, Fair Market Value
for the Corporation will include a control premium and there will be no
minority or illiquidity discount. Fair Market Value of the Corporation
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shall be determined on the assumption that in a competitive acquisition
market with Nextel and prospective buyers other than Nextel, the Corporation
would be at least as valuable to other prospective buyers as to Nextel. Fair
Market Value shall be determined on the assumption that the Corporation is at
least as valuable as if it were a part (although separable) of Nextel, with
the valuation of the Corporation for purposes of this sentence being derived
from a valuation of Nextel consistent with the first sentence of this
paragraph but without taking into account a control premium for Nextel (it
being understood that a control premium, however, will be applied to the
Corporation). Fair Market Value of the Corporation will not include any
premium solely due to the fact that a competitor of Nextel might be willing
to pay a premium for the Corporation in order to hamper or impede Nextel's
growth or strategy. If the Corporation's stock is publicly traded, Fair
Market Value will take into consideration (i) the trading activity and
history of the Corporation's stock and (ii) the Corporation's most recent
"unaffected" public market stock price. In making the determination of Fair
Market Value of the Corporation, the Corporation will be given the benefit of
the fact that it uses the Nextel brand name, business and technology pursuant
to the Joint Venture Agreement, but there will be no discount or premium
included in any valuation of the Corporation relative to its business as
conducted or reasonably expected to be conducted due to the facts that (v)
the Corporation will not own but Nextel will directly or indirectly lease or
otherwise make available to the Corporation certain of its rights, assets and
services pursuant to the Joint Venture Agreement and the other Collateral
Agreements, or pursuant to any other agreements or arrangements entered into
from time to time between Nextel and/or its Subsidiaries, on the one hand,
and the Corporation and/or its Subsidiaries, on the other hand, (w) in
certain circumstances Nextel will have the right to acquire the Corporation's
FCC licenses, and in such a case, the Corporation will not own, but Nextel
and/or its Subsidiaries will directly or indirectly make available to the
Corporation, the right to manage the use of the frequencies subject to such
licenses, (x) Nextel directly or indirectly has, and may exercise, certain
aspects of control over the Corporation's business and the Corporation, (y)
Nextel directly or indirectly provides certain services and other benefits to
the Corporation on a cost or subsidized basis and (z) there may be few
potential buyers for the Corporation due to any real or perceived control of
the Corporation exercised by Nextel or due to the fact that only Nextel has
an identical technology platform.
(b) Within 20 days after notice is given of the exercise of a
Put Right or an NWIP Call Right, the Board of Directors (by majority vote with
the NWIP Designee abstaining) will select and identify to NWIP a nationally
recognized investment banker or appraiser (the "First Appraiser") and NWIP will
select and identify to the stockholders a nationally recognized investment
banker or appraiser (the "Second Appraiser"). The date when both appraisers have
been identified, is the "Start Date". NWIP, the Corporation and the other
stockholders will (and NWIP will cause Nextel to) cooperate with any appraisers
appointed under this Section and share with each such appraiser all information
relevant to a valuation of the Corporation. Within 30 days of the Start Date,
the First Appraiser and the Second Appraiser will each determine its preliminary
view of the Fair Market Value of the Corporation in accordance with the criteria
set forth in Section 5.7(a), and will consult with each other with respect to
their respective preliminary values. On or prior to the 45th day after the Start
Date, the First
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Appraiser and the Second Appraiser will each render to the stockholders its
written report on the Fair Market Value of the Corporation.
(c) If the higher Fair Market Value determined under Section
5.7(b) (the "High Value") is not more than 110% of the lower Fair Market Value
determined under Section 5.7(b) (the "Low Value"), then the Fair Market Value
will be the average of the High Value and the Low Value. If the High Value is
more than 110% of the Low Value, then, not more than 60 days after the Start
Date, the First Appraiser and the Second Appraiser will together designate
another nationally recognized investment banker or appraiser (the "Third
Appraiser"), who will not be informed of the values determined by the First and
Second Appraisers. The Third Appraiser will make a determination of the Fair
Market Value of the Corporation in accordance with the criteria set forth in
Section 5.7(a) and deliver its written report to the stockholders (the "Third
Value") not more than 30 days after the Third Appraiser is designated. If the
Third Value is within the middle one third of the range of values between the
High Value and the Low Value (the "Mid-Range"), Fair Market Value will be the
Third Value. If the Third Value does not fall within the Mid-Range, the Fair
Market Value will be the average of (x) the Third Value and (y) either (i) the
High Value or (ii) the Low Value, whichever is closest to the Third Value,
provided that the Fair Market Value shall not be less than the Low Value nor
greater than the High Value.
(d) The determination of Fair Market Value under Section
5.7(c) will be final and binding on all Class A Stockholders unless a challenge
(a "Notice of Challenge") by any Class A Stockholder is filed with NWIP pursuant
to this Section 5.7(d) within 20 days of the receipt by the Class A Stockholders
of the final determination under Section 5.7(c). As soon as practicable after
the end of the 20-day period for giving a Notice of Challenge, NWIP will notify
the Corporation and all challengers of the names and addresses of all
challengers. Not more than 10 days after receiving such notice, the challengers
will, in a writing executed by all of them, notify the Corporation and NWIP of
the challenger that has been selected as their representative and who has been
given irrevocable authority to represent the challengers for all proceedings
under this Section 5.8(d) (the "Challenger's Representative"). If the
Corporation and NWIP do not receive the executed writing from the challengers in
the 10-day period, the Corporation will select a challenger by lot to act as the
Challenger's Representative, and will notify NWIP and all the challengers of the
party selected. If the Challenger's Representative is selected by lot, each
challenger will have 5 days to notify the Corporation and NWIP that it elects to
irrevocably abandon the challenge, and to accept its share of the Fair Market
Value as determined under Section 5.8(c). Any challenger that does not abandon
the challenge as described in the preceding sentence, will be deemed to have
irrevocably designated the Challenger's Representative selected by lot as its
agent for purposes of proceedings under this Section 5.8(d). No challenger can
participate in the challenge proceeding except through the Challenger's
Representative. Any Class A Stockholder that does not give notice and join the
challengers will be paid its appropriate share of Fair Market Value (as
determined under Section 5.8(c)), but will be forever barred from asserting any
objection to Fair Market Value as so determined. The procedures provided for in
this Section 5.7(d), including the Challenge Floor Price
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and Challenge Ceiling Price, each as hereinafter defined, shall not be
considered by any appraiser in determining Fair Market Value.
(e) The determination of Fair Market Value under Section
5.7(c) will be final and binding on NWIP unless NWIP believes that the Fair
Market Value determined under Section 5.7(c) does not reflect the true Fair
Market Value or was improperly determined and gives notice to each Class A
Stockholder and to the Corporation within 20 days of receiving the final
determination under Section 5.7(c) that it is initiating a proceeding under this
Section 5.7(e). Not more than 10 days after receiving a notice under the
preceding sentence, the Class A Stockholders will designate, by majority vote, a
representative and notify NWIP and the Corporation in writing of the identity of
such representative (or, if such designation by majority vote does not occur for
any reason, then the Corporation will select a representative by lot and shall
notify NWIP and the other Class A Stockholders in writing of such selection),
who will be irrevocably authorized to be the "Challenger's Representative" to
act as the agent of all Class A Stockholders in the defense of the challenge by
NWIP. No Class A Stockholder will have the right to participate in the defense
except through the Challenger's Representative.
(f) The party or parties bringing the challenge will be
required to demonstrate to a tribunal composed of three persons with expertise
in valuing companies similar to the Corporation, one selected by each of NWIP
and the Board of Directors and the third member of the tribunal selected by the
first two members, that the Fair Market Value determined under Section 5.7(c)
(or the underlying values determined by the Appraisers on which it was based)
was grossly incorrect or fraudulently obtained; and what the correct Fair Market
Value should be. The tribunal determining the challenge is to determine Fair
Market Value and no party will seek to have that determination referred to an
investment banker or appraiser (although they may testify or offer evidence to
the tribunal).
(g) If there is a challenge by NWIP pursuant to Section
5.7(e), regardless of the outcome of the proceeding, the amount to be paid to
the Class A Stockholders may be higher than their proportionate share of the
amount that they would have received if the Fair Market Value were equal to the
Challenge Ceiling Price but will not be less than their proportionate share of
the amount that they would have received if the Fair Market Value were equal to
the Challenge Floor Price. If there is a challenge by the Board of Directors
pursuant to Section 5.7(d), regardless of the outcome of the proceeding, the
amount to be paid to the Class A Stockholders may be less than their
proportionate share of the amount that they would have received if the Fair
Market Value were equal to the Challenge Floor Price but will not be more than
their proportionate share of the amount that they would have received if the
Fair Market Value were equal to the Challenge Ceiling Price.
(h) The following terms have the following meanings:
"CHALLENGE CEILING PRICE" means an amount equal to the sum of those
amounts that for each tranche of capital actually invested in the Corporation
(whether contributed in cash or in kind and, if in kind, valued as set forth in
Section 5.7(i)), would return to
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investors in each tranche (regardless of whether there are any investors from
that tranche who continue as equity holders, and without regard to any purchase
or sale transactions or the price of such transfers among equity holders) an
amount that would represent a 30% internal rate of return on the amount of
capital invested in connection with such tranche, compounded annually from the
date that such capital relating to such tranche was contributed to the date of
the determination.
"CHALLENGE FLOOR PRICE" means an amount equal to the sum of those
amounts that for each tranche of capital actually invested in the Corporation
(whether contributed in cash or in kind and, if in kind, valued as set forth in
the Section 5.7(i)), would return to investors in each tranche (regardless
whether there are any investors from that tranche who continue as equity
holders, and without regard to any purchase or sale transactions or the price of
such transfers among equity holders) an amount that would represent a 10%
internal rate of return on the amount of capital invested in connection with
such tranche, compounded annually from the date that such capital relating to
such tranche was contributed to the date of the determination.
"INVESTMENT FORMULA PRICE" means in respect of each tranche of capital
actually invested in the Corporation (whether contributed in cash or in kind,
but excluding the Series B Preferred Stock), an amount that would represent a
20% internal rate of return on the amount of capital invested in connection with
such tranche (regardless of whether there are any investors from such tranche
who continue as equity holders, and without regard to any purchase or sale
transactions or the price of such transfers among equity holders), compounded
annually from the date that such capital relating to such tranche was
contributed to the date of the purchase.
(i) For purposes of calculating the Investment Formula Price,
Challenge Ceiling Price and Challenge Floor Price, except for frequencies which
will be valued as provided in Exhibit 4.1 to the Joint Venture Agreement, the
Board of Directors shall place a cash equivalent value on each non-cash capital
investment made in the Corporation at the time such investment is made, and such
cash equivalent value shall be used in all calculations of Investment Formula
Price, Challenge Ceiling Price, and Challenge Floor Price.
ARTICLE VI
DEFINITIONS
As used in this Restated Certificate of Incorporation, the following
terms shall have the following meanings:
"ACCRETED LIQUIDATION PREFERENCE" means the initial liquidation
preference of the Series B Preferred Stock equal to $21,850,000, accreting at an
annual rate of 12% (computed on the basis of a 360-day year), compounding
quarterly and accruing daily from the date of issuance of the Series B Preferred
Stock to NWIP up to and including
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the date fixed for the redemption of the Series B Preferred Stock or, if
earlier, the liquidation, dissolution or winding-up of the Corporation.
"AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person, provided that no security holder of the Corporation shall be deemed
an Affiliate of any other security holder solely by reason of any investment in
Corporation nor shall any Person be deemed an Affiliate of the Corporation
solely by reason of veto, approval or similar rights granted to such Person
pursuant to any of the Transaction Documents. For the purposes of this
definition, the term "control" (including with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise.
"APPRAISERS" means the NWIP Appraiser and the Corporation Appraiser.
"ARTICLE V CLOSING DATE" means (a) with respect to an Article V
Redemption pursuant to Section 5.4, the Article V Redemption Date, or (b) with
respect to an Article V Purchase pursuant to Section 5.3, the Article V Purchase
Date.
"ARTICLE V PURCHASE" is defined in Section 5.1(a)(ii).
"ARTICLE V PURCHASE DATE" is defined in Section 5.2.B
"ARTICLE V REDEMPTION" is defined in Section 5.1.(a)(ii)
"ARTICLE V REDEMPTION DATE" is defined in Section 5.2B.
"ARTICLE V TRANSACTION" means either the Article V Purchase or the
Article V Redemption, as elected by NWIP on or prior to the Article V Purchase
Date or the Article V Redemption Date.
"BOARD OF DIRECTORS" is defined in Section 4.2(a).
"BUSINESS DAY" means any day other than a Saturday, Sunday or a day on
which commercial banking institutions are authorized or required by law,
regulation or executive order to be closed in New York, New York.
"CAPITAL STOCK" of the Corporation means any and all shares, whether
common or preferred and whatever class or series designated, of stock of the
Corporation.
"CLASS A COMMON STOCK" is defined in Section 4.1(a).
"CLASS A CONVERSION RATE" means, for each share of Capital Stock of the
Corporation that is convertible at the Class A Conversion Rate, one fully paid
and non-assessable share of Class A Common Stock of the Corporation. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its
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outstanding shares of Class A Common Stock into a greater number of shares, the
Class A Conversion Rate in effect immediately prior to such subdivision shall be
proportionately increased, and, conversely, in case the outstanding shares of
Class A Common Stock shall be combined into a smaller number of shares, the
Class A Conversion Rate in effect immediately prior to such combination shall be
proportionately reduced.
"CLASS A STOCKHOLDER" means a holder of shares of Class A Common Stock.
"CLASS B COMMON STOCK" is defined in Section 4.1(a).
"CLASS B CONVERSION RATE" means, for each share of Capital Stock of the
Corporation that is convertible at the Class B Conversion Rate, one fully paid
and non-assessable share of Class B Common Stock of the Corporation. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Class B Common Stock into a greater number
of shares, the Class B Conversion Rate in effect immediately prior to such
subdivision shall be proportionately increased, and, conversely, in case the
outstanding shares of Class B Common Stock shall be combined into a smaller
number of shares, the Class B Conversion Rate in effect immediately prior to
such combination shall be proportionately reduced.
"CLASS B STOCKHOLDER" means a holder of shares of Class B Common Stock.
"CLOSING PRICE" on any Trading Day, with respect to the per share price
of any shares of Capital Stock of any Person, 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 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
National Market or, if such shares are not listed or admitted to trading on any
national securities exchange or quoted on the NASDAQ National 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 such Person for that purpose. If no such
Closing Price exists with respect to shares of any such class, the value of such
shares shall be determined by the Board of Directors of such Person in good
faith and evidenced by a resolution of such Board of Directors.
"COMMON STOCK" means, collectively, the Class A Common Stock and the
Class B Common Stock.
"COMPETITOR" means (i) a Telecommunications Company, or (ii) any Person
beneficially owning more than 50% of the total common equity or voting stock of
or otherwise controlling a Telecommunications Company, or (iii) any Person the
total
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common equity or voting stock of which is more than 50% beneficially owned or
otherwise controlled by an entity described in clause (i) or (ii).
"CONTROL" of a Person means the power, direct or indirect, (i) to vote
or direct the voting of more than 50% of the outstanding shares of voting stock
of such Person, or (ii) to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
"CORPORATION APPRAISER" means a nationally recognized investment banker
or appraiser selected by the Corporation.
"CORPORATION CAPITAL STOCK" means the Common Stock, the Series B
Preferred Stock, the Warrants (as defined in the Subscription Agreement) and any
other equity security issued by the Corporation.
"DGCL" is defined in Article III.
"DIVIDEND RECORD DATE" is defined in Section 4.3(a).
"FAIR MARKET VALUE" is defined in Section 5.7.
"FCC" means the Federal Communications Commission or similar regulatory
authority established in replacement thereof.
"FIRST APPRAISER" is defined in Section 5.7(b).
"FULLY DILUTED" means, with respect to any class of Capital Stock and
without duplication, all outstanding shares and all shares issuable in respect
of outstanding securities convertible into or exchangeable for Common Stock,
stock appreciation rights or options, warrants and other irrevocable rights to
purchase or subscribe for Common Stock or securities convertible into or
exchangeable for Common Stock; provided that no Person shall be deemed to own
such number of Fully Diluted shares of such class as such Person has the right
to acquire from any Person other than the Corporation.
"HIGH VALUE" is defined in Section 5.7(c).
"INVESTMENT FORMULA PRICE" is defined in Section 5.7(h).
"JOINT VENTURE AGREEMENT" means the Joint Venture Agreement, dated as
of January 29, 1999, among the Corporation, Opco and NWIP, as it may be amended
from time to time.
"LOW VALUE" is defined in Section 5.7(c).
"MANAGEMENT STOCKHOLDERS" means John Chapple, John Thompson, David
Thaler, David Aas, Perry Satterlee, Mark Fanning and Donald Manning.
"MANDATORY REDEMPTION DATE" means February 11, 2010.
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"MID-RANGE" is defined in Section 5.7(c).
"NDS" means, collectively, all of Nextel's Subsidiaries operating all
or any portion of an ESMR Network (as defined in the Joint Venture Agreement) in
the United States.
"NEXTEL" means Nextel Communications, Inc. and its successors and
assigns, including any surviving or transferee Person of a transaction described
in clause (iii) of the definition of Nextel Sale.
"NEXTEL GROUP" means Nextel and its Subsidiaries.
"NEXTEL SALE" is defined in Section 4.01(c) of the Shareholders'
Agreement.
"NEXTEL SHAREHOLDERS" is defined in Section 1.01 of the Shareholders'
Agreement.
"NEXTEL SHARES" is defined in Section 5.2A(a).
"1999 STOCK OPTION PLAN" means the 1999 Nonqualified Stock Option Plan
of the Corporation, as it may be amended from time to time.
"NOTICE OF CHALLENGE" is defined in Section 5.7(d).
"NWIP" means Nextel WIP Corp., a Delaware corporation and a wholly
owned Subsidiary of Nextel.
"NWIP APPRAISER" means a nationally recognized investment banker or
appraiser selected by NWIP and identified to the Corporation in a NWIP Call
Notice.
"NWIP CALL NOTICE" is defined in Section 5.1(a)(ii).
"NWIP CALL PRICE" is defined in Section 5.1(a)(iii).
"NWIP CALL RIGHT" is defined in Section 5.1(a)(i).
"NWIP DESIGNEE" is defined in the Shareholders' Agreement.
"NWIP PREEMPTION PUT" is defined in Section 5.1(b)(i)(B).
"OPCO" means Nextel Partners Operating Corp., a Delaware corporation
and a wholly owned subsidiary of the Corporation.
"OPTION PRICE" means, as applicable, the NWIP Call Price or the Put
Price.
"OTHER ENTITY" is defined in Section 9.1.
"PAYMENT AGENT" means a bank, transfer agent or similar entity
designated by NWIP.
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"PERCENTAGE OWNERSHIP" means, with respect to any stockholder or any
group of shareholders at any time, (i) the number of shares of Fully Diluted
Common Stock that such shareholder or group of stockholders beneficially owns
(and (without duplication) has the right to acquire from the Corporation) at
such time, divided by (ii) the total number of shares of Fully Diluted Common
Stock at such time.
"PERSON" means a corporation (including a business trust), association,
partnership, organization, company, business, individual, joint stock company,
trust, joint venture, limited liability company, government or political
subdivision thereof, or governmental agency, or other entity of any nature
whatsoever.
"PREEMPTION RIGHT" is defined in the Shareholders' Agreement.
"PREFERRED STOCK" is defined in Section 4.1(b).
"PROCEEDING" is defined in Section 9.1.
"PUT EVENT" is defined in Section 5.1(b)(i).
"PUT PRICE" is defined in Section 5.1(b)(iii).
"PUT RIGHT" is defined in Section 5.1(b)(i).
"QUALIFYING DLJ/MDP DEMAND" is defined in the Shareholders' Agreement.
"RECORD DATE" means the date on which record ownership of the Class A
Common Stock is to be determined for purposes of Section 5.3(a) and 5.4(a).
"RECORD HOLDER" means a holder of record of Class A Common Stock.
"REDEMPTION DATE" is defined in Section 4.5(c)(iii)(A).
"REDEMPTION NOTICE" is defined in Section 4.5(c)(iii)(A).
"RESTRICTED STOCK PURCHASE AGREEMENTS" means the Restricted Stock
Purchase Agreements, dated as of November 20, 1998, as amended, between the
Corporation and each of the Management Stockholders, as amended from time to
time.
"SEC" means the Securities and Exchange Commission.
"SECOND APPRAISER" is defined in Section 5.7(b).
"SECTION 5.5 NOTICE" is defined in Section 5.5(a).
"SECTION 5.5 PURCHASER" is defined in Section 5.5(a).
"SECTION 5.5 SALE" is defined in Section 5.5(a).
"SECTION 5.5 SALE PRICE" is defined in Section 5.5(a).
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"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR DISCOUNT NOTES" means the Corporation's 14% Senior Discount
Notes due 2009 in the aggregate principal amount at maturity of $800,000,000.
"SENIOR NOTES INDENTURE" means the Indenture relating to the Senior
Discount Notes.
"SENIOR SECURITY" means, with respect to any series of Preferred Stock,
any class or series of Capital Stock of the Corporation that (i) ranks senior to
such series of Preferred Stock with respect to distributions upon the
liquidation, winding-up and dissolution of the Corporation or (ii) has voting
rights to which the holders of such series of Preferred Stock are not entitled
(other than voting rights granted under applicable law); provided, that any
class or series of Capital Stock that (a) is subject to mandatory redemption by
the Corporation, (b) does not entitle the holder thereof to receive dividends
except by payment of additional shares of such Capital Stock and (c) is not
convertible into or exchangeable for (or convertible into or exchangeable for
into any debt or equity security that is convertible into or exchangeable for)
Common Stock, shall not be considered a "Senior Security" for purposes of this
Restated Certificate of Incorporation.
"SERIES B PREFERRED STOCK" is defined in Section 4.1(b).
"SHAREHOLDERS' AGREEMENT" means the Amended and Restated Shareholders'
Agreement, dated as of February 18, 2000, among the Corporation and the
stockholders named therein, as amended from time to time.
"START DATE" is defined in Section 5.7(b).
"SUBSCRIPTION AGREEMENT" means the Subscription and Contribution
Agreement, dated as of January 29, 1999, among the Corporation and the investors
named therein, as amended from time to time.
"SUBSIDIARY" means, with respect to any Person, any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned by such Person.
