<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 2000
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
NEXTEL PARTNERS, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4813 91-1930918
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation Classification Code Number) Identification Number)
or Organization)
</TABLE>
4500 CARILLON POINT, KIRKLAND, WA 98033 (425) 576-3600
(Address, Including Zip Code and Telephone Number Including
Area Code of Registrant's Principal Executive Offices)
DONALD MANNING, ESQ.
4500 CARILLON POINT
KIRKLAND, WA 98033
(425) 576-3600
(Name, Address, Including Zip Code and Telephone Number
Including Area Code of Agent for Service)
--------------------------
COPIES TO:
Laura A. Bertin, Esq.
Mark F. Worthington, Esq.
Summit Law Group, PLLC
1505 Westlake Avenue North, Suite 300
Seattle, Washington 98109
(206) 281-9881
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES 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 in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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. / / _____
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO AGGREGATE OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PRICE PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
11% Senior Notes due 2010......... $200,000,000(1) $333.33 $66,666,667(2) $17,600(3)
</TABLE>
(1) Represents the maximum principal amount at maturity of 11% Senior Notes due
2010 that may be issued pursuant to the exchange offer described in this
registration statement.
(2) Represents one-third of the $1,000 principal amount at maturity per unit of
the outstanding 11% Senior Notes due 2010 to be tendered to the registrant,
which has an accumulated capital deficit, in exchange for the notes
registered under this registration statement.
(3) Calculated under Rule 457(f)(2) of the Securities Act of 1933 as follows:
the product of .000264 and $66,666,667, one-third of the principal amount at
maturity of the outstanding notes that may be tendered to the registrant,
which has an accumulated deficit, in exchange for the notes registered under
this registration statement.
--------------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT OFFER THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION DATED OCTOBER 23, 2000.
PROSPECTUS
[LOGO]
EXCHANGE OFFER FOR
11% SENIOR NOTES DUE 2010
FOR ANY AND ALL OUTSTANDING 11% SENIOR NOTES DUE 2010
OF NEXTEL PARTNERS, INC.
------------------
This is an offer to exchange the outstanding, unregistered Nextel Partners
11% Senior Notes you now hold for new, substantially identical 11% Senior Notes
that will be free of the transfer restrictions that apply to the old notes. This
offer will expire at 5:00 p.m., New York City time, on , 2000,
unless we extend it.
The new notes will not trade on any established exchange. The new notes have
the same financial terms and covenants as the old notes, and are subject to the
same business and financial risks.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DESCRIPTION OF THOSE RISKS.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this prospectus is , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 10
Use of Proceeds...................... 22
Capitalization....................... 23
Selected Consolidated Financial
Data............................... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 26
Business............................. 39
Management........................... 59
Related-Party Transactions........... 67
Principal Stockholders............... 80
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
The Exchange Offer................... 82
Description Of The Notes............. 91
Description of Other Indebtedness.... 131
Certain United States Federal Income
Tax Consequences................... 136
Plan of Distribution................. 141
Description of Capital Stock......... 142
Legal Matters........................ 143
Experts.............................. 143
Where You Can Find More Information.. 143
Index to Financial Statements........ F-1
</TABLE>
------------------------
REFERENCES TO ADDITIONAL INFORMATION
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION
ABOUT US THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS PROSPECTUS. YOU MAY
OBTAIN DOCUMENTS THAT ARE FILED BY US WITH THE SECURITIES AND EXCHANGE
COMMISSION WITHOUT CHARGE BY REQUESTING THE DOCUMENTS, IN WRITING OR BY
TELEPHONE, FROM THE COMMISSION OR:
NEXTEL PARTNERS, INC.
4500 CARILLON POINT
KIRKLAND, WA 98033
ATTENTION: INVESTOR RELATIONS
TELEPHONE: (425) 576-3600
IF YOU WOULD LIKE TO REQUEST COPIES OF THESE DOCUMENTS, PLEASE DO SO BY
, 2000 IN ORDER TO RECEIVE THEM BEFORE THE EXPIRATION OF THE
EXCHANGE OFFER.
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.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS INFORMATION THAT WE PRESENT MORE FULLY
ELSEWHERE IN THIS PROSPECTUS. YOU SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY.
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 wireless
frequencies in 58 markets where over 50 million people live and work. We are
licensed or have the right to operate in 15 of the top 100 metropolitan
statistical areas in the United States ranked by population and 55 of the top
200 metropolitan statistical areas. In January 1999, we entered into an
affiliation with Nextel, whose wholly owned subsidiary owned 32.4% of our common
stock as of September 30, 2000 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 uses 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. We offer
a 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 recently launched its Nextel Online service that
provides Internet-capable subscriber units with wireless Internet services,
including web-based applications and content. As part of our agreements with
Nextel WIP, we introduced in June 2000 Nextel Online Service in all of our
launched markets except upstate New York and Hawaii and expect to offer these
same data services in those markets by the end of 2000.