"TELECOMMUNICATIONS COMPANY" means any Person whose total
Telecommunications Revenue is at least 10% of its revenues (calculated on a
consolidated basis).
"TELECOMMUNICATIONS REVENUE" of any Person means all revenue derived
from the transmission or exchange of non-video data or voice information by any
form of wire, cable, fiber optic or wireless transmission in geographic markets
where Nextel or the Corporation is either (1) doing business, or (2) holds a
telecommunications license and has publicly stated its intention to do business,
and includes the revenue that the company derives by engaging in the business of
transmitting or exchanging video information to
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the extent that Nextel offers services to transmit or exchange video information
in the relevant geographic area. For purposes of this definition, (A) Nextel
includes any entity in which Nextel holds a 10% or greater direct or indirect
ownership interest that uses an iDEN or similar technology platform compatible
with that used by Nextel and (B) the Corporation includes the Corporation and
all of its Subsidiaries.
"THIRD APPRAISER" is defined in Section 5.7(c).
"THIRD VALUE" is defined in Section 5.7(c).
"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.
"VOTING RECORD DATE" is defined in Section 4.4(a).
ARTICLE VII
PREEMPTIVE RIGHTS
No holder of shares of Common Stock shall be entitled to preemptive or
subscription rights.
ARTICLE VIII
ELECTION OF DIRECTORS
Election of Directors need not be by written ballot.
ARTICLE IX
INDEMNIFICATION
9.1. INDEMNIFICATION. Any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding (a "Proceeding"), whether civil, criminal, administrative,
or investigative (whether or not by or in the right of the Corporation), by
reason of the fact that such person, or a person of whom such person is the
legal representative, is or was a director, officer or incorporator of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer or incorporator of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise (an "Other Entity"),
shall be entitled to be indemnified by the Corporation to the full extent then
permitted by law against expenses (including counsel fees and disbursements),
judgments, fines (including excise taxes assessed on a person with respect to an
employee benefit plan), and amounts paid in settlement incurred by him in
connection with such action, suit, or proceeding. Persons who are not directors
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or officers of the Corporation may be similarly indemnified in respect of
service to the Corporation or to an Other Entity at the request of the
Corporation to the extent the Board of Directors at any time specifies that such
persons are entitled to the benefits of this Article IX.
9.2. ADVANCEMENT OF EXPENSES. The Corporation shall, from time
to time, reimburse or advance to any director or officer (or any other person
the Board of Directors determines is entitled to indemnification hereunder in a
specific instance), the funds necessary for payment of expenses, including
attorneys, fees and disbursements, incurred in connection with any Proceeding,
in advance of the final disposition of such Proceeding; provided, however, that,
if (and only if) required by the DGCL, such expenses incurred by or on behalf of
any director or officer or other person may be paid in advance of the final
disposition of a Proceeding only upon receipt by the Corporation of an
undertaking, by or on behalf of such director or officer (or other person
indemnified hereunder), to repay any such amount so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right of appeal that such director, officer or other person is not
entitled to be indemnified for such expenses.
9.3. RIGHTS NOT EXCLUSIVE. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article IX shall not be deemed exclusive of any other rights to which a
person seeking indemnification or reimbursement or advancement of expenses may
have or hereafter be entitled under any statute, this Restated Certificate of
Incorporation, the Bylaws, any agreement, any vote of stockholders or
disinterested directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office.
9.4. CONTINUING RIGHTS. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article IX shall continue as to a person who has ceased to be a director or
officer (or other person indemnified hereunder), shall inure to the benefit of
the executors, administrators, legatees and distributees of such person, and in
either case, shall inure whether or not the claim asserted is based on matters
which antedate the adoption of this Article IX.
9.5. INSURANCE. The Corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation, as a director, officer, employee or agent of an
Other Entity, against any liability asserted against such person and incurred by
such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation would have the power to indemnify such
person against such liability under the provisions of this Article IX, the
Bylaws or under Section 145 of the DGCL or any other provision of law.
9.6. CONTRACT RIGHTS; NO REPEAL. The provisions of this
Article IX shall be a contract between the Corporation, on the one hand, and
each director and officer who serves in such capacity at any time while this
Article IX is in effect and any
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other person indemnified hereunder, on the other hand, pursuant to which the
Corporation and each such director, officer, or other person intend to be
legally bound. No repeal or modification of this Article IX shall affect any
rights or obligations with respect to any state of facts then or, heretofore or
thereafter brought or threatened based in whole or in part upon any such state
of facts.
9.7. ENFORCEABILITY; BURDEN OF PROOF. The rights to
indemnification and reimbursement or advancement of expenses provided by, or
granted pursuant to, this Article IX shall be enforceable by any person entitled
to such indemnification or reimbursement or advancement of expenses in any court
of competent jurisdiction. The burden of proving that such indemnification or
reimbursement or advancement of expenses is not appropriate shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, its independent legal counsel and its stockholders) to have made a
determination prior to the commencement of such action that such indemnification
or reimbursement or advancement of expenses is proper in the circumstances nor
an actual determination by the Corporation (including its Board of Directors,
its independent legal counsel and its stockholders) that such person is not
entitled to such indemnification or reimbursement or advancement of expenses
shall constitute a defense to the action or create a presumption that such
person is not so entitled. Such a person shall also be indemnified for any
expenses incurred in connection with successfully establishing his or her right
to such indemnification or reimbursement or advancement of expenses, in whole or
in part, in any such proceeding.
9.8. SERVICE AT THE REQUEST OF THE CORPORATION. Any director
or officer of the Corporation serving in any capacity (a) another corporation of
which a majority of the shares entitled to vote in the election of its directors
is held, directly or indirectly, by the Corporation or (b) any employee benefit
plan of the Corporation or any corporation referred to in clause (a) shall be
deemed to be doing so at the request of the Corporation.
ARTICLE X
EXCULPATION
10.1. EXCULPATION. No director of the Corporation shall be
liable to the Corporation or any of its stockholders for monetary damages for
breach of fiduciary duty as a director, provided that this provision does not
eliminate the liability of the director (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL or (iv) for any
transaction from which the director derived an improper personal benefit. For
purposes of the prior sentence, the term "damages" shall, to the extent
permitted by law, include without limitation, any judgment, fine, amount paid in
settlement, penalty, punitive damages, excise or other tax assessed with respect
to an employee benefit plan, or expense of any nature (including, without
limitation, counsel fees and disbursements). Each person who serves as a
director of the Corporation while this Article X is in effect shall be deemed to
be doing so in reliance on the provisions of this Article X, and neither the
amendment or
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repeal of this Article X, nor the adoption of any provision of this Restated
Certificate of Incorporation inconsistent with this Article X, shall apply to or
have any effect on the liability or alleged liability of any director of the
Corporation for, arising out of, based upon, or in connection with any acts or
omissions of such director occurring prior to such amendment, repeal, or
adoption of an inconsistent provision. The provisions of this Article X are
cumulative and shall be in addition to and independent of any and all other
limitations on or eliminations of the liabilities of directors of the
Corporation, as such, whether such limitations or eliminations arise under or
are created by any law, rule, regulation, bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise.
ARTICLE XI
REDEMPTION REQUIRED BY GOVERNMENTAL RULES
Notwithstanding any other provision of this Restated Certificate of
Incorporation to the contrary, outstanding shares of stock of the Corporation
shall always be subject to redemption by the Corporation, by action of the Board
of Directors, if in the judgment of the Board of Directors such action should be
taken, pursuant to Section 151(b) of the GCL or any other applicable provision
of law, to the extent necessary to prevent the loss or secure the reinstatement
of any license or franchise from any governmental agency held by the Corporation
or any of its Subsidiaries to conduct any portion of the business of the
Corporation or any of its subsidiaries, which license or franchise is
conditioned upon some or all of the holders of the Corporation's stock
possessing prescribed qualifications; provided, that the Corporation shall
notify any Disqualified Holder prior to redeeming its shares and, at the request
of any Disqualified Holder, use its commercially reasonable best efforts to
obtain a waiver from such governmental agency. The terms and conditions of such
redemption shall be as follows:
(a) the redemption price of the shares to be redeemed pursuant
to this Article XI shall be equal to the lesser of (i) the Article XI Redemption
Value or (ii) if such stock was purchased by such Disqualified Holder within one
year of the Article XI Redemption Date, such Disqualified Holder's purchase
price for such shares;
(b) the redemption price of such shares may be paid in cash,
Redemption Securities or any combination thereof;
(c) if less than all the shares held by Disqualified Holders
are to be redeemed, the shares held by the DLJ Entities and MDP Entities (in
each case as defined in the Shareholders' Agreement) shall be the last of any
such shares to be redeemed, and the other shares (if any) to be redeemed shall
be selected in such manner as shall be determined by the Board of Directors,
which may include selection first of the most recently purchased shares thereof,
selection by lot or selection in any other manner determined by the Board of
Directors;
35
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(d) at least 30 days' written notice of the Article XI
Redemption Date shall be given to the record holders of the shares selected to
be redeemed (unless waived in writing by any such holder), provided that the
Article XI Redemption Date may be the date on which written notice shall be
given to record holders if the cash or Redemption Securities necessary to effect
the redemption shall have been deposited in trust for the benefit of such record
holders and subject to immediate withdrawal by them upon surrender of the stock
certificates for their shares to be redeemed;
(e) from and after the Article XI Redemption Date, any and all
rights of whatever nature, which may be held by the owners of shares selected
for redemption (including without limitation any rights to vote or participate
in dividends declared on stock of the same class or series as such shares),
shall cease and terminate and they shall thenceforth be entitled only to receive
the cash or Redemption Securities payable upon redemption; and
(f) such other terms and conditions as the Board of Directors
shall determine.
For purposes of this Article XI:
(i) "Disqualified Holder" shall mean any holder of shares of
stock of the Corporation whose holding of such stock, either
individually or when taken together with the holding of shares of stock
of the Corporation by any other holders, may result, in the judgment of
the Board of Directors, in the loss of, or the failure to secure the
reinstatement of, any license or franchise from any governmental agency
hold by the Corporation or any of its Subsidiaries to conduct any
portion of the business of the Corporation or any of its Subsidiaries.
(ii) "Article XI Redemption Value" of a share of the
Corporation's stock of any class or series shall mean the average
Closing Price for such a share for each of the 45 most-recent days on
which shares of stock of such class or series shall have been traded
preceding the day on which notice of redemption shall be given pursuant
to paragraph (d) of this Article XI; provided, however, that if shares
of stock of such class or series are not traded on any securities
exchange or the NASDAQ National Market, "Article XI Redemption Value"
shall be determined by the Board of Directors in good faith.
(iii) "Closing Price" on any day means the reported closing
sales price or, in case no such sale takes place, the average of the
reported closing bid and asked prices on the principal United States
securities exchange on which such stock is listed, or on the NASDAQ
National Market, or if no such prices or quotations are available, the
fair market value on the day in question as determined by the Board of
Directors in good faith.
(iv) "Article XI Redemption Date" shall mean the date fixed by
the Board of Directors for the redemption of any shares of stock of the
Corporation pursuant to this Article XI.
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(v) "Redemption Securities" shall mean any debt or equity
securities of the Corporation, any of its Subsidiaries or any other
corporation, or any combination thereof, having such terms and
conditions as shall be approved by the Board of Directors and which,
together with any cash to be paid as part of the redemption price, in
the opinion of any nationally recognized investment banking firm
selected by the Board of Directors (which may be a firm which provides
other investment banking, brokerage or other services to the
Corporation), has a value, at the time notice of redemption is given
pursuant to paragraph (d) of this Article XI, at least equal to the
price required to be paid pursuant to paragraph (a) of this Article XI
(assuming, in the case of Redemption Securities to be publicly traded,
such Redemption Securities were fully distributed and subject only to
normal trading activity).
37
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* * *
This Restated Certificate of Incorporation shall become effective at
8:59 a.m. EST on February 25, 2000.
* * *
IN WITNESS WHEREOF, the undersigned officer of the Corporation has
executed this Restated Certificate of Incorporation this ___ day of February,
2000.
-------------------------------
Name: Donald J. Manning
Title: Secretary
38
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Exhibit 10.2
AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT
DATED AS OF
February 18, 2000
AMONG
NEXTEL PARTNERS, INC.
AND
THE SHAREHOLDERS NAMED HEREIN
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE 1. DEFINITIONS............................................................................................1
Section 1.01 Definitions..................................................................................1
ARTICLE 2. CORPORATE GOVERNANCE AND MANAGEMENT...................................................................11
Section 2.01 Composition of the Board....................................................................11
Section 2.02 Removal.....................................................................................12
Section 2.03 Vacancies...................................................................................12
Section 2.04 Quorum and Action by the Board..............................................................12
Section 2.05 Notice of Meeting; Participation............................................................13
Section 2.06 Actions Requiring Board or NWIP Approval....................................................13
Section 2.07 Actions Requiring Shareholder Approval......................................................15
Section 2.08 Subsidiary Governance.......................................................................16
Section 2.09 Conflicting Charter or Bylaw Provisions.....................................................16
Section 2.10 Initial Capitalization......................................................................16
Section 2.11 Stock Options...............................................................................16
ARTICLE 3. RESTRICTIONS ON TRANSFER..............................................................................16
Section 3.01 General.....................................................................................16
Section 3.02 Legends.....................................................................................17
Section 3.03 Permitted Transferees.......................................................................17
Section 3.04 General Restrictions on Transfers...........................................................18
Section 3.05 Rights of First Offer.......................................................................19
Section 3.06 Right of First Refusal......................................................................21
Section 3.07 Major Investor Call Right...................................................................23
Section 3.08 Special Nextel Sale Right...................................................................24
ARTICLE 4. PUT AND CALL RIGHTS...................................................................................24
Section 4.01 Non-Nextel Shareholder Put Rights...........................................................24
Section 4.02 Nextel Shareholder Call Right...............................................................27
Section 4.03 Fair Market Value Calculation...............................................................27
Section 4.04 Management Stockholder Tag Along Right......................................................27
Section 4.05 Company Repurchase Rights...................................................................27
ARTICLE 5. ANTI-DILUTION AND PREEMPTION RIGHTS...................................................................27
Section 5.01 Anti-Dilution Rights........................................................................27
Section 5.02 [Intentionally Omitted].....................................................................28
Section 5.03 Special NWIP Preemption of Registration Rights..............................................28
ARTICLE 6. REGISTRATION RIGHTS...................................................................................29
Section 6.01 Demand Registration.........................................................................29
Section 6.02 Company Registration; Incidental Registration...............................................31
Section 6.03 Holdback Agreements.........................................................................33
Section 6.04 Registration Procedures.....................................................................33
Section 6.05 Indemnification by the Company..............................................................36
Section 6.06 Indemnification by Participating Shareholders...............................................37
Section 6.07 Conduct of Indemnification Proceedings......................................................37
Section 6.08 Contribution................................................................................38
Section 6.09 Participation in Public Offering............................................................39
Section 6.10 Cooperation by the Company..................................................................39
Section 6.11 No Transfer of Registration Rights..........................................................39
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Section 6.12 Limitations on Subsequent Registration Rights...............................................39
Section 6.13 Obligation to Register Nextel and NWIP Securities...........................................40
ARTICLE 7. CERTAIN COVENANTS AND AGREEMENTS......................................................................40
Section 7.01 Confidentiality.............................................................................40
Section 7.02 Reports.....................................................................................41
Section 7.03 Subsequent Deployment of Alternative Digital Transmission Technology........................41
Section 7.04 Limitations on Subsequent Changes to Company's Operations...................................42
Section 7.05 Delivery of Nextel Stock....................................................................44
Section 7.06 Senior Management Resignation...............................................................45
ARTICLE 8. MISCELLANEOUS.........................................................................................46
Section 8.01 Entire Agreement............................................................................46
Section 8.02 Binding Effect; Benefit.....................................................................46
Section 8.03 Assignability...............................................................................46
Section 8.04 Amendment; Waiver; Termination..............................................................46
Section 8.05 Notices.....................................................................................46
Section 8.06 Fees and Expenses...........................................................................48
Section 8.07 Headings....................................................................................48
Section 8.08 Counterparts................................................................................48
Section 8.09 Applicable Law..............................................................................48
Section 8.10 Specific Enforcement........................................................................48
Section 8.11 Limitations on Damages......................................................................48
Section 8.12 Consent to Jurisdiction; Expenses...........................................................48
Section 8.13 Severability................................................................................49
Section 8.14 Amendments to Laws..........................................................................49
Section 8.15 Acknowledgment of Limits on Nextel's Liability..............................................49
</TABLE>
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<PAGE>
AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT
AGREEMENT dated as of February 18, 2000 among Nextel Partners, Inc.,
(the "COMPANY"), Nextel WIP Corp. ("NWIP"), DLJ Merchant Banking Partners II,
L.P. ("DLJMB"), Madison Dearborn Capital Partners II, L.P. ("MDP"), Eagle
River Investments, LLC ("EAGLE RIVER"), Motorola, Inc. ("MOTOROLA") and the
shareholders listed on the signature pages hereto. This Amended and Restated
Shareholders' Agreement shall be effective for all purposes upon the closing
of the Initial Public Offering (as defined below) by the Company of its Class
A Common Stock (the "EFFECTIVE DATE"). If the closing of the Initial Public
Offering does not occur, then the Shareholders' Agreement (as defined below)
shall, pursuant to its terms, remain in full force and effect.
W I T N E S S E T H :
WHEREAS, pursuant to the Subscription Agreement (as defined below)
certain parties hereto acquired securities of the Company; and
WHEREAS, the parties hereto entered into a Shareholders' Agreement
to govern certain of their rights, duties and obligations after consummation
of the transactions contemplated by such Subscription Agreement;
WHEREAS, in connection with the Initial Public Offering by the Company
of shares of its Class A Common Stock, the parties to the Shareholders'
Agreement desired to modify their rights, duties and obligations contained in
the Shareholders' Agreement;
The parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
SECTION 1.01 DEFINITIONS. The following terms, as used herein, have the
following meanings:
"AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person, PROVIDED that no security holder of the Company shall be deemed an
Affiliate of any other security holder solely by reason of any investment in the
Company nor shall any Person be deemed an Affiliate of the Company solely by
reason of veto, approval or similar rights granted to such Person pursuant to
any of the Transaction Documents. For the purpose of this definition, the term
"control" (including with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"ASSET TRANSFER AGREEMENT" shall have the meaning set forth in the
Subscription Agreement.
<PAGE>
"BENEFICIALLY OWN" shall have the meaning set forth in Rules 13d-3 or
16a-1 of the Exchange Act.
"BOARD" means the board of directors of the Company.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in New York City are required or authorized by law to
close.
"CLOSING" means the Closing Date (as defined in the Subscription
Agreement).
"CO-INVESTOR" means each Shareholder other than the Strategic
Investors, the DLJ Entities, the MDP Entities and the Management Shareholders.
"COMPANY CAPITAL STOCK" means the Company Common Stock, the Convertible
Preferred Stock, the Series B Preferred (as defined in the Subscription
Agreement), the Warrants (as defined in the Subscription Agreement) and any
other equity security issued by the Company.
"COMPANY COMMON STOCK" shall mean authorized Common Stock, par value
$.001 per share, of the Company.
"CONVERTIBLE PREFERRED STOCK" means the Series A Preferred, Series C
Preferred and Series D Preferred, each as defined in the Subscription Agreement.
"DLJ" means Donaldson, Lufkin & Jenrette, Inc.
"DLJ FUNDS" means DLJMB, DLJ Offshore Partners II, C.V., DLJ
Diversified Partners, L.P., DLJMB Funding II, Inc., DLJ Merchant Banking
Partners II - A, L.P., DLJ Diversified Partners - A, L.P., DLJ Millennium
Partners, L.P., DLJ Millennium Partners - A, L.P., UK Investment Plan 1997
Partners, DLJ EAB Partners, L.P., DLJ ESC II L.P., DLJ First ESC L.P., DLJ Fund
Investment Partners II, L.P., DLJ Private Equity Partners Fund, L.P., and DLJ
Private Equity Employee Partners Fund, L.P.
"DLJ ENTITIES" means the DLJ Funds and, to the extent such entities
shall have transferred any of their Shares to Permitted Transferees, shall mean
the DLJ Funds and the Permitted Transferees of the DLJ Funds, taken together,
and any right or action that may be exercised or taken at the election of the
DLJ Funds may be exercised or taken at the election of the DLJ Funds and such
Permitted Transferees.
"DLJMB TRIGGER EVENT" means the transfer of Equity Securities by the
DLJ Entities so that the Equity Securities beneficially owned by the DLJ
Entities, in the aggregate, is less than 80% of the Initial Ownership of the DLJ
Entities.
"EQUITY SECURITIES" means the Company Common Stock, the Warrants (on a
Fully Diluted basis) and the Convertible Preferred Stock.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
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<PAGE>
"FCC" means the Federal Communications Commission or similar regulatory
authority established in replacement thereof.
"FCC CHANGE OF CONTROL" means the granting or withholding of any
rights, powers or obligations, that either individually or in combination, would
require the approval of the FCC pursuant to Section 310(d) of the Communications
Act of 1934, as amended, or any of the FCC Rules or policies implementing
Section 310(d).
"FCC RULES" means the statutes, rules and regulations administered by
the FCC.
"FULLY DILUTED" means, with respect to any class of Company Capital
Stock and without duplication, all outstanding shares and all shares issuable in
respect of outstanding securities convertible into or exchangeable for Company
Common Stock, stock appreciation rights or options, warrants and other
irrevocable rights to purchase or subscribe for Company Common Stock or
securities convertible into or exchangeable for Company Common Stock; PROVIDED
that no Person shall be deemed to own such number of Fully Diluted shares of
such class as such Person has the right to acquire from any Person other than
the Company.
"INITIAL OWNERSHIP" means, with respect to any Shareholder, the number
of shares of Equity Securities beneficially owned (and (without duplication)
which such Persons have the right to acquire from the Company) as of January 29,
1999, provided that in the case of the DLJ Entities and the MDP Entities,
Initial Ownership means the number of shares of Equity Securities beneficially
owned (and (without duplication) which such persons have the right to acquire
from the Company) as of the Effective Date, giving effect to this Agreement, in
each case, taking into account any stock split, stock dividend, reverse stock
split or similar event occurring after January 29, 1999.
"INITIAL PUBLIC OFFERING" means the initial Public Offering.
"INITIAL REQUIRED BUILD" means the completion of the Build Out of all
Initial Sections (as defined in the Joint Venture Agreement) assigned to the
first or second Build Year (as defined in the Joint Venture Agreement), and of
any Option Sections (as defined in the Joint Venture Agreement) assigned to the
first or second Build Year that are included in the Territory (as defined in the
Joint Venture Agreement) through the Company's election under Section 6.2B of
the Joint Venture Agreement, but excluding any such Option Sections that are
included in the Territory as a result of the Company's response to a notice
given pursuant to Section 6.2C of the Joint Venture Agreement.
"JOINT VENTURE AGREEMENT" means that certain Joint Venture Agreement,
dated as of January 29, 1999, by and among the Company, Opco and NWIP, as it may
be amended from time to time.
"LICENSE CO." means Nextel WIP License Co., a Delaware corporation,
which on the date hereof is a wholly-owned Subsidiary of NWIP and which, upon
receipt of the requisite FCC approval, will automatically become a wholly-owned
Subsidiary of the Company.
3
<PAGE>
"MANAGEMENT AGREEMENT" means that certain interim Management Agreement,
dated as of January 29, 1999, by and among the Company, Opco, License Co. and
NWIP, as it may be amended from time to time.
"MANAGEMENT SHAREHOLDERS" means John Chapple, John Thompson, David
Thaler, David Aas, Perry Satterlee, and Mark Fanning and their Permitted
Transferees.
"MDP ENTITIES" means MDP and, to the extent such entity shall have
transferred any of its Shares to Permitted Transferees, shall mean MDP and the
Permitted Transferees of MDP, taken together, and any right or action that may
be exercised or taken at the election of MDP may be exercised or taken at the
election of MDP and such Permitted Transferees.
"MDP TRIGGER EVENT" means the transfer of Equity Securities by the MDP
Entities so that the Equity Securities beneficially owned by the MDP Entities,
in the aggregate, is less than 80% of the Initial Ownership of the MDP Entities.
"NDS" means, individually, a Nextel Subsidiary operating all or any
portion of an ESMR Network (as defined in the Joint Venture Agreement) in the
United States and "THE NDS" means, collectively, all of Nextel's Subsidiaries
operating all or any portion of an ESMR Network in the United States.
"NEXTEL" means Nextel Communications, Inc. and its successors and
assigns, including any surviving or transferee Person of a transaction described
in clause (iii) of the definition of Nextel Sale.
"NEXTEL AGREEMENT" means that certain Agreement Specifying Obligations
of, and Limiting Liability and Recourse to Nextel, dated as of January 29, 1999,
by and among Nextel, the Company, and Opco.
"NEXTEL SHAREHOLDERS" means (i) NWIP and its Permitted Transferees,
(ii) Nextel and its Subsidiaries and (iii) any person or group described in
clause (i) of the definition of Nextel Sale and any controlled Affiliate
thereof.
"1999 STOCK OPTION PLAN" means the Nextel Partners, Inc. 1999
Nonqualified Stock Option Plan as in effect on January 29, 1999.
"NON-NEXTEL SHAREHOLDERS" means any Shareholder other than a Nextel
Shareholder.
"OPCO" means Nextel Partners Operating Corp., a wholly owned subsidiary
of the Company.
"PERCENTAGE OWNERSHIP" means, with respect to any Shareholder or any
group of Shareholders at any time, (i) the number of shares of Fully Diluted
Company Common Stock that such Shareholder or group of Shareholders beneficially
owns (and (without duplication) has the right to acquire from the Company) at
such time, divided by (ii) the total number of shares of Fully Diluted Company
Common Stock at such time.
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<PAGE>
"PERMITTED TRANSFEREE" means (i) in the case of a Shareholder other
than a Management Shareholder, NWIP, Motorola, Eagle River, a DLJ Entity or an
MDP Entity (a) any Affiliate of such Shareholder (collectively, "SHAREHOLDER
AFFILIATES"), (b) any general partner, limited partner, member, or shareholder
of such Shareholder or a Shareholder Affiliate that receives Shares in a bona
fide distribution pursuant to the terms of the transferor's organizational
documents (so long as such documents are not amended for the purpose of
permitting such a transfer), and any employee, officer or director of such
Shareholder or a Shareholder Affiliate, or any spouse, lineal descendant
(whether natural or adopted), sibling, parent, heir, executor, administrator,
testamentary trustee, legatee or beneficiary of any of the foregoing Persons
described in this clause (b) (collectively, "SHAREHOLDER ASSOCIATES") and (c)
any trust, the beneficiaries of which, or any corporation, limited liability
company or partnership, the stockholders, members or general or limited partner
of which include only such Shareholder, such Shareholder Affiliates or
Shareholder Associates;
(ii) in the case of a Management Shareholder (a) a spouse or lineal
descendant (whether natural or adopted), sibling, parent, heir, executor,
administrator, testamentary trustee, legatee or beneficiary of any of such
Management Shareholder, (b) any trust, the primary beneficiaries of which, or
any corporation, limited liability company or partnership, the stockholders,
members or general or limited partners of which include only the Persons named
in clause (a) or (c) any charitable remainder trust;
(iii) in the case of any DLJ Entity (a) any other DLJ Entity, (b) any
general or limited partner of any such entity (a "DLJ PARTNER"), and any
corporation, partnership, Affiliated Employee Benefit Trust or other entity
which is an Affiliate of any DLJ Partner (collectively, the "DLJ AFFILIATES"),
(c) any managing director, general partner, director, limited partner, officer
or employee of such DLJ Entity or a DLJ Affiliate, or the heirs, executors,
administrators, testamentary trustees, legatees or beneficiaries of any of the
foregoing Persons referred to in this clause (c) (collectively, "DLJ
ASSOCIATES"), (d) any trust, the beneficiaries of which, or any corporation,
limited liability company or partnership, the stockholders, members or general
or limited partners of which, include only such DLJ Entity, DLJ Affiliates, DLJ
Associates, their spouses or their lineal descendants (whether natural or
adopted) and (e) Reed Hundt, in an amount not to exceed $100,000 of Convertible
Preferred Stock, PROVIDED that any DLJ Partner, DLJ Affiliate, DLJ Associate, or
any Person described in clause (d) shall be deemed a Permitted Transferee only
if (x) a DLJ Entity is required to transfer Shares to such Person pursuant to
the terms of such DLJ Entity's organizational documents and (y) since January
29, 1999, such organizational documents have not been amended specifically to
permit a transfer of Shares to such Person under this Agreement. For purposes of
this definition, "Affiliated Employee Benefit Trust" means any trust that is a
successor to the assets held by a trust established under an employee benefit
plan subject to ERISA or any other trust established directly or indirectly
under such plan or any other such plan having the same sponsor;
(iv) in the case of any MDP Entity, (a) any other MDP Entity, (b) any
general or limited partner of any such entity (an "MDP PARTNER"), and any
corporation, partnership, Affiliated Employee Benefit Trust or other entity
which is an Affiliate of any MDP Partner (collectively, the "MDP AFFILIATES"),
(c) any managing director, general partner, director, limited partner, officer
or employee of such MDP Entity or an MDP Affiliate, or the heirs, executors,
administrators, testamentary trustees, legatees or beneficiaries of any of the
foregoing Persons
5
<PAGE>
referred to in this clause (c) (collectively, "MDP ASSOCIATES"), and (d) any
trust, the beneficiaries of which, or any corporation, limited liability company
or partnership, the stockholders, members or general or limited partners of
which, include only such MDP Entity, MDP Affiliates, MDP Associates, their
spouses or their lineal descendants (whether natural or adopted);
(v) in the case of NWIP, any wholly-owned Subsidiary of Nextel for so
long as it remains a wholly-owned Subsidiary of Nextel;
(vi) in the case of Motorola, any controlled Affiliate who is not a
Competitor for so long as it remains a controlled Affiliate of Motorola; or
(vii) in the case of Eagle River, (a) Craig O. McCaw, (b) any Person or
Persons (i) that is controlled directly or indirectly by Craig O. McCaw or the
estate of Craig O. McCaw and (ii) a majority of the equity interests of which
are owned, directly or indirectly, by Craig O. McCaw and his family, his
brothers and their families, officers and employees of such entities, ex-spouses
of such persons and estates of, and trusts for the primary benefit of, the
foregoing persons (collectively, the "MCCAW GROUP"), (c) any Affiliate of Craig
O. McCaw, (d) any current or former member or shareholder of a Person that is
controlled by Craig O. McCaw, PROVIDED that any such member or shareholder of a
Person described in this clause (d) shall be deemed a Permitted Transferee only
if Eagle River is required or expressly permitted pursuant to the organizational
documents of Eagle River to transfer Shares to such member or shareholder and,
since January 29, 1999, such organizational documents have not been amended
specifically to permit a transfer of Shares to such Person under this Agreement
and (e) any group of entities, each controlled by Craig O. McCaw or the estate
of Craig O. McCaw and through which the McCaw Group collectively owns, directly
or indirectly, a majority of the equity interests of Nextel (it being understood
that if the McCaw Group collectively owns 50% of a Person that owns 20% of
Nextel's equity interests, the McCaw Group will be deemed to indirectly own 10%
of Nextel's equity interest through such entity).
"PERSON" means an individual, corporation, limited liability company,
partnership, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"PUBLIC OFFERING" means any primary or secondary public offering of
Company Common Stock of the Company pursuant to an effective registration
statement under the Securities Act other than pursuant to a registration
statement filed in connection with a transaction of the type described in Rule
145 of the Securities Act or for the purpose of issuing securities pursuant to
an employee benefit plan.
"QUALIFIED DLJ ENTITIES" means the DLJ Entities, to the extent that DLJ
has the power to vote or control the vote of the Voting Stock held by such DLJ
Entities.
"QUALIFIED MDP ENTITIES" means the MDP Entities, to the extent that MDP
has the power to vote or control the Voting Stock held by such MDP Entities.
6
<PAGE>
"QUALIFIED EAGLE RIVER ENTITIES" means Eagle River and its Permitted
Transferees to the extent that Eagle River or its Affiliates has the power to
vote or control the vote of the Voting Stock held by such Persons.
"QUALIFYING DLJ/MDP DEMAND" means a Demand Registration involving a
sale of Company Common Stock issued to the DLJ Entities and/or MDP Entities upon
conversion of the Series A Preferred Stock acquired by them at the Closing that
will result in either: (i) the receipt by the DLJ Entities and/or MDP Entities
of gross proceeds of at least $50 million or (ii) the sale of Company Common
Stock by the DLJ Entities and MDP Entities representing more than 20% of the DLJ
Entities' and MDP Entities' aggregate Initial Ownership.
"REGISTRABLE SECURITIES" means, at any time, with respect to any
Shareholder, any shares of Company Common Stock then owned by such Shareholder
until (i) a registration statement covering such Company Common Stock has been
declared effective by the SEC and such securities have been disposed of pursuant
to such effective registration statement, (ii) such securities are sold under
circumstances in which all of the applicable conditions of Rule 144 (or any
similar provisions then in force) under the Securities Act are met or such
securities may be sold pursuant to Rule 144(k) or (iii) such securities are
otherwise transferred, the Company has delivered a new certificate or other
evidence of ownership for such securities not bearing the legend required
pursuant to this Agreement and such securities may be resold without subsequent
registration under the Securities Act.
"REGISTRATION EXPENSES" means (i) all registration and filing fees,
(ii) fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the securities registered), (iii) printing expenses, (iv)
internal expenses of the Company (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), (v) reasonable fees and disbursements of counsel for the Company and
customary fees and expenses for independent certified public accountants
retained by the Company (including expenses relating to any comfort letters or
costs associated with the delivery by independent certified public accountants
of a comfort letter or comfort letters requested pursuant to Section 6.04(h)),
(vi) the reasonable fees and expenses of any special experts retained by the
Company in connection with such registration, (vii) reasonable fees and expenses
of up to one counsel to represent collectively all of the Shareholders
participating in the offering, (viii) fees and expenses in connection with any
review of underwriting arrangements by the National Association of Securities
Dealers, Inc. (the "NASD") including fees and expenses of any "qualified
independent underwriter" and (ix) fees and disbursements of underwriters
customarily paid by issuers or sellers of securities, but shall not include any
underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities, or any out-of-pocket expenses (except as set forth in
clause (vii) above) of the Shareholders or any fees and expenses of
underwriter's counsel or any other fees and expenses of underwriters.
"RESTRICTED STOCK PURCHASE AGREEMENTS" means the Restricted Stock
Purchase Agreements, dated as of November 20, 1998, as amended, between the
Company and each of the Management Shareholders, as in effect on January 29,
1999.
"SEC" means the Securities and Exchange Commission.
7
<PAGE>
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHAREHOLDER" means each Person (other than the Company) who agrees in
writing to be bound by the terms of this Agreement, whether in connection with
its execution and delivery as of the date hereof, pursuant to Sections 3.03,
3.05, 3.06, 3.07 and 8.03 or otherwise, so long as such Person beneficially owns
any Shares.
"SHAREHOLDERS' AGREEMENT" means the Shareholders' Agreement dated as
of January 29, 1999 by and among the parties hereto.
"SHARES" means shares of Company Capital Stock held by the
Shareholders.
"STRATEGIC INVESTOR" means any of NWIP, Eagle River, Motorola and their
respective Permitted Transferees.
"SUBSCRIPTION AGREEMENT" means the Subscription and Contribution
Agreement dated January 29, 1999 among the Company and the buyers named therein
relating to the purchase and sale of Company Capital Stock.
"SUBSIDIARY" means, with respect to any Person, any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned by such Person.
"TCW" means TCW/Crescent Mezzanine Partners II, L.P., TCW/Crescent
Mezzanine Trust II, TCW Leveraged Income Trust, L.P., TCW Leveraged Income Trust
II, L.P., TCW Shared Opportunity Fund II, L.P., TCW Shared Opportunity Fund IIB,
LLC and TCW Shared Opportunity Fund III, L.P.
"THIRD PARTY" means a prospective purchaser of Shares from a
Shareholder in an arm's-length transaction where such purchaser is not a
Permitted Transferee of such Shareholder.
"TRANSACTION DOCUMENTS" has the meaning set forth in the Subscription
Agreement.
"UNDERWRITTEN PUBLIC OFFERING" means an underwritten Public Offering of
Company Common Stock consummated pursuant to an effective registration statement
under the Securities Act.
"VOTING STOCK" means any Company Capital Stock or Capital Stock, as the
case may be, which ordinarily has voting power for the election of directors (or
persons performing similar functions), whether at all times or only so long as
no senior class of securities has such voting power by reason of any
contingency.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Adverse Impact Notice 7.04(a)
Applicable Default 7.04(f)
Approved Purchaser 3.05(a)
Average Share Price 4.02(d)
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Beneficial Owner 4.01(h)
Build Out 5.01(b)
Business Objectives 2.06(b)
Call Notice 3.07(b)
Call Right 3.07(a)
Called Interest 3.07(a)
Cause 2.02
Certificate 2.01(a)
Challenge Ceiling Price 4.03(h)
Challenge Floor Price 4.03(h)
Challenger's Representative 4.03(d)
Common Stock 4.01(h)
Competitor 3.04(e)
Confidential Information 7.01(b)
control 4.01(h)
Default Outcome 7.04(f)
Demand Registration 6.01(a)
Disqualified Provision 7.04(f)
DLJMB Nominee 2.01(a)
Eagle River Designee 2.01(a)
Effective Date Introduction
Election Period 5.01(b)
Event of Default 7.04(f)
Fair Market Value 4.03(a)
First Appraiser 4.03(b)
General Repurchase Date 4.05(e)
High Offering Price 5.03(a)
High Value 4.03(c)
Holders 6.01(a)
Improvements 7.04(h)
Indemnified Party 6.07
Indemnifying Party 6.07
Initial Offer Period 3.05(b)
Inspectors 6.04(g)
Investment Formula Price 4.03(h)
Lockup Termination Date 3.04(e)
Low Offering Price 5.03(a)
Low Value 4.03(c)
MDP Designee 2.01(a)
Major Investors 3.05(a)
Maximum Offering Size 6.01(f)
Mid-Range 4.03(c)
Nextel Determination 7.04(b)
Nextel Required Upgrade 7.04(a)
Nextel Required Upgrade Analysis 7.04(a)
Nextel Sale 4.01(h)
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Nextel Securities 6.13
Nextel Shares 7.05(a)
Nextel Voting Stock 4.01(h)
Nominee 2.03(a)
Notice of Challenge 4.03(d)
NWIP Designee 2.01(a)
Offering Party 5.03(b)
Offering Price 5.03(b)
Option A 7.04(b)
Option B 7.04(b)
Option C 7.04(b)
Option D 7.04(c)
Option Sections 5.01(b)
Permitted Holders 4.01(h)
Preemption Election Notice 5.03(b)
Preemption Notice 5.03(a)
Preemption Right 5.03(a)
Pro Rata Portion 3.05(b)
Purchase Date 7.05(a)
Records 6.04(g)
Representatives 7.01(b)
Required Services 7.04(h)
Second Appraiser 4.03(b)
Section 3.05 Offer 3.05(b)
Section 3.05 Offer Notice 3.05(a)
Section 3.05 Purchaser 3.05(d)
Section 3.05 Sale 3.05(a)
Section 3.05 Sale Price 3.05(a)
Section 3.05 Shares 3.05(a)
Section 3.06 Offer 3.06(a)
Section 3.06 Offer Notice 3.06(a)
Section 3.06 Offer Period 3.06(b)
Section 3.06 Offer Price 3.06(a)
Section 5.01 Notice 5.01(b)
Selling Party 3.05(a)
Selling Shareholder 6.01(a)
Service Pricing Structure 7.04(h)
Shareholder 8.03
Special Nextel Sale 4.01(b)
Start Date 4.03(b)
Technology Change 7.03
Technology Change Notice 7.03
Telecommunications Company 3.04(e)
Telecommunications Revenue 3.04(e)
Third Appraiser 4.03(c)
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<PAGE>
Third Party Sale 3.07(a)
Third Value 4.03(c)
Total Common Equity 4.01(h)
transfer 3.01(a)
Underwriters' Range 5.03(a)
</TABLE>
ARTICLE 2.
CORPORATE GOVERNANCE AND MANAGEMENT
SECTION 2.01 COMPOSITION OF THE BOARD. (a) The Board shall consist of six
members, of whom one shall be designated in accordance with the Company's
Restated Certificate of Incorporation (the "CERTIFICATE") and Bylaws, one of
whom shall be nominated by DLJMB (such director, a "DLJMB NOMINEE"), but who
will otherwise be elected in accordance with the Certificate and Bylaws, one of
whom shall be designated by NWIP (such director, a "NWIP DESIGNEE"), one of whom
shall be designated by Eagle River (such director, an "EAGLE RIVER DESIGNEE"),
one of whom shall be designated by MDP (such director, an "MDP DESIGNEE"), and
one of whom shall be the chief executive officer of the Company.
(b) Each Shareholder entitled to vote for the election of directors to
the Board (other than DLJMB) agrees that it will vote its shares of Equity
Securities or execute consents, as the case may be, and take all other necessary
action (including causing the Company to call a special meeting of shareholders)
in order to ensure that the composition of the Board is as set forth in this
Section 2.01, PROVIDED that no Shareholder entitled to vote for the election of
directors to the Board shall be required to vote its shares of Equity Securities
or execute consents, as the case may be, or take any other action (including
causing the Company to call a special meeting of shareholders) in order to elect
the DLJMB Nominee.
(c) The right of NWIP, Eagle River, DLJMB or MDP, as the case may be,
to designate or nominate one member of the Board pursuant to this Article shall
terminate at such time as the number of shares of Equity Securities held by the
Nextel Shareholders, the Qualified Eagle River Entities, the Qualified DLJ
Entities or the Qualified MDP Entities as the case may be, is less than 50% of
the Nextel Shareholders', Eagle River's, the DLJ Entities' or the MDP Entities'
Initial Ownership, as the case may be. So long as the Strategic Investors, in
the aggregate, beneficially own less than a majority of the Voting Stock, such
Strategic Investors' designees will constitute less than a majority of the
Board. Individuals affiliated with a particular Shareholder or group of
Shareholders shall not constitute a majority of the Board
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unless, at the time such individuals are elected, such Shareholder or group of
Shareholders owns a majority of the outstanding Voting Stock. Subject to (and to
the extent not inconsistent with) the foregoing, in the event that the right of
any Shareholder pursuant to this Section 2.01 to designate or nominate a member
of the Board terminates, the Board shall nevertheless continue to consist of six
members, and the member or members no longer designated by such Shareholder
shall instead be designated in accordance with the Company's Certificate and
bylaws. No member of the Board designated as described in the preceding sentence
will be deemed a NWIP Designee or a DLJMB Nominee for any purpose.
SECTION 2.02 REMOVAL. Each Shareholder other than DLJMB, agrees that it
will not vote any of its shares of Voting Stock in favor of the removal of
any director (other than the DLJMB Nominee) who shall have been designated
pursuant to Section 2.01 unless such removal shall be for Cause or the
Person(s) entitled to designate such director shall have consented to such
removal in writing, PROVIDED that if the Persons entitled to designate any
director pursuant to Section 2.01 shall request the removal, with or without
Cause, of such director in writing, such Shareholder, other than DLJMB, shall
vote its shares of Voting Stock in favor of such removal. Removal for "CAUSE"
shall mean removal of a director because of such director's (a) willful and
continued failure substantially to perform his duties with the Company in his
established position, (b) willful conduct which is injurious to the Company
or any of its Subsidiaries, monetarily or otherwise, (c) conviction for, or
guilty plea to, a felony or a crime involving moral turpitude or (d) abuse of
illegal drugs or other controlled substances or habitual intoxication. The
DLJMB Nominee may be removed for Cause or without cause subject only to the
Certificate and Bylaws.
SECTION 2.03 VACANCIES. If, as a result of death, disability, retirement,
resignation, removal (with or without Cause) or otherwise, there shall exist or
occur any vacancy on the Board with respect to a DLJMB Nominee, a MDP Designee,
an Eagle River Designee or a NWIP Designee:
(a) the Person(s) entitled under Section 2.01 to designate or nominate
such director whose death, disability, retirement, resignation or removal
resulted in such vacancy, may, subject to the provisions of Section 2.01,
designate or nominate, as the case may be, another individual (the "NOMINEE")
to fill such vacancy and serve as a director of the Company; and
(b) each Shareholder, other than DLJMB, then entitled to vote for the
election of the Nominee as a director of the Company agrees that it will vote
its shares of Voting Stock, or execute a written consent, as the case may be,
in order to ensure that the Nominee be elected to the Board; provided no
Shareholder shall be required to vote its shares of Equity Securities or
execute consents, as the case may be, or take any other action (including
causing the Company to call a special meeting of shareholders) in order to
elect a DLJMB Nominee to the Board.