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. 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 licenses and cash in exchange for an ownership stake in
our company. Under 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.
- 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.
1
<PAGE>
- 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.
- 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.
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.
- 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.
- RAPIDLY DEPLOY ROBUST NETWORK. 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.
- 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.
2
<PAGE>
MARKETS
As of June 30, 2000, we had commercial operations in markets with total Pops
of 24.3 million and the ability to offer service to, or cover, approximately
18.3 million Pops. These operational markets are in Hawaii, New York, Texas,
Pennsylvania, Kentucky, Florida, Iowa, Nebraska, Idaho, Central Illinois,
Alabama, Louisiana and Mississippi. As of June 30, 2000, we had approximately
121,000 digital subscribers with a covered market penetration of approximately
0.66%. We intend to be able to provide service to over 21 million Pops by the
end of 2000 and over 31 million Pops by the end of 2001. The following table
sets forth those markets with over 1.0 million Pops in which we have launched or
intend to launch digital wireless service as of June 30, 2000:
<TABLE>
<CAPTION>
SCHEDULED
MARKETS TOTAL POPS MARKET LAUNCH
------- ---------- -------------
<S> <C> <C>
Kentucky (Lexington-Fayette, Louisville).................... 2,966,795 Launched
Syracuse/Utica-Rome/Binghamton/Elmira, NY................... 2,039,082 Launched
Central Illinois (Peoria, Springfield, Champaign,
Bloomington, Decatur)..................................... 1,938,868 Launched
Eastern Iowa (Waterloo, Dubuque, Davenport, Cedar Rapids,
Iowa City)................................................ 1,820,414 Launched
Arkansas (Fayetteville, Fort Smith, Pine Bluff)............. 1,811,547 1st Half 2001
Nebraska (Omaha, Lincoln)................................... 1,736,895 Launched
1st and 2nd
Western Virginia (Roanoke/Lynchburg/Charlottesville)........ 1,670,705 Half 2001
Evansville/Owensboro, KY/IN................................. 1,660,469 1st Half 2001
Harrisburg/York/Lancaster, PA............................... 1,658,157 Launched
Shreveport/Monroe/Tyler/Longview, LA/TX..................... 1,584,914 2nd Half 2000
Hattiesburg/Jackson, MS..................................... 1,401,096 1st Half 2001
Green Bay/Fond du Lac/Appleton/Sheboygan, WI................ 1,374,957 1st Half 2001
Central Pennsylvania (Altoona, Johnstown, Williamsport,
State College)............................................ 1,355,266 2nd Half 2001
Buffalo, NY................................................. 1,331,256 Launched
Sioux City/Sioux Falls, SD.................................. 1,239,353 2nd Half 2001
Rochester, NY............................................... 1,191,412 Launched
Hawaii (all islands)........................................ 1,185,497 Launched
Albany/Glens Falls, NY...................................... 1,160,447 Launched
Wilkes-Barre/Scranton, PA................................... 1,113,665 Launched
</TABLE>
We have calculated total Pops for a given market by utilizing the Population
Estimates Program published by the U.S. Bureau of the Census which lists
population estimates by county for 1999. 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) 576-3600.
3
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer............ We are offering to exchange $1,000 principal amount at
maturity of Nextel Partners 11% Senior Notes due 2010 which
have been registered under the Securities Act for each
$1,000 principal amount at maturity of Nextel Partners
outstanding 11% Senior Notes due 2010 which were issued on
July 27, 2000 in a private offering. In order to be
exchanged, an old note must be properly tendered and
accepted. We will exchange all notes validly tendered and
not validly withdrawn. There is $200 million aggregate
principal amount at maturity of old notes outstanding.
Expiration and Exchange
Dates....................... This offer will expire at 5:00 p.m., New York City time, on
, 2000 unless we extend it, and we will
consummate the exchange on the next business day.
Registration Rights........... You have the right to exchange the old notes that you now
hold for new notes with substantially identical terms. This
exchange offer is intended to satisfy these rights. After
the exchange offer is complete, you will no longer be
entitled to any exchange or registration rights with respect
to your notes.
Conditions.................... This offer is subject to various conditions. We reserve the
right to terminate or amend the offer at any time before the
expiration date if specified events occur.
Withdrawal Rights............. You may withdraw your tender of old notes at any time before
the offer expires.