SECTION 2.04 QUORUM AND ACTION BY THE BOARD. (a) A quorum of the Board
shall consist of a majority of the members of the board then in office.
(b) All actions of the Board shall require the affirmative vote of at least
a majority of the directors at a duly convened meeting of the Board at which a
quorum is present or the unanimous written consent of the Board; PROVIDED that,
in the event there is a vacancy on the
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<PAGE>
Board and an individual has been nominated to fill such vacancy, the first
order of business shall be to fill such vacancy.
SECTION 2.05 NOTICE OF MEETING; PARTICIPATION. Unless waived by all the
directors with respect to a specific meeting, each director will receive notice
and the agenda of each meeting of the Board or any committee thereof at least 10
days prior to such meeting, PROVIDED that if timely notice was not provided to a
director and such director attends a meeting without objection, then such
director shall be deemed to have waived this notice requirement.
SECTION 2.06 ACTIONS REQUIRING BOARD OR NWIP APPROVAL. (a) No action by the
Company, License Co., Opco or any other Subsidiary (including but not limited to
any action by the Board or any committee thereof or the board of directors or
any committee thereof of License Co., Opco or any other Subsidiary) shall be
taken after the date hereof with respect to any of the following matters without
the affirmative approval of the Board or the relevant board of directors:
(i) any issuance of any Company Capital Stock, except pursuant to the
express terms of the Transaction Documents;
(ii) (x) any merger or consolidation of the Company with or into any
Person, other than a wholly owned Subsidiary, or of any Subsidiary with or
into any Person other than the Company or any other wholly-owned
Subsidiary; or (y) any sale of any Subsidiary or any significant operations
of the Company or any Subsidiary or any acquisition or disposition of
assets, business, operations or securities by the Company or any Subsidiary
(in a single transaction or a series of related transactions) having a
value in each case in this clause (y) in excess of $25,000,000;
(iii) the declaration of any dividend on or the making of any
distribution with respect to, or the redemption, repurchase or other
acquisition of, any securities of the Company or any Subsidiary, except as
expressly permitted by this Agreement, the terms of the Series B Preferred,
or the Restricted Stock Purchase Agreements;
(iv) any liquidation, dissolution, commencement of bankruptcy, or
similar proceedings with respect to the Company or any material Subsidiary;
(v) any incurrence, refinancing or alteration of material terms by the
Company or any Subsidiary of indebtedness for borrowed money in excess of
$25,000,000 in the aggregate (or the guaranty by the Company or any
Subsidiary of any such indebtedness), or the issuance of any security by
the Company or any Subsidiary (not including issuances of such securities
in connection with employee or stock option plans previously approved by
the Board pursuant to clause (viii) below), in each case other than as
specifically contemplated by this Agreement or the Restricted Stock
Purchase Agreements;
(vi) any capital expenditure in excess of $5,000,000 individually or
in the aggregate in an amount in excess of $25,000,000 per annum, in either
case, which is not specifically contemplated by the annual budget or
business plan of the Company or any Subsidiary;
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<PAGE>
(vii) any entering into, amending or modifying in any material respect
any agreements of the Company or any Subsidiary providing for payments by
or to the Company or such Subsidiary in excess of $5,000,000 per annum or
$25,000,000 in the aggregate;
(viii) any determination of compensation, benefits, perquisites and
other incentives for senior management of the Company or its Subsidiaries
and the approval or amendment of any plans or contracts in connection
therewith;
(ix) the entrance into any transaction between the Company or any
Subsidiary, on the one hand, and any stockholder, director, officer,
employee or Affiliate of the Company, any Subsidiary or any of the
foregoing, on the other hand, other than (X) transactions pursuant to the
express terms of the Transaction Documents, (Y) a loan from the Company to
John Thompson in an amount not to exceed $2.2 million or (Z) transactions
involving an amount less than $500,000 in the aggregate;
(x) any appointment of any of the Chairman of the Board, Chief
Executive Officer, President, Chief Financial Officer or Chief Operating
Officer or any other executive officer in any similar capacity of the
Company or any material Subsidiary;
(xi) any change in the Company's tax status;
(xii) any change in accounting or tax principles or policies with
respect to the financial statements, records or affairs of the Company or
any Subsidiary, except as required by generally accepted accounting
principles or by law or any other matters which could affect any regulatory
status or tax liability of the Company or any Subsidiary, or any
Shareholder with respect to the investment by such Shareholder in the
Company;
(xiii) any appointment or removal of the auditors, primary outside
legal counsel, financial advisors, underwriters (except underwriters
selected as provided in the first sentence of Section 6.04(f)), investment
bankers or company-wide insurance providers of the Company or any
Subsidiary;
(xiv) any amendment to the Certificate or bylaws of the Company or any
adoption of or amendment to the certificate of incorporation or bylaws of
any Subsidiary, or any change in the composition of the board of directors
of such Subsidiary from the initial composition thereof approved by the
Board, any formation of any direct, first-tier Subsidiary of the Company
other than Opco or any formation of or acquisition of any Subsidiary that
is not or will not be a wholly-owned direct or indirect Subsidiary of the
Company;
(xv) any approval of the annual business plan, budget and long term
strategic plan of the Company or any Subsidiary;
(xvi) any material modification or renewal (other than in the ordinary
course) or termination of the Management Agreement or the Analog Management
Agreement (as
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<PAGE>
such term is defined in the Joint Venture Agreement), or any
other management agreement as contemplated by the Joint Venture Agreement;
or
(xvii) any modification of the long-term business strategy or scope of
the business of the Company or any material Subsidiary or any material
modification of any material customer relationships thereof.
(b) Notwithstanding anything in Section 2.06(a) to the contrary, no action
by the Company, License Co., Opco or any other material Subsidiary (including
but not limited to any action by the Board or any committee thereof or the board
of directors or any committee thereof of the relevant Subsidiary) shall be taken
after the date hereof with respect to any of the following matters without the
prior written approval (which shall be given or withheld within 30 days of the
Company's written request therefor) of the NWIP Designee, PROVIDED that (A)
approval by the NWIP Designee of the matters referred to in paragraph (ii) below
will no longer be required on the earlier of the date on which (x) NWIP
transfers any Shares owned by NWIP as of the date hereof to a Person (other than
the Company) that is not a Permitted Transferee and (y) the NWIP Call Right
expires and (B) approval of the NWIP Designee of any of the matters referred to
in this Section 2.06(b) will no longer be required if the Nextel Shareholders
transfer their Shares to a Third Party pursuant to Section 3.08:
(i) any material change in the technology used by the Company;
(ii) any decision to expand or broaden the scope of the Company's
business beyond building and operating an ESMR digital mobile
communications network in the Territory (as defined in the Joint Venture
Agreement) (the "BUSINESS OBJECTIVES"), including any decision to make any
acquisitions other than 800 MHZ or 900 MHZ SMR acquisitions;
(iii) any modification or change in the Business Objectives that is
inconsistent with the Company's duties and obligations under the
Transaction Documents;
(iv) any sale, exchange or other disposition of all or substantially
all the assets of the Company;
(v) the entering into any agreement or series of agreements the terms
of which would be materially altered if Nextel or NWIP either exercised or
elected not to exercise its right to acquire the relevant Company Capital
Stock under Sections 3.05, 3.07, 4.01, 5.03, 7.03 or 7.04 or otherwise
acquired beneficial ownership of a majority of the outstanding or Fully
Diluted shares of Company Capital Stock.
SECTION 2.07 ACTIONS REQUIRING SHAREHOLDER APPROVAL. In addition to any
approvals required under Sections 2.06(a) and 2.06(b) and any approvals required
under applicable law, (x) any merger or consolidation of the Company with or
into any Person, other than a wholly-owned Subsidiary, or of any other
Subsidiary with or into any Person other than the Company or any other
wholly-owned Subsidiary, or (y) any sale of any Subsidiary or any significant
operations of the Company or any Subsidiary or any acquisition or disposition of
assets, business, operations or securities by the Company or any Subsidiary (in
a single transaction or a series of related transactions) having a value in each
case in this clause (y) in excess of $25,000,000, will require
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<PAGE>
the affirmative approval of at least 50% of the Voting Stock held by the
Non-Nextel Shareholders.
SECTION 2.08 SUBSIDIARY GOVERNANCE. Each of the Company and each
Shareholder agrees that the board of directors of Opco and, upon transfer of the
stock of License Co. to the Company, License Co. shall be comprised of the
individuals who are serving on the Board in accordance with Section 2.01 and the
board of directors of each other Subsidiary of the Company shall be comprised of
the president of each of the Company and Nextel or, if so determined by the
Board from time to time with respect to any such Subsidiary, by the same number
of individuals then serving on the Board, which individuals shall be designated
and subject to removal, and shall otherwise act, in the manner specified with
respect to the Board in Section 2.01 through 2.06. Each Shareholder agrees to
vote its shares of Voting Stock and to cause its representatives on the Board,
subject to his or her fiduciary duties, to vote and take other appropriate
action to effectuate the agreements in this Section 2.08 in respect of each such
Subsidiary.
SECTION 2.09 CONFLICTING CHARTER OR BYLAW PROVISIONS. Each Shareholder
shall vote its shares of Voting Stock, and shall take all other actions
necessary, to ensure that the Certificate and bylaws facilitate and do not at
any time conflict with any provision of this Agreement.
SECTION 2.10 INITIAL CAPITALIZATION. The equity capitalization of the
Company as of the date hereof is as set forth in Exhibit A hereto.
SECTION 2.11 STOCK OPTIONS. Once the shares available for issuance under
the 1999 Stock Option Plan are exhausted, if, at such time, the fair market
value of the Common Stock issued to the DLJ Entities upon conversion of their
Series A Preferred (determined by the Board in its reasonable discretion)
represents a compound annual rate of return to the DLJ Entities of 30% or more
(calculated using the same methodology used to calculate the Investment Formula
Price), the Company shall adopt a second option plan; PROVIDED, that if the DLJ
Entities have not then achieved a compound annual rate of return of 30% or more
(using the same methodology used to calculate the Investment Formula Price), the
Board, in its reasonable discretion, may elect to authorize a second option
plan, PROVIDED, FURTHER, that until there has occurred a DLJMB Trigger Event or
a MDP Trigger Event, the maximum number of shares of Company Common Stock
issuable upon exercise of options available under such second option plan shall
in no event exceed 3.56% of the number of shares of Fully Diluted Common Stock
outstanding at the Closing (after giving effect to the grant and exercise of all
such additional options) without the approval of DLJMB.
ARTICLE 3.
RESTRICTIONS ON TRANSFER
SECTION 3.01 GENERAL. (a) Each Shareholder understands and agrees that the
Shares purchased pursuant to the Subscription Agreement and/or the Restricted
Stock Purchase Agreement, as the case may be, have not been registered under the
Securities Act and are restricted securities. Each Shareholder agrees that it
will not, directly or indirectly, sell, assign, transfer, grant a participation
or derivative interest in, pledge or otherwise dispose of
16
<PAGE>
("TRANSFER") any Shares (or solicit any offers to buy or otherwise acquire, or
take a pledge of any Shares) except in compliance with applicable federal or
state securities laws and statutes, FCC Rules and the terms and conditions of
this Agreement.
(b) Any attempt to transfer any Shares not in compliance with this
Agreement shall be null and void and the Company shall not, and shall cause any
transfer agent not to, give any effect in the Company's stock records to such
attempted transfer.
(c) No transfer of Shares (other than in a transaction involving a Public
Offering or, after a Public Offering, a sale pursuant to Rule 144 of the
Securities Act) will be effective until the recipient of such securities has
executed and delivered a counterpart of this Agreement and the Custodial
Agreement agreeing to be bound hereby and thereby.
SECTION 3.02 LEGENDS. (a) In addition to any other legend that may be
required, each certificate for the Shares that is issued to any Shareholder
shall bear a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED
OR SOLD EXCEPT IN COMPLIANCE THEREWITH. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER AS SET FORTH IN THE AMENDED AND
RESTATED SHAREHOLDERS' AGREEMENT DATED AS OF FEBRUARY 18, 2000
AND THE CUSTODIAL AGREEMENT DATED AS OF JANUARY 29, 1999, A
COPY OF EACH OF WHICH THE COMPANY WILL MAIL TO THE HOLDER OF
THIS CERTIFICATE WITHOUT CHARGE WITHIN FIVE DAYS AFTER RECEIPT
OF REQUEST THEREFOR ADDRESSED TO THE SECRETARY OF THE COMPANY,
AT THE ADDRESS OF THE COMPANY."
(b) If any Shares shall cease to be Registrable Securities under clause (i)
or clause (ii) of the definition thereof, the Company shall, upon the written
request of the holder thereof, issue to such holder a new certificate evidencing
such Shares without the first sentence of the legend required by Section 3.02(a)
endorsed thereon. If any Shares cease to be subject to any and all restrictions
on transfer set forth in this Agreement, the Company shall, upon the written
request of the holder thereof, issue to such holder a new certificate evidencing
such Shares without the second sentence of the legend required by Section
3.02(a) endorsed thereon.
SECTION 3.03 PERMITTED TRANSFEREES. Notwithstanding anything in this
Agreement to the contrary, any Shareholder may at any time transfer any or all
of its Shares to one or more of its Permitted Transferees without the consent of
the Board or any other Shareholder or group of Shareholders and without
compliance with Sections 3.04 through 3.07 so long as (a) such Permitted
Transferee shall have agreed in writing to be bound by the terms of this
Agreement
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<PAGE>
and shall have assumed in writing and agreed to discharge any and all
obligations of such Permitted Transferee that relate to such Shares and (b) the
transfer to such Permitted Transferee is not in violation of applicable federal
or state securities laws or FCC Rules.
SECTION 3.04 GENERAL RESTRICTIONS ON TRANSFERS. (a) Except as provided in
Section 3.03, each of Eagle River, Motorola and each Management Shareholder and
their respective Permitted Transferees may transfer their Shares only after the
Lockup Termination Date, subject to Sections 3.05, 3.06 and 3.07, in a transfer
to any Third Party other than a Competitor, PROVIDED that (i) each such
Shareholder shall be permitted to transfer Shares, subject to Sections 3.05,
3.06 and 3.07, in an amount up to 30% of the lesser of such Shareholder's (x)
Initial Ownership (or, in the case of a Shareholder who transferred Shares after
January 29, 1999 and the Person who became a Shareholder pursuant to such
transfer, such Shareholder's and transferee's respective ownership interest as
of the date such transfer occurred) or (y) ownership interest as of the day
after the Initial Public Offering, (ii) if there is a Put Event under Section
4.01(b), Section 5.1(b) of the Certificate, or Section 12.9 of the Joint Venture
Agreement or an NWIP Call Right under Section 5.1(a) of the Certificate, each
Shareholder shall be permitted to sell its Shares to NWIP and (iii) if there is
a sale governed by Section 5.5 of the Certificate, each Shareholder shall be
permitted to sell its Shares to the relevant Third Party.
(b) Except as provided in Section 3.03 or pursuant to a transfer to the
Company in connection with NWIP's repurchase of frequencies from the Company
pursuant to Section 4.14B of the Joint Venture Agreement, a Nextel Shareholder
may transfer Shares only pursuant to a sale governed by Section 5.5 of the
Certificate and subject to Section 3.04(d).
(c) The DLJ Entities, the MDP Entities and each Co-Investor may transfer
their Shares at any time, subject to Sections 3.04(d), 3.05, 3.06 and 3.07.
Notwithstanding anything in this Agreement to the contrary, if any DLJ Entity or
MDP Entity proposes to sell shares to a Third Party (x) in a transaction not
involving a Public Offering or (y) pursuant to a Demand Registration or Section
6.02, each of Ares Leveraged Investment Fund, L.P., Ares Leveraged Investment
Fund II, L.P., The Huff Alternative Income Fund L.P., and TCW (each a
"HIGH-YIELD INVESTOR") shall have the nonassignable right, at its option (but
following the same procedures and subject to the same terms as those applicable
to the DLJ Entities or MDP Entities seeking to consummate such proposed
transfer), to elect to participate in such transfer on a pro rata basis
(determined based on the number of Shares that each DLJ Entity or MDP Entity and
each High Yield Investor owns at the time of the proposed transfer). NWIP
acknowledges that any High Yield Investor that voted to sell its Company Capital
Stock to NWIP pursuant to Section 4.01(a) will be deemed to be a DLJ Entity or
MDP Entity, as the case may be, for purposes of the special put right under
Section 4.01(b).
(d) In no event shall any Shareholder transfer Shares (i) to a Competitor
without the prior approval of the Board and NWIP or (ii) in violation of
applicable federal or state securities laws.
(e) The following terms shall have the following meanings:
"COMPETITOR" means (i) a Telecommunications Company, or (ii) any Person
beneficially owning more than 50% of the total common equity or Voting Stock of
or otherwise controlling a
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Telecommunications Company, or (iii) any Person the total common equity or
Voting Stock of which is more than 50% beneficially owned or otherwise
controlled by an entity described in clause (i) or (ii).
"LOCKUP TERMINATION DATE" means the earliest date after the Company has
completed the Initial Required Build and achieved positive Company EBITDA for
the two consecutive fiscal quarters most recently ended for which financial
statements are available, excluding the effect on Company EBITDA of the
financial performance of any Option Sections that are included in the Territory
as a result of the Company's response to a notice given pursuant to Section 6.2C
of the Joint Venture Agreement.
"TELECOMMUNICATIONS COMPANY" means any Person whose total
Telecommunications Revenue is at least 10% of its revenues (calculated on a
consolidated basis).
"TELECOMMUNICATIONS REVENUE" of any Person means all revenue derived from
the transmission or exchange of non-video data or voice information by any form
of wire, cable, fiber optic or wireless transmission in geographic markets where
Nextel or the Company is either (1) doing business, or (2) holds a
telecommunications license and has publicly stated its intention to do business,
and includes the revenue that such Person derives by engaging in the business of
transmitting or exchanging video information to the extent that Nextel or the
Company offers services to transmit or exchange video information in the
relevant geographic area. For purposes of this definition, (A) Nextel includes
any entity in which Nextel holds a 10% or greater direct or indirect ownership
interest that uses an iDEN or similar technology platform compatible with that
used by Nextel and (B) the Company includes the Company and all of its
Subsidiaries.
SECTION 3.05 RIGHTS OF FIRST OFFER. (a) If any Shareholder desires to
transfer any Shares to any Third Party in a transaction not involving a Public
Offering or, after a Public Offering, a sale pursuant to Rule 144 of the
Securities Act , such Shareholder (the "SELLING PARTY") shall give written
notice (a "SECTION 3.05 OFFER NOTICE") to the Company and each Strategic
Investor, DLJ Entity, MDP Entity and Management Shareholder (each a "MAJOR
INVESTOR" and collectively, the "MAJOR INVESTORS") that such Selling Party
desires to effect such a transfer (a "SECTION 3.05 SALE") and setting forth the
name of the purchaser, the number of Shares proposed to be transferred by the
Selling Party (the "SECTION 3.05 SHARES"), and the consideration per Share
(which must be payable in cash) that such Selling Party proposes to be paid for
such Shares (the "SECTION 3.05 SALE PRICE"). In addition, if any of the DLJ
Entities or MDP Entities is the Selling Party, DLJMB or MDP, as the case may be,
may also deliver to NWIP a list of up to five potential purchasers to whom it
proposes to sell its Shares if the Section 3.05 Shares are not purchased by the
Major Investors pursuant to this Section 3.05. Upon receipt of any such list,
NWIP will have 15 Business Days to approve each such potential purchaser, which
approval may not be unreasonably withheld. In the event NWIP approves a
potential purchaser or fails to provide a reason for withholding approval of any
such potential purchaser, prior to the expiration of the 15-day period, such
potential purchaser will be considered an "APPROVED PURCHASER" for such Section
3.05 Sale.
(b) The giving of a Section 3.05 Offer Notice to the Company and each Major
Investor shall constitute an irrevocable offer (the "SECTION 3.05 OFFER") by
such Selling Party to sell to such Major Investor for cash on the terms set
forth in the Section 3.05 Offer Notice the
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Section 3.05 Shares at the Section 3.05 Sale Price. Each Major Investor
receiving a Section 3.05 Offer shall have a 10 Business Day period
(the "INITIAL OFFER PERIOD") in which to accept such offer as to all
(but not less than all) of such Major Investor's Pro Rata Portion plus, to the
extent available, any additional Shares such Major Investor is willing to
purchase, by giving a written notice of acceptance of the Section 3.05 Offer
(which notice shall include the maximum number of Shares such Major
Investor is willing to purchase) to such Selling Party (together with a copy
thereof to the other Major Investors and the Company) prior to the expiration of
such Initial Offer Period. If any Major Investor fails to so notify the Selling
Party or the Company prior to the expiration of the Initial Offer Period, it
will be deemed to have declined the Section 3.05 Offer.
If the Major Investors do not elect, in the aggregate, to purchase all the
Shares subject to such Section 3.05 Offer, the Selling Party shall not be
required to sell any Shares accepted pursuant to the Section 3.05 Offer and the
provisions of Section 3.06 or Section 3.07 shall apply. If two or more Major
Investors elect, in the aggregate, to purchase all of the Section 3.05 Shares,
then (i) each Major Investor that elected to purchase no more than its Pro Rata
Portion of the Section 3.05 Shares shall purchase its Pro Rata Portion of the
Section 3.05 Shares and (ii) each Major Investor (if any) that elected to
purchase more than its Pro Rata Portion of the Section 3.05 Shares shall
purchase its proportionate share (based on the number of shares of Fully Diluted
Company Common Stock owned by such Major Investor divided by the number of
shares of Fully Diluted Company Common Stock owned by all Major Investors who
have elected to purchase more than their Pro Rata Portion) of the Section 3.05
Shares remaining to be purchased (but not to exceed the maximum number of Shares
that such Major Investor is willing to purchase) after giving effect to the
purchases pursuant to clause (i) above.
"PRO RATA PORTION" means, with respect to any Major Investor that elects to
acquire Section 3.05 Shares from a Selling Party under Section 3.05 or 3.06, or
from a Third Party under Section 3.07, that fraction that would result from
dividing (i) the number of shares of Fully Diluted Company Common Stock that
such Major Investor beneficially owns (or, without duplication, has the right to
acquire from the Company) by (ii) that number of shares of Fully Diluted Company
Common Stock beneficially owned by all Major Investors (or which, without
duplication, they have the right to acquire from the Company) other than the
Shares, if any, beneficially owned by the Selling Party.
(c) If the Major Investors elect to purchase all the Shares subject to the
Section 3.05 Offer, each Major Investor that accepts the Section 3.05 Offer
shall have an unconditional obligation to purchase and pay, by certified check
or wire transfer, for all Section 3.05 Shares allocated to such Major Investor
within 30 days of the expiration of the Initial Offer Period; PROVIDED that if
the purchase and sale of such Shares is subject to any prior regulatory
approval, the Selling Party and the relevant Major Investors shall use their
reasonable best efforts to obtain the necessary regulatory approvals and the
time period during which such purchase and sale may be consummated shall be
extended until the later of (i) 60 days after the expiration of the Initial
Offer Period and (ii) if applicable, five Business Days after receipt of FCC
approval. The Company will cooperate with the Selling Party and the Major
Investors in obtaining any such regulatory approval, PROVIDED that its
reasonable out-of-pocket costs are reimbursed by the Selling Party as and when
incurred.
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(d) Upon the earlier to occur of (i) full rejection of the Section 3.05
Offer by all recipients thereof, (ii) the expiration of the Initial Offer Period
without the Major Investors electing to purchase all the Section 3.05 Shares,
(iii) the deemed rejection of the Section 3.05 Offer pursuant to Section 3.05(b)
or (iv) the failure of any Major Investor to obtain any required consent or
regulatory approval applicable specifically to it (and not the other Major
Investors) for the purchase of the Shares subject thereto within the time
periods set forth in Section 3.05(c) and the failure of the other Major
Investors to agree to purchase such Shares, the Selling Party shall have a
30-day period during which to enter into a definitive agreement to transfer all
of the Section 3.05 Shares on substantially the same or more favorable (as to
the Selling Party) terms and conditions as were set forth in the Section 3.05
Offer Notice at a price not less than 95% of the Section 3.05 Sale Price;
PROVIDED that if such sale is not by DLJMB or MDP to one or more Approved
Purchasers, the Selling Party must, prior to effecting a transfer pursuant to
this Section 3.05, comply with the provisions of Section 3.06 or 3.07. If the
Selling Party enters into a definitive agreement to sell the Section 3.05
Shares, the Selling Party and the purchaser of such Section 3.05 Shares (the
"SECTION 3.05 PURCHASER") shall, subject to Section 3.06 or 3.07, use all
reasonable efforts to consummate the Section 3.05 Sale as promptly as
practicable (but in no event later than 270 days) thereafter and upon
consummation of the purchase and sale of such Section 3.05 Shares the Section
3.05 Purchaser shall agree in writing to be bound by the terms of this Agreement
and to assume and agree to discharge any and all obligations of the Selling
Party that relate to such Section 3.05 Shares and arise under any of the
relevant Transaction Documents. If the Selling Party does not enter into a
definitive agreement to sell the Section 3.05 Shares within the 30-day period,
or, subject to Section 3.06 or 3.07, fails to close such transaction within 270
days after the execution of the definitive agreement, such Shareholder may not
sell any Shares without repeating the foregoing procedures.
(e) A Major INVESTOR'S rights (but not its obligations) pursuant to
this Section 3.05 shall terminate when the number of shares of Equity Securities
held by such Major Investor is less than 25% of its Initial Ownership.
SECTION 3.06 RIGHT OF FIRST REFUSAL. (a) If after the Initial Offer Period
the Selling Party receives from or otherwise negotiates with the Section 3.05
Purchaser an offer to purchase for cash the Section 3.05 Shares (a "SECTION 3.06
OFFER") and such Selling Party intends to pursue such sale of such Shares to
such Third Party, such Selling Party (other than DLJMB or MDP, as the case may
be, in a sale to an Approved Purchaser) shall either (i) provide the Company and
each other Major Investor written notice of such Section 3.06 Offer (a "SECTION
3.06 OFFER NOTICE") or (ii) sell the Section 3.05 Shares to the Section 3.05
Purchaser, but subject to the provisions of Section 3.07. The Section 3.06 Offer
Notice shall identify the Section 3.05 Shares, the Section 3.05 Purchaser, the
cash price per Share at which a sale is proposed to be made (the "SECTION 3.06
OFFER PRICE") and all other material terms and conditions of the Section 3.06
Offer.
(b) The receipt of a Section 3.06 Offer Notice by the Company and each
Major Investor stating that such Major Investor has the right to purchase the
Section 3.05 Shares pursuant to this Section 3.06 shall constitute an
irrevocable offer by the Selling Party to sell all the Section 3.05 Shares to
the other Major Investors for cash at the Section 3.06 Offer Price on the terms
set forth in the Section 3.06 Offer Notice. Each Major Investor receiving a
Section 3.06 Offer shall have a 10 Business Day period (the "SECTION 3.06 OFFER
PERIOD") in which to
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accept such offer as to all (but not less than all) of such Major Investor's
Pro Rata Portion, plus, to the extent available, any additional Shares such
Major Investor is willing to purchase, by giving a written notice of acceptance
of the Section 3.06 Offer to each other Major Investor, the Company and the
Selling Party (which notice shall include the maximum number of Shares such
Major Investor is willing to purchase) prior to the expiration of the
Section 3.06 Offer Period. If any Major Investor fails to so notify the Selling
Party or the Company prior to the expiration of the Section 3.06 Offer Period,
it will be deemed to have declined the Section 3.06 Offer.
If the Major Investors do not elect, in the aggregate, to purchase all the
Shares subject to such Section 3.06 Offer, the Selling Party shall not be
required to sell any Shares accepted pursuant to the Section 3.06 Offer. If two
or more Major Investors elect, in the aggregate, to purchase all of the Section
3.05 Shares, then (i) each Major Investor that elected to purchase no more than
its Pro Rata Portion of the Section 3.05 Shares shall purchase its Pro Rata
Portion of the Section 3.05 Shares and (ii) each Major Investor (if any) that
elected to purchase more than its Pro Rata Portion of the Section 3.05 Shares
shall purchase its proportionate share (based on the number of shares of Fully
Diluted Company Common Stock owned by such Major Investor divided by the number
of shares of Fully Diluted Company Common Stock owned by all Major Investors who
have elected to purchase more than their Pro Rata Portion) of the Section 3.05
Shares remaining to be purchased (but not to exceed the maximum number of Shares
that such Major Investor is willing to purchase) after giving effect to the
purchases pursuant to clause (i) above.
(c) If the Major Investors elect to purchase all the Shares subject to the
Section 3.06 Offer, each Major Investor that elects to purchase Shares pursuant
to this Section 3.06 shall have an unconditional obligation to purchase and pay,
by certified check or wire transfer, for all Section 3.05 Shares allocated to
such Major Investor within 30 days of the expiration of the Section 3.06 Offer
Period; PROVIDED that if the purchase and sale of such Shares is subject to any
prior regulatory approval, the Selling Party and the relevant Major Investors
shall use their reasonable best efforts to obtain the necessary regulatory
approvals and the time period during which such purchase and sale may be
consummated shall be extended until the later of (i) 60 days after the
expiration of the Section 3.06 Offer Period and (ii) if applicable, five
Business Days after receipt of FCC approval. The Company will cooperate with the
Selling Party and the Major Investors in obtaining any such regulatory approval,
PROVIDED that its reasonable out-of-pocket costs are reimbursed by the Selling
Party as and when incurred.
(d) Upon the earlier of (i) the rejection or deemed rejection of the
Section 3.06 Offer by the Major Investors or (ii) the failure of any Major
Investor to obtain any necessary regulatory approval applicable specifically to
it (and not the other Major Investors) for the purchase of the Shares subject
thereto within the time periods set forth in Section 3.06(c) and the failure of
the other Major Investors to purchase such Shares, there shall commence a
270-day period during which the Selling Party shall have the right to close the
sale to the Section 3.05 Purchaser of any or all of the Shares subject to the
Section 3.06 Offer at a price not less than the Section 3.06 Offer Price,
PROVIDED that, upon consummation of the purchase of such Section 3.05 Shares,
the Section 3.05 Purchaser shall have agreed in writing to be bound by the terms
of this Agreement and to assume and agree to discharge any and all obligations
of the Selling Party that relate to such Section 3.05 Shares and arise under any
of the relevant Transaction Documents. If such Selling Party does not consummate
the sale of any Shares subject to the Section 3.06 Offer in
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accordance with the foregoing time limitations, such Selling Party may not sell
any Shares without repeating the foregoing procedures in Section 3.05 and 3.06.
(e) A Major Investor's rights (but not its obligations) pursuant to this
Section 3.06 shall terminate when the number of shares of Equity Securities held
by such Major Investor is less than 25% of its Initial Ownership.
SECTION 3.07 MAJOR INVESTOR CALL RIGHT. (a) If the Selling Party sells
Shares to the Section 3.05 Purchaser (other than a sale by DLJMB or MDP, as the
case may be, to an Approved Purchaser) without complying with the procedures set
forth in Section 3.06, then upon consummation of such sale to the Section 3.05
Purchaser (a "THIRD PARTY SALE"), the Selling Party shall notify the Major
Investors within five days of such Third Party Sale and such Major Investors
shall have the right (the "CALL RIGHT") to purchase from the Section 3.05
Purchaser all Shares purchased by the Section 3.05 Purchaser pursuant to the
Third Party Sale (the "CALLED INTEREST"), in each case based on such Major
Investor's Pro Rata Portion (or such other allocation as may be agreed among
such Major Investors exercising the Call Right).
(b) To exercise the Call Right, the Major Investors must agree to exercise
the Call Right in respect of the entire Called Interest and must give written
notice (the "CALL NOTICE") to the Section 3.05 Purchaser no later than the 30th
day following the Third Party Sale. Upon receipt of the Call Notice, the Section
3.05 Purchaser shall be obligated to sell the Called Interest in accordance with
the provisions of this Section 3.07.
(c) The purchase price payable per Share of Company Capital Stock shall be
an amount in cash equal to 110% of the per Share price paid by the Third Party
in the Third Party Sale.
(d) The closing for the purchase of any Called Interest pursuant to this
Section 3.07 shall occur as promptly as practicable (but in no event later than
30 days) after receipt by the Section 3.05 Purchaser of the Call Notice,
PROVIDED that if the purchase of any Called Interest is subject to prior
regulatory approval, the Section 3.05 Purchaser and the relevant Major Investors
shall use their reasonable best efforts to obtain the necessary regulatory
approvals and the 30-day period in which the purchase may be consummated shall
be extended until the earlier of (i) the expiration of five Business Days after
all such regulatory approvals shall have been received and (ii) 270 days after
receipt by the Section 3.05 Purchaser of the Call Notice. If the sale of the
Called Interest by the Section 3.05 Purchaser to the Major Investors is not
consummated within the time periods set forth in the immediately preceding
sentence, the Section 3.05 Purchaser will have no further obligation to sell the
Called Interest PROVIDED that, upon consummation of the purchase of such Section
3.05 Shares, the Section 3.05 Purchaser shall have agreed in writing to be bound
by the terms of this Agreement and to assume and agree to discharge any and all
obligations of the Selling Party that relate to such Section 3.05 Shares and
arise under any of the Transaction Documents. On or prior to the closing, the
Section 3.05 Purchaser shall deliver to the representative of the Major
Investors designated in the Call Notice certificates representing all the Shares
comprising the Called Interest, duly endorsed, together with all other
documents, required to be executed in connection with the sale of such Shares
(it being understood that in no event shall the Section 3.05 Purchaser be
obligated to make any representations and warranties, or to provide any
indemnities, with respect to the Called Interest other than indemnities
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concerning the Section 3.05 Purchaser's title to the Called Interest, such title
being free and clear of all liens and encumbrances, and the Section 3.05
Purchaser's authority, power and right to enter into and consummate the sale
without contravention of any law or agreement, and without the need for any
governmental or other approval). At any such closing, the relevant Major
Investors shall deliver to the Section 3.05 Purchaser the aggregate purchase
price for the Called Interest sold by the Section 3.05 Purchaser, by wire
transfer of immediately available funds to such bank account as the Section 3.05
Purchaser shall have specified in writing no later than two Business Days prior
to the closing.
(e) A Major Investor's rights (but not its obligations) pursuant to
this Section 3.07 shall terminate when the number of shares of Equity Securities
held by such Major Investor is less than 25% of its Initial Ownership.
SECTION 3.08 SPECIAL NEXTEL SALE RIGHT. [Intentionally Omitted].
ARTICLE 4.
PUT AND CALL RIGHTS
SECTION 4.01 NON-NEXTEL SHAREHOLDER PUT RIGHTS.
(a) [Intentionally Omitted].
(b) In the event of a Special Nextel Sale, the following shall apply: (i)
if there has not been a DLJMB Trigger Event, the DLJ Entities shall have the
right to require NWIP to purchase all of Company Capital Stock held by the
DLJ Entities for a proportionate share of the purchase price (as determined in
accordance with Section 5.1(b)(iii)(A) of the Certificate) and otherwise on
generally the same terms and conditions as set forth in Section 5.1 of the
Certificate; and (ii) if there has not been a MDP Trigger Event, the MDP
Entities shall have the right to require NWIP to purchase all of the Company
Capital Stock held by the MDP Entities for a proportionate share of the purchase
price (as determined in accordance with Section 5.1(b)(iii)(A) of the
Certificate) and otherwise on generally the same terms and conditions as set
forth in Section 5.1 of the Certificate. "SPECIAL NEXTEL SALE" means a Nextel
Sale where each of the MDP Entities and DLJ Entities have voted to sell their
Company Capital Stock to NWIP pursuant to Section 5.1(b)(1) of the Certificate,
but less than 50% of the then outstanding Voting Stock held by the Non-Nextel
Shareholders has voted to exercise the Put Right provided for in Section 5.1 of
the Certificate.
(c) [Intentionally Omitted].
(d) [Intentionally Omitted].
(e) [Intentionally Omitted].
(f) [Intentionally Omitted].
(g) [Intentionally Omitted].
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(h) For purposes of Section 5.1(b) of the Certificate, the following terms
shall have the following meanings:
"BENEFICIAL OWNER" means a beneficial owner as defined in Rules 13d-3,
13d-5 or 16a-1 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, but such provision of the Rules will apply only if (i) all conditions
(other than payment of the purchase or acquisition price of such securities) to
such Person's exercise of such rights have been satisfied and (ii) such
securities (if options, warrants, or similar derivatives) are "in-the-money",
PROVIDED that in all cases a Person shall not be deemed a Beneficial Owner of,
or to own beneficially, any securities if such beneficial ownership (1) 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 (2) is not also then
reportable on Schedule 13D under the Exchange Act.
"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.
"NEXTEL SALE" means the occurrence of any of the following events:
(i) any person or group (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act and the rules and regulations thereunder) other
than a Permitted Holder as hereinafter defined (A) is or becomes the
Beneficial Owner of more than 50% of the total Voting Stock of Nextel
("NEXTEL VOTING STOCK") or Total Common Equity of Nextel, or (B) otherwise
has the power to direct the management and policies of Nextel, directly or
through one or more intermediaries, whether through the ownership of voting
securities, by contract or otherwise (without limiting the generality of
this clause (B), any person or group that succeeds to the rights currently
held by Craig O. McCaw and his Affiliates in respect of Nextel, or
otherwise has powers and rights comparable thereto, shall be deemed for
purposes of this definition to have the power to direct the management and
policies of Nextel), except that no change of control will be deemed to
have occurred under this clause (B) as a result of customary rights granted
(x) in any indenture, credit agreement or other agreement for borrowed
money unless and until there has been a default under the terms of that
agreement and the trustee or lender exercises the rights granted therein or
(y) to holders of non-convertible, mandatorily redeemable, preferred stock
unless and until action occurs that would otherwise cause a Nextel Sale as
herein defined, PROVIDED that such rights were granted pursuant to a
transaction in the financial markets and not as part of a strategic
alliance or similar transaction;
(ii) Nextel sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any Person (other
than a Permitted Holder);
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(iii) Nextel, directly or indirectly, consolidates with, or merges
with or into, another Person (other than a Permitted Holder), or any Person
(other than a Permitted Holder), directly or indirectly, consolidates with,
or merges with or into, Nextel, and pursuant to such transaction (or series
of transactions) either: (A) the outstanding Nextel Voting Stock is
converted into or exchanged for cash, securities or other property, but
excluding a transaction (or series of transactions) where (i) the
outstanding Nextel Voting Stock is converted into or exchanged for Voting
Stock of the surviving or transferee Person and (ii) the holders of Nextel
Voting Stock immediately preceding such transaction receive more than 50%
of the total Voting Stock and Total Common Equity of the surviving or
transferee Person (in substantially the same proportion as such holders had
prior to such transaction), or (B) new shares of Nextel Voting Stock are
issued so that immediately following such transaction the holders of Nextel
Voting Stock immediately preceding such transaction own less than 50% of
the Voting Stock and Total Common Equity of the surviving Person; or
(iv) during any period of two consecutive years, individuals who at
the beginning of such period constituted the board of directors of Nextel
(together with any directors who are members of the board of directors of
Nextel on the closing date, and any new directors whose election by such
board of directors or whose nomination for election by the stockholders of
Nextel 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) cease for
any reason to constitute a majority of the board of directors of Nextel
then in office;
PROVIDED that it is expressly understood and agreed that (A) the transfer of
Nextel Voting Stock and or Capital Stock in Nextel by a Permitted Holder to an
Affiliate of Craig O. McCaw or the estate of Craig O. McCaw, or any successive
transfer by such or another Affiliate to another Affiliate of Craig O. McCaw or
the estate of Craig O. McCaw shall not by itself be a Nextel Sale (PROVIDED
that, for this purpose, any such Affiliate shall not be controlled by any Person
or group other than Craig O. McCaw or the estate of Craig O. McCaw) and (B) the
direct or indirect sale or other disposition of all or any portion of the Nextel
Voting Stock and/or the Capital Stock in Nextel held now or in the future by any
Permitted Holder to any Person other than another Permitted Holder shall not by
itself be a Nextel Sale, unless such sale or disposition, alone or in
conjunction with other transactions, results in the occurrence of an event of
the type described in any of clauses (i), (ii), (iii) or (iv) above.
"PERMITTED HOLDERS" means, collectively, Craig O. McCaw and any Person or
Persons (i) that is controlled directly or indirectly by Craig O. McCaw or the
estate of Craig O. McCaw and (ii) a majority of the equity interests of which
are owned, directly or indirectly, by Craig O. McCaw and his family, his
brothers and their families, officers and employees of such entities, ex-spouses
of such persons and estates of, or trusts for the primary benefit of, the
foregoing persons (collectively, the "MCCAW GROUP"), PROVIDED that "PERMITTED
HOLDERS" also includes a group of entities that is each controlled by Craig O.
McCaw or the estate of Craig O. McCaw and through which the McCaw Group
collectively own, directly or indirectly, a majority of the equity interests of
Nextel (it being understood that if the McCaw Group collectively owns 50% of a
Person that owns 20% of Nextel's equity interests, the McCaw Group will be
deemed to indirectly own 10% of Nextel's equity interest through such entity).
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"TOTAL COMMON EQUITY" of any Person means, as of any day of determination,
the product of (i) the aggregate number of outstanding primary shares of Common
Stock of such Person on such day (which shall not include any options or
warrants on, or securities convertible or exchangeable into, shares of Common
Stock of such Person) and (ii) 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 (ii) of the preceding sentence shall be determined
by the board of directors of such Person in good faith and evidenced by a
resolution of such board of directors.
(i) The rights set forth in Section 4.01(b) exercisable by either the DLJ
Entities or the MDP Entities, as the case may be, shall not be superseded by the
Certificate.
(j) [Intentionally Omitted].
SECTION 4.02 NEXTEL SHAREHOLDER CALL RIGHT. [Intentionally Omitted].
SECTION 4.03 FAIR MARKET VALUE CALCULATION. For purpose of this Agreement,
Fair Market Value will be determined as provided in Section 5.7 of the
Certificate.
SECTION 4.04 MANAGEMENT STOCKHOLDER TAG ALONG RIGHT. [Intentionally
Omitted].
SECTION 4.05 COMPANY REPURCHASE RIGHTS. (a) [Intentionally Omitted].
ARTICLE 5.
ANTI-DILUTION AND PREEMPTION RIGHTS
SECTION 5.01 ANTI-DILUTION RIGHTS. (a)[Intentionally Omitted]
(b) If the Company elects to Build Out any Option Sections prior to the
expiration of the Election Period (as such terms are defined in the Joint
Venture Agreement), and, pursuant thereto, issues additional equity to NWIP in
exchange for frequencies, the Company will provide written notice (a "SECTION
5.01 NOTICE") of such issuance to the Shareholders (other than the Management
Shareholders) at least thirty days prior to the proposed issuance date, and each
Non-Nextel Shareholder (other than the Management Shareholders) that is a
Shareholder as of the date hereof shall have the right, but not the obligation,
to purchase, at a purchase price of $10 per share, as adjusted for stock splits
and combinations, stock dividends and the like (which represents the initial
purchase price for Shares on January 29, 1999), a number of shares of Common
Stock that results in such Shareholder maintaining the same Percentage Ownership
it has on either the date immediately prior to the date the Company issues
additional equity to NWIP in exchange for frequencies or January 29, 1999,
whichever date results in a lower Percentage Ownership. A Shareholder desiring
to exercise its rights under this Section 5.01(b) must do so by delivering
written notice to the Company (which shall make such information available to
all Shareholders) of its election to purchase Company Common Stock within
fifteen days of receipt of the Section 5.01 Notice. A delivery of such a written
notice by a Shareholder shall constitute a binding agreement of such Shareholder
to purchase the number of shares determined above.
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(c) [Intentionally Omitted]
SECTION 5.02 [INTENTIONALLY OMITTED].
SECTION 5.03 SPECIAL NWIP PREEMPTION OF REGISTRATION RIGHTS. (a) If, prior
to the later of (i) the completion of the Initial Required Build and (ii)
January 29, 2003, DLJMB or MDP, as the case may be, requests a Demand
Registration pursuant to Section 6.01, the Company will notify NWIP at the same
time that it notifies the other Shareholders pursuant to Section 6.01, which
notice (the "PREEMPTION NOTICE") will contain (i) a range of prices (the
"UNDERWRITERS' RANGE") for the Company Common Stock as determined by the
underwriters, of which the high per share price (the "HIGH OFFERING PRICE") will
be no more than $3.00 greater than the low per share price (the "LOW OFFERING
PRICE") and (ii) the other material terms of the offering, including but not
limited to the number of shares of Company Common Stock to be offered and the
proposed offering date. Upon receipt of the Preemption Notice, NWIP will have
the right (the "PREEMPTION RIGHT"), subject to Section 5.03(c), to purchase all
(but not less than all) of the Company Common Stock that the DLJ Entities and
the High Yield Investors or the MDP Entities, as the case may be, own as of
January 29, 1999 (assuming conversion of the Series A Preferred) and propose to
offer in the case of either a DLJMB Demand Registration or an MDP Demand
Registration, in each case, pursuant to Section 6.01. Except as provided in this
Section 5.03, NWIP will not have any right, nor any obligation, to purchase any
shares of Company Common Stock that any other Shareholder proposes to register
in connection with the relevant Public Offering.
(b) If NWIP elects to exercise its Preemption Right and purchase the
relevant shares of Company Common Stock, it will notify the Company and DLJMB or
MDP, as the case may be (the "OFFERING PARTY") in writing (the "PREEMPTION
ELECTION NOTICE") within 15 days of receipt of the Preemption Notice. The
Preemption Election Notice will state, among other things, (i) the purchase
price to be paid by NWIP for the relevant shares of Company Common Stock, which
purchase price shall be the mid-point of the Underwriters Range and (ii) the
date such purchase will take place, such date not to be later than the proposed
offering date set forth in the Preemption Notice. If the Offering Party does not
receive a timely Preemption Election Notice, it may proceed with the relevant
offering, PROVIDED that if the per share price for the Company Common Stock to
be sold in the Public Offering (the "Offering Price") is more than $1.00 below
the Low Offering Price, the Company shall immediately notify NWIP and NWIP will
have 24 hours from receipt of such notice to elect (by notifying the Company and
the relevant Offering Party) whether to exercise its Preemption Right at the
Lower Offering Price and PROVIDED FURTHER that if the Offering Party proposes to
offer Company Common Stock more than 90 days after receipt of the Preemption
Election Notice the Offering Party shall, subject to the first sentence of
Section 5.03(a), comply again with the procedures set forth in this Section 5.03
(at the lower Offering Price, if applicable) before proceeding with the
offering.
(c) If NWIP elects to exercise its Preemption Right in connection with a
proposed DLJMB Demand Registration or MDP Demand Registration, as the case may
be, DLJMB or MDP, as the case may be, shall have the right to elect, by notice
given to NWIP and the Company within 10 days after receipt of the applicable
Preemption Election Notice, to withdraw the demand in its entirety PROVIDED that
DLJMB or MDP, as the case may be, reimburses the
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Company for any out of pocket fees and expenses incurred in connection with
such proposed registration.
(d) A delivery of the Preemption Election Notice by NWIP shall constitute a
binding agreement of NWIP to purchase all the relevant shares of Company Common
Stock that the Offering Party proposes to offer. At any closing of NWIP's
purchase of all the relevant shares of Company Common Stock that the Offering
Party proposes to offer, NWIP shall deliver to the Offering Party the purchase
price (i) by wire transfer of immediately available funds to such bank account
as the Offering Party shall have specified in writing no later than two Business
Days prior to the closing or (ii) by delivery of Nextel Shares as permitted by
Section 7.05.
(e) If NWIP purchases Shares in accordance with its Preemption Right with
respect to a Qualifying DLJ Demand or a Qualifying MDP Demand, the Non-Nextel
Shareholders shall have the rights set forth in Section 5.1(b) of the
Certificate.
ARTICLE 6.
REGISTRATION RIGHTS
SECTION 6.01 DEMAND REGISTRATION. (a) Subject to the provisions set forth
in Section 5.03 and this Section 6.01, if the Company shall receive a written
request by DLJMB (acting on behalf of the DLJ Entities) or MDP (acting on behalf
of the MDP Entities) (collectively, the "SELLING SHAREHOLDER") that the Company
effect the registration under the Securities Act of all or a portion of such
Selling Shareholder's shares of Company Common Stock (after conversion of
Preferred Stock into Company Common Stock) and specifying the intended method of
disposition thereof, then the Company shall promptly give written notice of such
requested registration (a "DEMAND REGISTRATION") at least 30 days prior to the
anticipated filing date of the registration statement relating to such Demand
Registration to the other Shareholders and thereupon will use its reasonable
best efforts to effect, as expeditiously as possible, the registration under the
Securities Act of:
(i) the Registrable Securities which the Company has been so requested
to register by the Selling Shareholder, then held by the Selling
Shareholder; and
(ii) subject to the restrictions set forth in Section 6.02(b), all
other Registrable Securities which any other Shareholder entitled to
request the Company to effect an Incidental Registration (as such term is
defined in Section 6.02) pursuant to Section 6.02 (all such Shareholders,
together with the Selling Shareholder, the "HOLDERS") has requested the
Company to register by written request received by the Company within 15
days after the receipt by such Holders of such written notice given by the
Company,
all to the extent necessary to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to be
registered. Notwithstanding the foregoing, prior to August 22, 2001, no
Shareholder that is a party to that certain IPO Approval and Lock-Up Agreement
which becomes effective upon the initial public offering of Common Stock of
the Company pursuant to an effective registration statement under the
Securities Act (the "Lock-Up Agreement") shall be entitled to make a Demand
Registration unless all of the
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stockholders that are party to such agreement consent in writing to the
sale of Common Stock pursuant to such Demand Registration.
Promptly after the expiration of the 15-day period referred to in Section
6.01(a)(ii) hereof, the Company will notify all the Holders who have requested
that their Registrable Securities be included in the Demand Registration of the
other Holders and the number of Registrable Securities requested to be included
therein. The Selling Shareholder requesting a registration under this Section
6.01 may, at any time prior to the effective date of the registration statement
relating to such registration, revoke such request, without liability to any of
the other Holders, by providing a written notice to the Company revoking such
request, in which case such request, so revoked, shall be considered a Demand
Registration unless such revocation arose out of the fault of the Company or
unless the Selling Shareholder reimburses the Company for all costs incurred by
the Company in connection with such registration, in which case such request
shall not be considered a Demand Registration.
(b) In no event will the Company be required to effect more than one Demand
Registration within any six-month period. If a Demand Registration is preempted
by NWIP pursuant to Section 5.03 or if DLJMB or MDP, as the case may be, elects
to withdraw a registration pursuant to Section 5.03, neither DLJMB nor MDP, as
the case may be, may initiate another Public Offering until 180 days after the
date NWIP elected to preempt the registration (or the date such Public Offering
is withdrawn by DLJMB or MDP, as the case may be, under Section 5.03(c), if
applicable).
(c) Subject to Section 6.01(e), (i) DLJMB and MDP shall collectively be
entitled to one Demand Registration, at the Company's expense, if the
Registrable Securities then owned by the Qualified DLJ Entities and initially
issued to a DLJ Entity by the Company represent at least 5% of the Fully Diluted
Company Common Stock, (ii) a second Demand Registration (at DLJMB's expense) if
the Registrable Securities then owned by the DLJ Entities (and issued to a DLJ
Entity by the Company) represent at least 2.5% of the Fully Diluted Company
Common Stock and (iii) a third Demand Registration (at DLJMB's expense) if the
Registrable Securities then owned by the DLJ Entities (and issued to a DLJ
Entity by the Company) represent at least 2.5% of the Fully Diluted Company
Common Stock; PROVIDED that the Company shall not be obligated to effect any
Demand Registration unless the aggregate proceeds expected to be received from
the sale of the Company Common Stock requested to be included in such Demand
Registration equal at least $50,000,000.
(d) Except as set forth in 5.03(c) and 6.01(c), the Company will pay all
Registration Expenses in connection with any Demand Registration.
(e) A Demand Registration requested pursuant to this Section 6.01 shall not
be deemed to have been effected (i) unless the registration statement relating
thereto (A) has become effective under the Securities Act and (B) has remained
effective for a period of at least 90 days (or such shorter period in which all
Registrable Securities of the Holders included in such registration have
actually been sold thereunder); PROVIDED that if after any registration
statement requested pursuant to this Section 6.01 becomes effective (x) such
registration statement is interfered with by any stop order, injunction or other
order or requirement of the SEC or other governmental agency or court and (y)
less than 75% of the Registrable Securities
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included in such registration statement have been sold thereunder (PROVIDED
that the Holders shall have exercised all commercially reasonable efforts to
effect the sale thereof during the period of effectiveness of such registration
statement), such registration statement shall not be considered a Demand
Registration or (ii) if the Maximum Offering Size (as defined below) is reduced
in accordance with Section 6.01(f) such that less than 66 2/3% of the
Registrable Securities of the Selling Shareholders sought to be included in
such registration are included unless such Selling Shareholder elects to
proceed with registration and sale of such reduced quantity of Registrable
Securities.
(f) If a Demand Registration involves an Underwritten Public Offering and
the managing underwriter shall advise the Company and the Selling Shareholders
that, in its view, (i) the number of shares of Company Common Stock requested to
be included in such registration (including Company Common Stock which the
Company proposes to be included which are not Registrable Securities) or (ii)
the inclusion of some or all of the shares of Company Common Stock owned by the
Holders, in any such case, exceeds the largest number of shares which can be
sold without having an adverse effect on such offering, including the price at
which such shares can be sold (the "MAXIMUM OFFERING SIZE"), the Company will
include in such registration, in the priority listed below, up to the Maximum
Offering Size:
(A) first, all Registrable Securities requested to be registered
by the Selling Shareholder (including any Registrable Securities
requested to be registered by the High Yield Investors) (allocated, if
necessary for the offering not to exceed the Maximum Offering Size pro
rata among the DLJ Entities, the MDP Entities and the High Yield
Investors on the basis of the relative number of Registrable
Securities so requested to be included in such registration);
(B) second, all Registrable Securities requested to be included
in such registration by any other Holder (allocated, if necessary for
the offering not to exceed the Maximum Offering Size, pro rata among
such other Holders on the basis of the relative number of Registrable
Securities so requested to be included in such registration); and
(C) third, any Company Common Stock proposed to be registered by
the Company.
(g) Upon written notice to DLJMB or MDP, as the case may be, the Company
may, as a matter of right, postpone effecting a registration pursuant to this
Section 6.01 on one occasion during any period of six consecutive months for a
reasonable time specified in the notice but not exceeding 90 days (which period
may not be extended or renewed except that it may be extended for an additional
30 days if the request for registration is made during the first quarter of any
fiscal year).
(h) [Intentionally Omitted].
(i) [Intentionally Omitted].
SECTION 6.02 COMPANY REGISTRATION; INCIDENTAL REGISTRATION. (a) Subject to
the provisions of Section 5.03, at such time as the Company has either completed
the Initial
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Required Build or, if such condition has not been satisfied, received the prior
approval of NWIP (which approval will not be unreasonably withheld), the
Company may initiate a Public Offering and register an offering of its Company
Common Stock under the Securities Act, PROVIDED that such Public Offering will
generate gross proceeds of no less than $75,000,000.
(b) If the Company proposes to register any of its Company Common Stock
under the Securities Act (other than a registration (x) on Form S-8 or S-4 or
any successor or similar forms, (y) relating to securities issuable upon
exercise of employee stock options or in connection with any employee benefit or
similar plan of the Company or (z) in connection with a direct or indirect
merger, acquisition or other similar transaction), whether or not for sale for
its own account, it will each such time, subject to the provisions of Sections
6.02(c), give prompt written notice to each Shareholder at least 20 days prior
to the anticipated filing date of the registration statement relating to such
registration, which notice shall set forth such Shareholders' rights under this
Section 6.02 and shall offer all Shareholders the opportunity to include in such
registration statement such number of Registrable Securities as each such
Shareholder may request. Upon the written request of any such Shareholder made
within 10 days after the receipt of notice from the Company (which request shall
specify the number of Registrable Securities intended to be disposed of by such
Shareholder), the Company will use all reasonable efforts to effect the
registration under the Securities Act of all Registrable Securities which the
Company has been so requested to register by such Shareholders, to the extent
requisite to permit the disposition of the Registrable Securities so to be
registered; PROVIDED that (i) if such registration involves an Underwritten
Public Offering, all such Shareholders requesting to be included in the
Company's registration must sell their Registrable Securities to the
underwriters selected as provided in Section 6.04(f) on the same terms and
conditions as apply to the Company or the Selling Shareholder, as applicable,
and (ii) if, at any time after giving written notice of its intention to
register any Company Common Stock pursuant to this Section 6.02(b) and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register such
Company Common Stock, the Company shall give written notice to all such
Shareholders and, thereupon, shall be relieved of its obligation to register any
Registrable Securities in connection with such registration. No registration
effected under this Section 6.02 shall relieve the Company of its obligations to
effect a Demand Registration to the extent required by Section 6.01. The Company
will pay all Registration Expenses in connection with each registration of
Registrable Securities requested pursuant to this Section 6.02.
(c) If a registration pursuant to this Section 6.02 involves an
Underwritten Public Offering (other than in the case of an Underwritten Public
Offering requested by any Shareholder in a Demand Registration, in which case
the provisions with respect to priority of inclusion in such offering set forth
in Section 6.01(f) shall apply) and either (A) the Board (with good reason
relating to the success of the Offering) elects to preclude the DLJ Entities,
the MDP Entities, the Strategic Investors and/or the Management Shareholders
from including shares in the Public Offering or (B) the managing underwriter
advises the Company in writing that, in its view, the number of shares of
Company Common Stock which the Company and the selling Shareholders intend to
include in such registration exceeds the Maximum Offering Size, the Company will
include in such registration, in the following priority, up to the Maximum
Offering Size:
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(i) first, so much of the Company Common Stock proposed to be
registered for the account of the Company as would not cause the offering
to exceed the Maximum Offering Size; and
(ii) second, all Registrable Securities requested to be included in
such registration by any Shareholder pursuant to Section 6.02 (allocated,
if necessary for the offering not to exceed the Maximum Offering Size, pro
rata among such Shareholders on the basis of the relative number of shares
of Registrable Securities so requested to be included in such
registration); PROVIDED, that, prior to [June], 2001, no Shareholder that
is a party to the Lock-Up Agreement shall be permitted to include any
Registrable Securities in any such registration unless all of the
stockholders that are a party to such Lock-Up Agreement consent in writing
to such inclusion.
SECTION 6.03 HOLDBACK AGREEMENTS. With respect to each and every
Underwritten Public Offering: (a) each Shareholder agrees not to effect any
public sale or distribution, including any sale pursuant to Rule 144, or any
successor provision, under the Securities Act, of any Registrable Securities,
and not to effect any such public sale or distribution of any other security of
the Company (in each case, other than as part of such Underwritten Public
Offering) during the 14 days prior to the effective date of the applicable
registration statement (except as part of such registration) or during the
period after such effective date that such managing underwriter and the Company
shall agree (but not to exceed 180 days or any such shorter period (but not less
than 90 days) as the managing underwriter may suggest).
(b) Each Shareholder agrees that, so long as the DLJ Entities or the MDP
Entities, as the case may be, have the right to request one or more Demand
Registrations under Section 6.01, such Shareholder will not effect any public
sale or distribution, including any sale pursuant to Rule 144, or any successor
provision, under the Securities Act, of any Registrable Securities, or any such
public sale or distribution of any other security of the Company, from the date
that the Shareholder is first notified of the Company's intention to make a
Public Offering (it being understood that, for so long as DLJMB or MDP, as the
case may be, has the right to designate one member of the Board pursuant to
Section 2.01(a), a resolution of the Board authorizing the Company to initiate a
Public Offering shall constitute notice to the DLJ Entities or the MDP Entities,
as the case may be, of such intention) through the date that is 90 days
following completion of such Public Offering, unless the underwriting group, not
including Donaldson, Lufkin & Jenrette, Inc. or any of its controlled
Affiliates, permits such sales or distributions to be made by the Shareholders
during such 90 day period.
SECTION 6.04 REGISTRATION PROCEDURES. Whenever Shareholders request that
any Registrable Securities be registered pursuant to Section 6.01 or 6.02
hereof, the Company will, subject to the provisions of such Sections, use all
reasonable efforts to effect the registration and the sale of such Registrable
Securities in accordance with the intended method of disposition thereof as
quickly as practicable, and in connection with any such request:
(a) The Company will as expeditiously as possible prepare and file with the
SEC a registration statement on any form selected by counsel for the Company and
which form shall be available for the sale of the Registrable Securities to be
registered thereunder in accordance with the intended method of distribution
thereof, and use all reasonable efforts to cause such filed
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registration statement to become and remain effective for a period of not less
than 90 days (or such shorter period in which all of the Registrable Securities
of the Shareholders included in such registration statement shall have actually
been sold thereunder).
(b) The Company will, if requested, prior to filing a registration
statement or prospectus or any amendment or supplement thereto, furnish to each
Shareholder and each underwriter, if any, of the Registrable Securities covered
by such registration statement copies of such registration statement as proposed
to be filed, and thereafter the Company will furnish to such Shareholder and
underwriter, if any, such number of copies of such registration statement, each
amendment and supplement thereto (in each case including all exhibits thereto
and documents incorporated by reference therein), the prospectus included in
such registration statement (including each preliminary prospectus) and such
other documents as such Shareholder or underwriter may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
Shareholder. Each Shareholder shall have the right to request that the Company
modify any information contained in such registration statement, amendment and
supplement thereto pertaining to such Shareholder and the Company shall use all
reasonable efforts to comply with such request, PROVIDED, HOWEVER, that the
Company shall not have any obligation to so modify any information if so doing
would cause the prospectus to contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein (in light of the circumstances under which they were
made) not misleading.
(c) After the filing of the registration statement, the Company will
promptly notify each Shareholder holding Registrable Securities covered by such
registration statement of any stop order issued or threatened by the SEC or any
state securities commission under state blue sky laws and take all reasonable
actions required to prevent the entry of such stop order or to remove it if
entered.
(d) The Company will use all reasonable efforts to (i) register or qualify
the Registrable Securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions in the United States as
any Shareholder holding such Registrable Securities reasonably (in light of such
Shareholder's intended plan of distribution) requests and (ii) cause such
Registrable Securities to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company and do any and all other acts and things
that may be reasonably necessary or advisable to enable such Shareholder to
consummate the disposition of the Registrable Securities owned by such
Shareholder; PROVIDED that the Company will not be required to (A) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this paragraph (d), (B) subject itself to taxation
in any such jurisdiction or (C) consent to general service of process in any
such jurisdiction.
(e) The Company will immediately notify each Shareholder holding such
Registrable Securities covered by such registration statement, at any time when
a prospectus relating thereto is required to be delivered under the Securities
Act, of the occurrence of an event requiring the preparation of a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or
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necessary to make the statements therein (in light of the circumstances under
which they were made) not misleading and promptly prepare and make available to
each such Shareholder and file with the SEC any such supplement or amendment.
(f) The Board will pick the underwriter(s) of any and all registered
offerings of Company Common Stock, except that in connection with (i) any Demand
Registration requested by DLJMB or their Permitted Transferees, DLJMB and the
Company will agree on the lead underwriter or (ii) any registration for the
account of the Company, DLJMB has the right to veto one lead underwriter. Any
Affiliate of Donaldson, Lufkin & Jenrette, Inc. may be considered for selection
as underwriter for an Underwritten Public Offering. The Company will enter into
customary agreements (including an underwriting agreement in customary form) and
take such other actions as are reasonably required in order to expedite or
facilitate the disposition of such Registrable Securities, including the
engagement of a "qualified independent underwriter" in connection with the
qualification of the underwriting arrangements with the NASD.
(g) Upon execution of confidentiality agreements in form and substance
reasonably satisfactory to the Company, the Company will make available for
inspection by any Shareholder and any underwriter participating in any offering
pursuant to a registration statement being filed by the Company pursuant to this
Section 6.04 and any attorney, accountant or other professional retained by any
such Shareholder or underwriter (collectively, the "INSPECTORS"), all financial
and other records, pertinent corporate documents and properties of the Company
(collectively, the "RECORDS") as shall be reasonably requested by any such
Person, and cause the Company's officers, directors and employees to supply all
information reasonably requested by any Inspectors in connection with such
registration statement.
(h) The Company will furnish to each such Shareholder and to each such
underwriter, if any, a signed counterpart, addressed to such underwriter and the
participating Shareholders, of (i) an opinion or opinions of counsel to the
Company and (ii) a comfort letter or comfort letters from the Company's
independent public accountants, each in customary form and covering such matters
of the type customarily covered by opinions or comfort letters, as the case may
be, as a majority in interest of such Shareholders or the managing underwriter
therefor reasonably requests.
(i) The Company will otherwise use all reasonable efforts to comply with
all applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act.
(j) The Company may require each such Shareholder (i) to promptly furnish
in writing to the Company information regarding the distribution of the
Registrable Securities as the Company may from time to time reasonably request,
(ii) to provide such other information as may be legally required in connection
with such registration and (iii) to take such other acts as are reasonably
necessary under the circumstances.
(k) Each such Shareholder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 6.04(e),
such Shareholder will
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forthwith discontinue disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until such
Shareholder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 6.04(e), and, if so directed by the Company, such
Shareholder will deliver to the Company all copies, other than any permanent
file copies then in such Shareholder's possession, of the most recent
prospectus covering such Registrable Securities at the time of receipt of such
notice. In the event that the Company shall give such notice, the Company shall
extend the period during which such registration statement shall be maintained
effective (including the period referred to in Section 6.04(a)), by the number
of days during the period from and including the date of the giving of notice
pursuant to Section 6.04(e) to the date when the Company shall make available to
such Shareholder a prospectus supplemented or amended to conform with the
requirements of Section 6.04(e).
SECTION 6.05 INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each Shareholder holding Registrable Securities
covered by a registration statement, its officers, directors, employees,
partners and agents, and each Person, if any, who controls such Shareholder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages, liabilities
and expenses caused by (i) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement, prospectus, offering
circular or other offering document relating to the Registrable Securities (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or (ii) any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading (in the case of any
prospectus, in light of the circumstances under which they were made), except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission so made in
strict conformity with information furnished in writing to the Company by such
Shareholder or on such Shareholder's behalf expressly for use therein or (iii)
any violation by the Company of the Securities Act or any rule or regulation
promulgated thereunder applicable to the Company, or any blue sky or state
securities laws or any rule or regulation thereunder applicable to the Company;
PROVIDED that with respect to any untrue statement or omission or alleged untrue
statement or omission made in any preliminary prospectus, or in any prospectus,
as the case may be, the indemnity agreement contained in this paragraph shall
not apply to the extent that any such loss, claim, damage, liability or expense
results from the fact that a current copy of the prospectus (or, in the case of
a prospectus, the prospectus as amended or supplemented) was not sent or given
to the Person asserting any such loss, claim, damage, liability or expense at or
prior to the written confirmation of the sale of the Registrable Securities
concerned to such Person if it is determined that the Company has provided such
prospectus to such Shareholder in a timely manner prior to such sale and it was
the responsibility of such Shareholder under the Securities Act to provide such
Person with a current copy of the prospectus (or such amended or supplemented
prospectus, as the case may be) and such current copy of the prospectus (or such
amended or supplemented prospectus, as the case may be) would have cured the
defect giving rise to such loss, claim, damage, liability or expense. The
Company also agrees to indemnify any underwriters of the Registrable Securities
and each accountant, attorney and other Person who participates in the offering
of the Registrable Securities on behalf of the Company or any selling
shareholder, their officers and directors and each person who controls such
underwriters and other Persons on substantially the same basis as that of the
indemnification of the Shareholders provided in this Section 6.05.
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SECTION 6.06 INDEMNIFICATION BY PARTICIPATING SHAREHOLDERS. Each
Shareholder holding Registrable Securities included in any registration
statement agrees, severally but not jointly, to indemnify and hold harmless the
Company, its officers, directors and agents and each Person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Company to such Shareholder, but only (i) with respect to
information furnished in writing by such Shareholder or on such Shareholder's
behalf expressly for use in any registration statement, prospectus, offering
circular or other document relating to the Registrable Securities, or any
amendment or supplement thereto, or any preliminary prospectus or (ii) to the
extent that any loss, claim, damage, liability or expense described in Section
6.05 results from the fact that a current copy of the prospectus (or, in the
case of a prospectus, the prospectus as amended or supplemented) was not sent or
given to the Person asserting any such loss, claim, damage, liability or expense
at or prior to the written confirmation of the sale of the Registrable
Securities concerned to such Person if it is determined that it was the
responsibility of such Shareholder to provide such Person with a current copy of
the prospectus (or such amended or supplemented prospectus, as the case may be)
and such current copy of the prospectus (or such amended or supplemented
prospectus, as the case may be) would have cured the defect giving rise to such
loss, claim, damage, liability or expense. Each such Shareholder shall be
prepared, if required by the underwriting agreement, to indemnify and hold
harmless any underwriters of the Registrable Securities and each accountant,
attorney and other Person who participates in the offering of the Registrable
Securities on behalf of the Company or any selling shareholder, their officers
and directors and each person who controls such underwriters and other Persons
on substantially the same basis as that of the indemnification of the Company
provided in this Section 6.06. As a condition to including Registrable
Securities in any registration statement filed in accordance with Article 6, the
Company may require that it shall have received an undertaking reasonably
satisfactory to it from any underwriter to indemnify and hold it harmless to the
extent customarily provided by underwriters with respect to similar securities.
SECTION 6.07 CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any proceeding
(including any governmental investigation) shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to this Article 6,
such Person (an "INDEMNIFIED PARTY"), after the Indemnified Party has actual
notice of any proceeding as to which indemnity may be sought, shall promptly
notify the Person against whom such indemnity may be sought (the "INDEMNIFYING
PARTY") in writing and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all fees and expenses; PROVIDED that the
failure of any Indemnified Party so to notify the Indemnifying Party shall not
relieve the Indemnifying Party of its obligations hereunder except to the extent
that the Indemnifying Party is materially prejudiced by such failure to notify.
In any such proceeding, any Indemnified Party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) in the
reasonable judgment of such Indemnified Party representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the Indemnifying Party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Indemnified Parties, and that
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all such fees and expenses shall be reimbursed as they are incurred. In the case
of any such separate firm for the Indemnified Parties, such firm shall be
designated in writing by the Indemnified Parties. The Indemnifying Party shall
not be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent, or if there be a final judgment for
the plaintiff, the Indemnifying Party shall indemnify and hold harmless such
Indemnified Parties from and against any and all losses, claims, damages,
liabilities and expenses or liability (to the extent stated above) by reason of
such settlement or judgment. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any pending
or threatened proceeding in respect of which any Indemnified Party is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability arising out of such proceeding.
SECTION 6.08 CONTRIBUTION. If the indemnification provided for in this
Article 6 is held by a court of competent jurisdiction to be unavailable to the
Indemnified Parties in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then each such Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages,
liabilities or expenses (i) as between the Company and the Shareholders holding
Registrable Securities covered by a registration statement and their related
Indemnified Parties on the one hand and the underwriters, other participating
Persons and their related Indemnified Parties on the other, in such proportion
as is appropriate to reflect the relative benefits received by the Company and
such Shareholders on the one hand and the underwriters and other participating
Persons on the other, from the offering of the Shareholders' Registrable
Securities, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits but also
the relative fault of the Company and such Shareholders on the one hand and of
such underwriters and other participating Persons on the other in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations
and (ii) as between the Company and their related Indemnified Parties on the one
hand and each such Shareholder and their related Indemnified Parties on the
other, in such proportion as is appropriate to reflect the relative fault of the
Company and of each such Shareholder in connection with such statements or
omissions, as well as any other relevant equitable considerations. The relative
benefits received by the Company and such Shareholders on the one hand and such
underwriters and other participating Persons on the other shall be deemed to be
in the same proportion as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses) received
by the Company and such Shareholders bear to the total underwriting discounts
and commissions received by such underwriters and fees received by other
participating Persons, in each case as set forth in the table on the cover page
of the prospectus. The relative fault of the Company and such Shareholders on
the one hand and of such underwriters and other participating Persons on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
and such Shareholders or by such underwriters and other participating Persons.
The relative fault of the Company on the one hand and of each such Shareholder
on the other shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
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such party, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Shareholders agree that it would not be just and
equitable if contribution pursuant to this Section 6.08 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages, liabilities or expenses referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 6.08, no underwriter shall be
required to contribute any amount in excess of the underwriting discount
applicable to Securities purchased by such underwriter in such offering, less
the aggregate amount of any damages which such underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission, and no Shareholder shall be required to contribute any
amount in excess of the amount by which the total price at which the Registrable
Securities of such Shareholder were offered to the public exceeds the amount of
any damages which such Shareholder has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Each Shareholder's
obligation to contribute pursuant to this Section 6.08 is several in the
proportion that the proceeds of the offering received by such Shareholder bears
to the total proceeds of the offering received by all such Shareholders and not
joint.
SECTION 6.09 PARTICIPATION IN PUBLIC OFFERING. No Person may participate in
any Underwritten Public Offering hereunder unless such Person (a) agrees to sell
such Person's securities on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements and the provisions of this Agreement in
respect of registration rights.
SECTION 6.10 COOPERATION BY THE COMPANY. In the event any Shareholder shall
transfer any Registrable Securities pursuant to Rule 144A under the Securities
Act, the Company shall cooperate, to the extent commercially reasonable, with
such Shareholder and shall provide to such Shareholder such information as such
Shareholder shall reasonably request, PROVIDED such Shareholder shall pay any
material expenses incurred by the Company in connection with its cooperation.
SECTION 6.11 NO TRANSFER OF REGISTRATION RIGHTS. None of the rights of
Shareholders under this Article 6 shall be assignable by any Shareholder to any
Person acquiring Securities in any Public Offering or pursuant to Rule 144A of
the Securities Act.
SECTION 6.12 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. The Company
shall not enter into any agreement with any holder or prospective holder of any
securities of the Company that would allow such holder or prospective holder to
include such securities in any
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registration filed pursuant to Section 6.01 or 6.02, (a) unless under the
terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of
such securities would not reduce the amount of the Registrable Securities of
the Shareholders included therein or (b) on terms otherwise more favorable to
such holder or prospective holder than the registration rights provided in
this Agreement.
SECTION 6.13 OBLIGATION TO REGISTER NEXTEL AND NWIP SECURITIES. In
connection with (i) any shareholder action required to be taken in connection
with the exercise of a Put Right under Section 4.01(b) hereof or Section 5.1(b)
of the Certificate, (ii) any shareholder action required to be taken in
connection with Option B under Section 7.04(b), or (iii) any Public Offering, if
required by applicable law, NWIP will cause Nextel to register the Put Rights,
NWIP Call Right and/or Nextel Shares, as the case may be (the "NEXTEL
SECURITIES"), on the appropriate registration form under the Securities Act, and
each of NWIP and Nextel will use its reasonable best efforts to (A) comply with
the Securities Act and the Securities Exchange Act of 1934 and all applicable
rules and regulations thereunder, (B) register or qualify the relevant
securities under applicable blue sky laws and (C) comply with all other laws
applicable to the Nextel Securities. NWIP and Nextel will complete any such
registration of the Nextel Securities in a timely manner that permits the
Shareholders and/or the Company to comply with the relevant time periods set
forth in this Agreement and the Company will use its reasonable best efforts to
assist NWIP and Nextel in the completion of any such registration and, to the
extent any Shareholder has agreed to take any action or refrain from taking any
action hereunder in connection with a registration of the Company's Shares, such
Shareholder shall take such action or refrain from taking such action in
connection with a registration of Nextel Securities, PROVIDED that in no event
will such Shareholder be obligated to refrain from selling Nextel Shares upon
receipt of such Nextel Shares pursuant to this Agreement or the Joint Venture
Agreement. NWIP and Nextel will be responsible for paying promptly any
additional costs and expenses incurred by either of them or the Company in
connection with the registration of the Nextel Securities.
ARTICLE 7.
CERTAIN COVENANTS AND AGREEMENTS
SECTION 7.01 CONFIDENTIALITY. (a) Each Shareholder hereby agrees that
Confidential Information (as defined below) furnished and to be furnished to it
was and will be made available in connection with such Shareholder's investment
in the Company. Each Shareholder agrees that it will use the Confidential
Information only in connection with its investment in the Company and not for
any other purpose. Each Shareholder further acknowledges and agrees that it will
not disclose any Confidential Information to any Person; PROVIDED that
Confidential Information may be disclosed (i) to such Shareholder's
Representatives (as defined below) in the normal course of the performance of
their duties or to any financial institution providing credit to such
Shareholder, (ii) to the extent required by applicable law, rule or regulation
(including complying with any oral or written questions, interrogatories,
requests for information or documents, subpoena, civil investigative demand or
similar process to which a Shareholder is subject; PROVIDED that such
Shareholder gives the Company prompt notice of such request(s), to the extent
practicable, so that the Company may seek an appropriate protective order or
similar relief (and the Shareholder shall cooperate with such efforts by the
Company, and shall in any
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event make only the minimum disclosure required by such law, rule or
regulation)), (iii) to any Person to whom such Shareholder is contemplating a
transfer of its Shares (PROVIDED that such transfer would not be in violation of
the provisions of this Agreement and as long as such Third Party is advised of
the confidential nature of such information and agrees to be bound by a
confidentiality agreement in form and substance satisfactory to the Company and
consistent with the provisions hereof) or (iv) if the prior written consent of
the Board shall have been obtained. Nothing contained herein shall prevent the
use (subject, to the extent possible, to a protective order) of Confidential
Information in connection with the assertion or defense of any claim by or
against the Company or any Shareholder.
(b) "CONFIDENTIAL INFORMATION" means any information concerning the Company
and Persons which are or become its Subsidiaries or the financial condition,
business, operations or prospects of the Company and Persons which are or become
its Subsidiaries in the possession of or furnished to any Shareholder
(including, without limitation, by virtue of its present or former right to
designate a director of the Company); PROVIDED that the term Confidential
Information does not include information which (i) is or becomes generally
available to the public other than as a result of a disclosure by a Shareholder
or its partners, directors, officers, employees, agents, counsel, investment
advisers or representatives (all such persons being collectively referred to as
"REPRESENTATIVES") in violation of the Subscription Agreement or this Agreement,
(ii) is or was available to such Shareholder on a nonconfidential basis prior to
its disclosure to such Shareholder or its Representatives by the Company or
(iii) was or becomes available to such Shareholder on a non-confidential basis
from a source other than the Company, PROVIDED that such source is or was (at
the time of receipt of the relevant information) not, to the best of such
Shareholder's knowledge, bound by a confidentiality agreement with (or other
confidentiality obligation to) the Company or another Person.
SECTION 7.02 REPORTS. The Company will furnish each Shareholder with the
quarterly and annual financial reports that the Company is required to file with
the SEC pursuant to Section 13 or Section 15(d) of the Exchange Act.
SECTION 7.03 SUBSEQUENT DEPLOYMENT OF ALTERNATIVE DIGITAL TRANSMISSION
TECHNOLOGY. If the NDS elect to deploy an alternative digital transmission
technology on its 800 MHZ SMR frequencies on a nationwide basis (a "TECHNOLOGY
CHANGE") NWIP must notify the Company (a "TECHNOLOGY CHANGE NOTICE"). If such
Technology Change results in the Company being unable to provide its customers
with nationwide service comparable to the service available to such customers
immediately prior to the Technology Change and the Company notifies NWIP within
60 days of receipt of the Technology Change Notice that the Technology Change is
materially adverse to the Company, then NWIP will have the option to either (i)
provide the Company at no charge with replacement equipment that is compatible
with the Technology Change together with the resources necessary to install such
equipment so that the Company remains in the same operational position that it
was in prior to the Technology Change or (ii) purchase all of the Company
Capital Stock at a purchase price equal to the Fair Market Value (determined as
if neither the Company nor the NDS needed to implement the Technology Change and
without diminishing the value of the Company due to the fact that the Technology
Change had not been implemented). NWIP must notify the Company of its election
within 60 days of receipt of notice from the Company and, if NWIP elects to
purchase all the Company Capital Stock, such purchase must be consummated within
90 days of its election or as
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otherwise permitted by Section 7.05, subject to all third party consents and
the receipt of customary representations and warranties (it being understood
that in no event shall a Shareholder be obligated to make any representations
and warranties, or to provide any indemnities, other than title to the Company
Capital Stock held by such Person, such title being free and clear of all
liens and encumbrances, and such Person's authority, authorization and right
to enter into and consummate the sale without contravention of any law or
agreement, and without the need for any governmental or other approval with
respect to its Shares).
SECTION 7.04 LIMITATIONS ON SUBSEQUENT CHANGES TO COMPANY'S OPERATIONS. (a)
If at any time, and from time to time, after January 29, 1999, NWIP requires the
Company to implement a change in the Company's business, operations or systems
(including, without limitation, changes to the Service Pricing Structure or the
Required Services or changes relating to Improvements) under the Joint Venture
Agreement (each such change, a "NEXTEL REQUIRED UPGRADE") and the Company
determines that it can not implement it without causing either (i) the offering
of wireless communications services in the Territory by the Company and its
Affiliates to be materially more costly or difficult to manage than the NDS's
offering of wireless communication services in Comparable Service Areas (as
defined in the Joint Venture Agreement), or (ii) a payment or other material
default under the Company's material debt instruments or any other material
adverse financial effect on the Company and its Subsidiaries, taken as a whole,
the Company may elect not to implement the Nextel Required Upgrade by notifying
NWIP of its determination prior to the date the Company is required to implement
such Nextel Required Upgrade (the "ADVERSE IMPACT NOTICE"). The Adverse Impact
Notice shall provide (x) a brief summary of the problems and/or costs the
Company would expect to encounter in implementing the Nextel Required Upgrade
and (y) a dollar estimate of the adverse financial impact to the Company of such
implementation. Within 30 days of providing NWIP with the Adverse Impact Notice,
the Company shall prepare and deliver to NWIP a profit and loss analysis of the
Nextel Required Upgrade (the "NEXTEL REQUIRED UPGRADE ANALYSIS") which analysis
shall provide a summary of (A) the benefits and burdens of implementing the
Nextel Required Upgrade and any Nextel Required Upgrade previously implemented,
(B) the expected profits and losses to the Company if the Nextel Required
Upgrade is implemented, (C) any prior changes implemented by the Company at the
Nextel Group's request and (D) reasonable supporting detail for all of the
foregoing. The Company will supplement such analysis and provide additional
detail as NWIP shall reasonably request.
(b) Within 30 days of receipt of the Nextel Required Upgrade Analysis, NWIP
will notify the Company that the Company (i) will not have to implement the
Nextel Required Upgrade, (ii) will be required to implement some or all of the
Nextel Required Upgrade and will be subsidized by NWIP in accordance with
paragraph 7.04(g), or (iii) will be required to implement some or all of the
Nextel Required Upgrade and will not be subsidized by NWIP (the "NEXTEL
DETERMINATION"). The Nextel Determination shall be final and binding on the
Company unless NWIP elects alternative (iii), in which case the Board may choose
to (A) implement the Nextel Required Upgrade without a subsidy ("OPTION A"), (B)
allow the Non-Nextel Shareholders to elect whether to (x) sell all their Company
Capital Stock to Nextel at the Investment Formula Price in accordance with
Section 5.1(b)(i)(C) of the Certificate or (y) cause the Company to implement
the Nextel Required Upgrade without a subsidy ("OPTION B"), or (C) request
arbitration to determine the subsidy NWIP shall be required to pay in connection
with the implementation of the Nextel Required Upgrade ("OPTION C").
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(c) In the event that the Board, by written notice to NWIP within 10 days
of receipt of the Nextel Determination, causes the Company to elect Option C,
then the provisions of Section 12.7 of the Joint Venture Agreement shall apply
and after the arbitrators present their findings, the Company, by written notice
to NWIP within 10 days of receipt of the arbitrators determination shall choose
either Option A or Option B or elect to implement the Nextel Required Upgrade
and receive the subsidy as determined by the arbitrators ("OPTION D").
(d) In the event that the Board elects Option D, NWIP by written notice to
the Company within 10 days of receipt of the Company's election under Section
7.04(c), shall: (i) inform the Company that it does not need to implement the
Nextel Required Upgrade; (ii) abide by the arbitration and pay the subsidy; or
(iii) determine the Fair Market Value of the Company generally in accordance
with Section 4.03, in which case, after such determination, it may elect to
proceed with option (d)(i) or (d)(ii) above or it may elect to purchase all of
the Company Capital Stock (other than the Series B Preferred) at a purchase
price equal to the higher of (A) the Investment Formula Price or (B) the Fair
Market Value and otherwise generally in accordance with Section 4.01.
(e) If NWIP elects to exercise its call option under Section 7.04(d)(iii)
then the Company, by written notice to NWIP within 10 days of receipt of NWIP's
election, may elect to cancel such call by electing to implement the change
without the receipt of any subsidy from NWIP.
(f) In the event that any expenditure of funds and/or incurrence of debt by
the Company is required to implement a Nextel Required Upgrade, and such
expenditure or incurrence would result in an Applicable Default or Event of
Default under any material debt document to which the Company is a party (a
"DEFAULT OUTCOME"), then the Company and NWIP shall negotiate in good faith to
develop or identify alternative measures or procedures to (i) implement such
Nextel Required Upgrade, (ii) fund such expenditure, or (iii) substitute for the
incurrence of such debt such that the outcome would not result in such a Default
Outcome, and shall (assuming alternative measures or procedures are identified
that are reasonably acceptable to each of the Company and NWIP) cooperate to
implement the Nextel Required Upgrade as promptly as practicable. Without
limiting the generality of the foregoing, the Company shall be required to
implement a Required Service through any alternative measure or procedure
suggested by NWIP so long as such measures or procedures do not involve actions
or conditions that are reasonably likely to result in a Default Outcome and
either (A) will not result in net losses to the Company, or (B) NWIP agrees to
subsidize any such net losses. Except as provided above, if implementation of a
Nextel Required Upgrade would result in a Default Outcome, the Company shall not
be required to implement such Nextel Required Upgrade. As used herein with
respect to a Nextel Required Upgrade, an "APPLICABLE DEFAULT OR EVENT OF
DEFAULT" means any material default or event of default under any material debt
document to which the Company is a party, other than any default or event of
default under a Disqualified Provision of any such debt document. As used herein
with respect to a Nextel Required Upgrade, "DISQUALIFIED PROVISION" means any
provision (i) entered into by the Company within the 12-month period preceding
the date that NWIP notifies the Company that it is required to implement a
Nextel Required Upgrade (except a provision that the Company had become legally
obligated to enter into prior to such 12-month period) and (ii) if the Company
has notified NWIP of such provision, as to which NWIP has within 15 days
thereafter advised the Company in reasonable detail of the
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nature of such pending or potential Nextel Required Upgrade and that NWIP
believes in good faith such provision could result in a payment or other
material default or event of default thereunder if such operational changes or
upgrades occur, PROVIDED that a provision shall not be a Disqualified Provision
if a payment or other material default or event of default under such debt
document would have resulted even if such provision had not been entered into.
(g) If NWIP is required to pay a subsidy pursuant to this Section 7.04,
then the Company and NWIP shall negotiate in good faith to determine when NWIP
shall make such subsidy payments to the Company, with the first such payment to
be made no later than the date on which the Company has implemented the Nextel
Required Upgrade. The Company and NWIP agree that any subsidy paid by NWIP to
the Company will be subject to adjustment such that the subsidy will not exceed
the least of (i) the Company's anticipated aggregate net losses set forth in the
Nextel Required Upgrade Analysis, (ii) the Company's actual net losses
associated with such Nextel Required Upgrade through the date of the subsidy
payment, (iii) the anticipated cumulative losses for all Nextel Required
Upgrades net of all cumulative anticipated profits for all Nextel Required
Upgrades since the date hereof as set forth in the most recent Nextel Required
Upgrade Analysis, or (iv) the actual cumulative losses for all Nextel Required
Upgrades net of all actual cumulative profits for all Nextel Required Upgrades
from the date hereof through the date of the subsidy payment.
(h) For purposes of this Section 7.04, the following terms shall have the
following meanings:
"IMPROVEMENTS" means any changes, modifications, upgrades or enhancements
to the iDEN technology or any other Nextel or NDS network components.
"REQUIRED SERVICES" means the Nextel and/or NDS products, services and
capabilities identified on Exhibit 6.1 to the Joint Venture Agreement.
"SERVICE PRICING STRUCTURE" means the Nextel pricing structure described in
Exhibit 9.1A to the Joint Venture Agreement.
SECTION 7.05 DELIVERY OF NEXTEL STOCK. (a) Any payment for Company
Capital Stock purchased by NWIP from the Company or the Shareholders pursuant
to Section 4.01, 5.01, 5.03, 7.03 or 7.04 may be made at NWIP's election, by
delivery of listed Nextel common stock (the "NEXTEL SHARES"), PROVIDED that
(i) NWIP delivers such Nextel Shares within 180 days of the date of closing
for the purchase of such Company Capital Stock (the "PURCHASE DATE"), and
(ii) NWIP (and Nextel with respect to Section 7.05(d) only) agree to comply
with the requirements set forth in this Section 7.05. Notwithstanding the
immediately preceding sentence, if NWIP is exercising its rights under
Section 5.01, the consideration paid by NWIP for the relevant securities
shall be cash or an amount of Nextel Shares equivalent (in value) to the
purchase price, which shares shall be delivered on the Purchase Date.
Notwithstanding the two preceding sentences, if NWIP elects to deliver Nextel
Shares, which election NWIP may change at any time prior to the delivery of
such shares, NWIP will use its reasonable best efforts to deliver Nextel
Shares to the Company or the Shareholders as promptly as practicable,
PROVIDED that (x) if NWIP fails to deliver the Nextel Shares or cash within
60 days of the Purchase Date, it shall pay interest on the purchase price at
a rate of 10% per annum from the Purchase Date and
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(y) if NWIP fails to deliver Nextel Shares in accordance with this Section
7.05, NWIP shall deliver cash no later than the last day of such relevant time
period.
(b) If NWIP delivers Nextel Shares, in lieu of cash, pursuant to Section
7.05(a) hereof or Section 5.2A of the Certificate, NWIP shall use its reasonable
best efforts to assist each Person receiving such Nextel Shares in converting
such Nextel Shares to cash within 30 days of delivery of the Nextel Shares.
(c) NWIP shall not be deemed to have delivered Nextel Shares or to have
discharged its payment obligations under this Agreement unless, at the time of
delivery of such Nextel Shares, (i) NWIP delivers to the Board and the selling
Shareholders a SEC "no action" letter or an opinion of counsel reasonably
acceptable to the Board (excluding the NWIP Designee) that provides that,
assuming that the Shareholder receiving the Nextel Shares is not an Affiliate of
Nextel, the shares to be received by that Shareholder can be freely sold without
complying with the registration requirements of the Securities Act or (ii) the
SEC has declared effective a registration statement on the appropriate form,
Nextel has caused such shares to be quoted on the NASDAQ National Market and the
recipients shall have a continuous period of 60 days from the date of delivery
to sell such shares under such registration statement.
(d) In connection with a registration pursuant to the immediately preceding
clause (c)(ii), (A) Nextel will (x) be responsible for promptly paying all
registration expenses that are substantially similar to the Registration
Expenses that will be paid by the Company pursuant to the terms of this
Agreement, (y) indemnify the relevant Shareholders on terms substantially
similar to those set forth in Sections 6.05, 6.07 and 6.08 and (z) comply with
registration procedures substantially similar to those set forth in Sections
6.04, 6.09 and 6.10 and (B) the Shareholders will indemnify Nextel on terms
substantially similar to those set forth in Sections 6.06, 6.07 and 6.08 and, if
applicable, cooperate to effect the registration on terms substantially similar
to those applicable to Shareholders as set forth in Section 6.04.
(e) For purposes of any payment by NWIP in Nextel Shares, the value of
Nextel common stock will be based on the average Closing Price of Nextel common
stock for the ten Trading Days immediately preceding the date of delivery of the
Nextel Shares. If NWIP elects to consummate a transaction with Nextel Shares
instead of cash, NWIP will take all reasonable steps requested by the Board
(with any NWIP Designee abstaining) to permit the purchase to be tax deferred to
the relevant Shareholders.
SECTION 7.06 SENIOR MANAGEMENT RESIGNATION. If either John Chapple or John
Thompson provides notice that he is resigning for Good Reason pursuant to clause
(v) of the definition of "GOOD REASON" as defined in their employment agreements
with the Company, within 45 days of such notice, prior to the closing of a sale
governed by Section 5.5 of the Certificate, NWIP will have an obligation to
replace such executive. If NWIP is unable to complete such replacement within
such 45-day period, the Board will be responsible for replacing such executives.
In any such event, NWIP will be responsible for cash compensation (including,
without limitation, any bonus payments other than "signing" bonus consideration)
and any benefit programs for such replacement executives and NWIP will be
responsible for the cost of equity incentives (or "signing" bonus consideration)
needed to attract such replacement executives.
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ARTICLE 8.
MISCELLANEOUS
SECTION 8.01 ENTIRE AGREEMENT. This Agreement and the Transaction Documents
constitute the entire agreement among the parties with respect to the subject
matter hereof and thereof and supersede all prior and contemporaneous agreements
and understandings, both oral and written (including without limitation that
certain Shareholders' Agreement dated as of January 29, 1999 by and among the
parties hereto) between the parties with respect to the subject matter hereof
and thereof.
SECTION 8.02 BINDING EFFECT; BENEFIT. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
successors, legal representatives and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer on any Person other than
the parties hereto and the Indemnified Parties, and their respective heirs,
successors, legal representatives and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
SECTION 8.03 ASSIGNABILITY. Neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof shall be
assignable by the Company or any Shareholder, except in connection with a
transfer of shares of Company Common Stock pursuant to the terms hereof. Any
Person acquiring shares of Company Capital Stock who is required by the terms of
this Agreement to agree in writing to be bound by the terms of this Agreement
shall execute and deliver to the Company an agreement to be bound by this
Agreement and shall thenceforth be a "SHAREHOLDER".
SECTION 8.04 AMENDMENT; WAIVER; TERMINATION. (a) No provision of this
Agreement may be waived except by an instrument in writing executed by the party
against whom the waiver is to be effective. No provision of this Agreement may
be amended or otherwise modified except by an instrument in writing executed by
the Company with approval of the Board and holders of at least 75% of the shares
of Voting Stock held by the Shareholders at the time of such proposed amendment
or modification.
(b) In addition, any amendment or modification of any provision of this
Agreement that would have a materially disproportionate adverse effect on one
Shareholder as opposed to another Shareholder may be effected only with the
consent of such effected Shareholder. Without limiting the generality of the
foregoing, neither clause (ii) of the definition of Permitted Transferee nor
Sections 4.01(g) or 8.12(b) shall be amended or otherwise modified without the
consent of holders of at least 50% of the Fully Diluted Common Stock then held
by the Management Shareholders.
(c) This Agreement shall terminate on January 29, 2014 unless earlier
terminated. Notwithstanding the preceding sentence, Sections 7.01, 7.03, 7.04
and 7.05 shall survive until the Joint Venture Agreement is terminated.
SECTION 8.05 NOTICES. All notices and other communications given or made
pursuant hereto or pursuant to any other agreement among the parties, unless
otherwise
46
<PAGE>
specified, shall be in writing and shall be deemed to have been duly
given and received when sent by fax (with confirmation in writing via first
class U.S. mail) or delivered personally or on the third Business Day after
being sent by registered or certified U.S. mail (postage prepaid, return receipt
requested) to the parties at the fax number or address set forth below or at
such other addresses as shall be furnished by the parties by like notice:
if to the Company, to:
Nextel Partners, Inc.
4500 Carillon Point
Kirkland, WA 98033
Fax: (425) 828-8098
Attention: General Counsel
with a copy to:
Summit Law Group, PLLC
1505 Westlake Avenue N., Suite 300
Seattle, WA 98109
Attention: Karen Andersen
and to DLJ Entities as set forth below and each other Shareholder at its
address set forth on the signature pages attached hereto
if to DLJ Entities, to:
DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
and to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Fax: (212) 450-4800
Attention: John Buttrick
if to MDP Entities:
Madison Dearborn Capital
Partners II, L.P.
3 First National Plaza
Suite 3800
Chicago, Illinois 60602
Fax: 312-895-1226
47
<PAGE>
Any Person (other than a DLJ Entity or MDP Entity) who becomes a Shareholder
shall provide its address and fax number to the Company, which shall promptly
provide such information to each other Shareholder.
SECTION 8.06 FEES AND EXPENSES. (a) [Intentionally Omitted].
(b) Except for the Company's obligation to pay Registration Expenses as
provided herein, and except as otherwise expressly provided in any of the other
Transaction Documents, all other attorneys' fees and expenses incurred by any
Shareholder(s) in connection with this Agreement and the other Transaction
Documents shall be paid by such Shareholder(s).
(c) [Intentionally Omitted].
SECTION 8.07 HEADINGS. The headings contained in this Agreement are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
SECTION 8.08 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
SECTION 8.09 APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without regard
to the conflicts of laws rules of such state.
SECTION 8.10 SPECIFIC ENFORCEMENT. Each party hereto acknowledges that the
remedies at law of the other parties for a breach or threatened breach of this
Agreement would be inadequate and, in recognition of this fact, any party to
this Agreement, without posting any bond, and in addition to all other remedies
which may be available, shall be entitled to obtain equitable relief in the form
of specific performance, a temporary restraining order, a temporary or permanent
injunction or any other equitable remedy which may then be available.
SECTION 8.11 LIMITATIONS ON DAMAGES. Each party hereto acknowledges that no
party is entitled to seek or recover consequential, punitive or exemplary
damages in respect of this Agreement under any circumstances or for any reason.
Consequential damages are, without limitation, lost profits, lost revenue and
the like but do not include the actual costs incurred in obtaining substitute
performance where there has been a failure to perform an obligation under an
agreement.
SECTION 8.12 CONSENT TO JURISDICTION; EXPENSES. (a) Any suit, action or
proceeding seeking to enforce any provision of, or based on any matter arising
out of or in connection with, this Agreement or the transactions contemplated
hereby (other than any matter arising under Section 7.03 or 7.04, which shall be
conducted in accordance with the dispute resolution procedures set forth in
Section 12.7 of the Joint Venture Agreement) shall be brought in any Federal
Court sitting in New York, New York, or any New York State court sitting in New
York, New York, and each of the parties hereby consents to the exclusive
jurisdiction of such courts (and of the appropriate appellate courts therefrom)
in any such suit, action or proceeding and irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such court
48
<PAGE>
or that any such suit, action or proceeding which is brought in any such
court has been brought in an inconvenient form. Process in any such suit,
action or proceeding may be served on any party anywhere in the world,
whether within or without the jurisdiction of any such court. Without
limiting the foregoing, each party agrees that service of process on such
party by any method provided in Section 8.05 shall be deemed effective
service of process on such party and consents to the personal jurisdiction of
any Federal Court sitting in New York, New York, or any New York State court
sitting in New York, New York.
(b) In any dispute arising under this Agreement (other than any matter
arising under Section 7.03 or 7.04, which shall be conducted in accordance with
the dispute resolution procedures set forth in Section 12.7 of the Joint Venture
Agreement) among any of the parties hereto, the costs and expenses (including,
without limitation, the reasonable fees and expenses of counsel) incurred by the
prevailing party shall be paid by the party that does not prevail. In the event
of any conflict between the provisions of the preceding sentence and the
corresponding provisions of the Restricted Stock Purchase Agreements or the
employment agreements between the Company and each of the Management
Shareholders and the provisions of those agreements, with respect to any dispute
involving one or more of the Management Shareholders, the provisions of the
Restricted Stock Purchase Agreements or the employment agreements, as the case
may be, shall prevail.
SECTION 8.13 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable to any extent under applicable law, such provision
shall be interpreted as if it were written so as to be enforceable to the
maximum possible extent so as to effectuate the parties' intent to the maximum
possible extent, and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms to the maximum extent permitted by law.
SECTION 8.14 AMENDMENTS TO LAWS. Any reference to a section, form, rule or
regulation of the Securities Act or Exchange Act, any reference to a law
promulgated by any state or pursuant to which the FCC may exercise rule making
authority, and any reference to any rule or regulation promulgated by the FCC,
includes any successor section, form, rule, regulation or law.
SECTION 8.15 ACKNOWLEDGMENT OF LIMITS ON NEXTEL'S LIABILITY. Each party
hereto acknowledges that the maximum cumulative, aggregate monetary liability of
Nextel for any and all actual or alleged claims or causes of action that arise,
result from or are in any way connected with the matters provided for or
contemplated in this Agreement is limited as provided in the Nextel Agreement.
49
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
NEXTEL PARTNERS, INC., a Delaware corporation
By:
----------------------------------------------
Name:
Title:
NEXTEL WIP CORP., a Delaware corporation
By:
----------------------------------------------
Name:
Title:
Address:
Attn:
Fax:
With a copy of notice to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attn: Jeanne Rickert
Fax: 216-579-0212
<PAGE>
DLJ MERCHANT BANKING PARTNERS
II, L.P., a Delaware Limited Partnership
By: DLJ Merchant Banking II, Inc., as managing
general partner
By:
----------------------------------------------
Name:
Title:
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
with a copy of notice to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attn: John Buttrick
Fax: 212-450-5426
DLJ MERCHANT BANKING PARTNERS
II-A, L.P., a Delaware Limited Partnership
By: DLJ Merchant Banking II, Inc., as managing
general partner
By:
----------------------------------------------
Name:
Title:
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
<PAGE>
DLJ OFFSHORE PARTNERS II, C.V., a
Netherlands Antilles Limited Partnership
By: DLJ Merchant Banking II, Inc., as advisory
general partner
By:
----------------------------------------------
Name:
Title:
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
DLJ DIVERSIFIED PARTNERS, L.P., a
Delaware Limited Partnership
By: DLJ Diversified Partners, Inc., as managing
general partner
By:
----------------------------------------------
Name:
Title:
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
<PAGE>
DLJ DIVERSIFIED PARTNERS-A, L.P., a
Delaware Limited Partnership
By: DLJ Diversified Partners, Inc.,
as managing general partner
By:
----------------------------------------------
Name:
Title:
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
DLJ MILLENNIUM PARTNERS, L.P., a
Delaware Limited Partnership
By: DLJ Merchant Banking II, Inc.,
as managing general partner
By:
----------------------------------------------
Name:
Title:
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
DLJ MILLENNIUM PARTNERS-A, L.P.
By: DLJ Merchant Banking II, Inc., as managing
general partner
By:
----------------------------------------------
Name:
Title:
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
<PAGE>
DLJMB FUNDING II, INC., a Delaware
corporation
By:
----------------------------------------------
Name:
Title:
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
DLJ FIRST ESC, L.P.,
By: DLJ LBO Plans Management Corporation,
as manager
By:
----------------------------------------------
Name:
Title:
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
DLJ EAB PARTNERS, L.P.
By: DLJ LBO Plans Management Corporation,
as managing general partner
By:
----------------------------------------------
Name:
Title:
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
<PAGE>
DLJ ESC II, L.P.
By: DLJ LBO Plans Management Corporation, as
manager
By:
----------------------------------------------
Name:
Title:
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
UK INVESTMENT PLAN 1997 PARTNERS,
a Delaware Limited Partnership
By: UK Investment Plan 1997 Partners, Inc. as
general partner
By:
----------------------------------------------
Name:
Title:
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
<PAGE>
MADISON DEARBORN CAPITAL PARTNERS II, L.P.
By: Madison Dearborn Partners II, L.P.,
its General Partner
By: Madison Dearborn Partners, Inc.,
its General Partner
By:
----------------------------------------------
Name:
Title:
Address: 3 First National Plaza
Suite 3800
Chicago, Illinois 60602
Fax: 312-895-1226
EAGLE RIVER INVESTMENTS, LLC,
a Washington limited liability company
By:
----------------------------------------------
Name:
Title:
Address: 2300 Carillon Point
Kirkland, WA 98033-7353
Fax: 425-828-8061
MOTOROLA, INC., a Delaware corporation
By:
----------------------------------------------
Name:
Title:
Address: 1303 E. Algonquin Road
Schaumberg, Illinois 60196
Attn.:
Fax: (847) 576-3628
<PAGE>
CASCADE INVESTMENTS, L.L.C.
By:
----------------------------------------------
Name:
Title:
Address: 2365 Carillon Point
Kirkland, Washington 98033
Attention:
Fax: 425-889-0288
MADRONA INVESTMENT GROUP, L.L.C.
By:
----------------------------------------------
Name:
Title:
Address: 1000 Second Avenue
Suite 3700
Seattle, Washington 98014
Attention:
Fax: 206-674-3010
AMPERSAND HOLDINGS, L.L.C.
By:
----------------------------------------------
Name:
Title:
Address: 1301 Santa Barbara Street
Santa Barbara, California 93101
Attention:
Fax: 805-963-7801
STEVE HOOPER
----------------------------------------------
Address: 4001 Hunts Point Road
Bellevue, Washington 98004
Fax: 425-462-9891
<PAGE>
ARTHUR HARRIGAN
-------------------------------------------
Address: 2300 Carillon Point
Kirkland, Washington
Fax: 425-828-8061
JOHN CHAPPLE
-------------------------------------------
Address: 4500 Carillon Point
Kirkland, Washington 98033
Fax: 425-828-8098
PERRY SATTERLEE
-------------------------------------------
Address: 4500 Carillon Point
Kirkland, Washington 98033
Fax: 425-828-8098
MARK FANNING
------------------------------------------
Address: 4500 Carillon Point
Kirkland, Washington 98033
Fax: 425-828-8098
<PAGE>
JOHN THOMPSON
------------------------------------------
Address: 4500 Carillon Point
Kirkland, Washington 98033
Fax: 425-828-8098
DAVID THALER
------------------------------------------
Address: 4500 Carillon Point
Kirkland, Washington 98033
Fax: 425-828-8098
DAVID AAS
------------------------------------------
Address: 4500 Carillon Point
Kirkland, Washington 98033
Fax: 425-828-8098
GENERAL ELECTRIC CAPITAL CORPORATION
By:
------------------------------------------
Name:
Title:
Address: c/o GE Capital Services
Structured Finance Group, Inc.
120 Long Ridge Road
Stamford, CT 06927
Attention: Portfolio-Operations
Fax: 203-961-2017
<PAGE>
NMS CAPITAL, L.P.
By: NMS Capital Management, LLC,
the sole General Partner
By:
---------------------------------------------
Name:
Title:
Address: 9 West 57th Street
48th Floor
New York, NY 10019
Attn:
Fax: 212-583-8273
ARES LEVERAGED INVESTMENT FUND, L.P.
By: ARES Management, L.P.
By: ARES Operating Member, LLC,
its General Partner
By:
---------------------------------------------
Name:
Title:
Address: 1999 Avenue of the Stars
Suite 1900
Los Angeles, CA 90067
Fax: 310-201-4170
<PAGE>
ARES LEVERAGED INVESTMENT
FUND II, L.P.
By: ARES Management II, L.P.
By: ARES Operating Member II, LLC,
its General Partner
By:
---------------------------------------------
Name:
Title:
Address: 1999 Avenue of the Stars
Suite 1900
Los Angeles, CA 90067
Fax: 310-201-4170
THE HUFF ALTERNATIVE INCOME FUND, L.P.
By:
---------------------------------------------
Name:
Title:
Address: 1776 On the Green
67 Park Place
Morristown, NJ 07960
Fax: 973-984-5818
<PAGE>
TCW/CRESCENT MEZZANINE PARTNERS II, L.P.
TCW/CRESCENT MEZZANINE TRUST II
By: TCW/CRESCENT MEZZANINE II, L.P.,
its general partner or managing owner
By: TCW/CRESCENT MEZZANINE, L.L.C.,
its general partner
By:
---------------------------------------------
Name:
Title:
Address: 11100 Santa Monica Blvd.,
Suite 2000
Los Angeles, CA 90025
Fax: 310-235-5967
TCW SHARED OPPORTUNITY FUND III, L.P.
By: TCW ASSET MANAGEMENT COMPANY,
as Investment Advisor
By:
---------------------------------------------
Name:
Title:
By:
---------------------------------------------
Name:
Title:
Address: 11100 Santa Monica Blvd.,
Suite 2000
Los Angeles, CA 90025
Fax: 310-235-5967
<PAGE>
SHARED OPPORTUNITY FUND IIB, LLC
By: TCW ASSET MANAGEMENT COMPANY,
as Investment Advisor
By:
---------------------------------------------
Name:
Title:
By:
---------------------------------------------
Name:
Title:
Address: 11100 Santa Monica Blvd.,
Suite 2000
Los Angeles, CA 90025
Fax: 310-235-5967
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW INVESTMENT MANAGEMENT
COMPANY, as Investment Advisor
By:
---------------------------------------------
Name:
Title:
By:
---------------------------------------------
Name:
Title:
Address: 11100 Santa Monica Blvd.,
Suite 2000
Los Angeles, CA 90025
Fax: 310-235-5967
<PAGE>
TCW LEVERAGED INCOME TRUST II, L.P.
By: TCW (LINC II), L.P.,
as General Partner
By: TCW ADVISORS (BERMUDA), LTD.,
as General Partner
By:
---------------------------------------------
Name:
Title:
By: TCW INVESTMENT MANAGEMENT
COMPANY, as Investment Advisor
By:
---------------------------------------------
Name:
Title:
Address: 11100 Santa Monica Blvd.,
Suite 2000
Los Angeles, CA 90025
Fax: 310-235-5967
<PAGE>
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW (BERMUDA), LIMITED,
as General Partner
By:
---------------------------------------------
Name:
Title:
By: TCW INVESTMENT MANAGEMENT
COMPANY, as Investment Advisor
By:
---------------------------------------------
Name:
Title:
Address: 11100 Santa Monica Blvd.,
Suite 2000
Los Angeles, CA 90025
Fax: 310-235-5967
JDT-JRT L.L.C.
By: John D. Thompson, Manager
By:
---------------------------------------------
Name: John D. Thompson
Title: Manager
JRC COHO L.L.C.
By: John H. Chapple, Manager
By:
---------------------------------------------
Name: John H. Chapple
Title: Manager
<PAGE>
EXHIBIT A
INITIAL CAPITALIZATION
<PAGE>
EX-23.1
CONSENT OF ARTHUR ANDERSEN LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington
February 22, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS IN THE REGISTRANT'S REGISTRATION
STATEMENT AMENDMENT NO.2 TO FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 154,273
<SECURITIES> 0
<RECEIVABLES> 8,365
<ALLOWANCES> 1,193
<INVENTORY> 1,695
<CURRENT-ASSETS> 587,298
<PP&E> 268,766
<DEPRECIATION> 16,543
<TOTAL-ASSETS> 1,015,327
<CURRENT-LIABILITIES> 58,503
<BONDS> 785,484
0
36
<COMMON> 145,420
<OTHER-SE> 25,160
<TOTAL-LIABILITY-AND-EQUITY> 1,015,327
<SALES> 4,584
<TOTAL-REVENUES> 32,720
<CGS> 10,742
<TOTAL-COSTS> 64,411
<OTHER-EXPENSES> 39,945
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,362
<INCOME-PRETAX> (112,413)
<INCOME-TAX> 0
<INCOME-CONTINUING> (112,413)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (112,413)
<EPS-BASIC> (38.18)
<EPS-DILUTED> (38.18)
</TABLE>