Material Federal Income Tax
Considerations of the
Exchange.................... Davis Wright Tremaine LLP has acted as our special tax
counsel in rendering an opinion as to all material federal
income tax consequences of the exchange. It is their opinion
that the exchange will not be a taxable event for United
States federal income tax purposes and thus, you will not
recognize any taxable gain or loss or any interest income as
a result of such exchange.
Resale Without Further
Registration................ We believe that the new notes may be offered for resale,
resold and otherwise transferred by you without compliance
with the registration and prospectus delivery provisions of
the Securities Act so long as the following statements are
true:
- you acquire the new notes issued in the exchange offer
in the ordinary course of your business;
- you are not one of our "affiliates," as defined in
Rule 405 of the Securities Act of 1933, as amended; and
- you are not participating, and do not intend to
participate, and have no arrangement or understanding
with any person to participate, in the distribution of
the new notes issued to you in the exchange offer.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
By tendering your notes as described below, you will be
making representations to this effect.
Transfer Restrictions on New
Notes....................... You may incur liability under the Securities Act if:
(1) any of the representations listed above are not true;
and
(2) you transfer any new note issued to you in the exchange
offer without:
- delivering a prospectus meeting the requirements of
the Securities Act, or
- qualifying for an exemption under the Securities Act's
requirements to register your new notes.
We do not assume or indemnify you against any such
liability. Each broker-dealer that is issued new notes for
its own account in exchange for old notes that were acquired
as a result of market-making or other trading activities,
must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with
any resale of the new notes. A broker-dealer may use this
prospectus for an offer to resell, a resale or other
transfer of the new notes issued to it in the exchange
offer.
Procedures for Tendering Old
Notes....................... Each holder of old notes who wishes to accept the exchange
offer must:
- complete, sign and date the accompanying letter of
transmittal, or a facsimile thereof, or
- arrange for The Depository Trust Company to transmit
certain required information to the exchange agent in
connection with a book-entry transfer.
You must mail or otherwise deliver such documentation and
your old notes to The Bank of New York, the exchange agent,
at the address set forth under "The Exchange Offer--Exchange
Agent."
Failure to Exchange Will
Affect You Adversely........ If you are eligible to participate in the exchange offer and
you do not tender your old notes, you will not have any
further registration or exchange rights and your old notes
will continue to be subject to some restrictions on
transfer. Accordingly, the liquidity of the old notes could
be adversely affected.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Special Procedures for
Beneficial Owners........... If you beneficially own old notes registered in the name of
a broker, dealer, commercial bank, trust company or other
nominee and you wish to tender your old notes in the
exchange offer, you should contact the registered holder
promptly and instruct it to tender on your behalf. If you
wish to tender on your own behalf, you must, before
completing and executing the letter of transmittal for the
exchange offer and delivering your old notes, either arrange
to have your old notes registered in your name or obtain a
properly completed bond power from the registered holder.
The transfer of registered ownership may take considerable
time.
Guaranteed Delivery
Procedures.................. You may comply with the procedures described in this
prospectus under the heading "The Exchange Offer--
Guaranteed Delivery Procedures" if you wish to tender your
old notes and:
- time will not permit your required documents to reach
the exchange agent by the expiration date of the
exchange offer,
- you cannot complete the procedure for book-entry
transfer on time, or
- your old notes are not immediately available.
</TABLE>
THE NEW NOTES
The new notes have the same financial terms and covenants as the old notes,
which are as follows:
<TABLE>
<S> <C>
Issuer...................................................... Nextel Partners, Inc.
Maturity.................................................... March 15, 2010
</TABLE>
<TABLE>
<S> <C>
Interest Rate and Payment
Dates....................... Interest on the notes will accrue at the rate of 11% per
annum, payable semi-annually in cash in arrears on March 15
and September 15 of each year, beginning on September 15,
2000.
Ranking....................... The new notes are senior unsecured indebtedness and:
- rank equally in right of payment with all existing and
future senior unsecured obligations, including as of
September 30, 2000 $331.3 million in aggregate
accreted amount of our 14% senior discount notes due
2009 and $200.0 million in aggregate principal amount
of our 11% senior notes issued in March 2000;
- are senior in right of payment to all existing and
future subordinated obligations of Nextel Partners; and
- are effectively subordinated to all of our secured
obligations, to the extent of the value of the assets
securing those obligations.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Our operations are conducted through our subsidiaries,
effectively subordinating the new notes to all existing and
future obligations of our subsidiaries, including the
borrowings under the credit facility and trade payables of
our subsidiaries. At June 30, 2000, our subsidiaries had
approximately $915 million in outstanding liabilities,
including trade payables, of which $325 million were secured
obligations.
Optional Redemption........... On or after March 15, 2005, we will have the right to redeem
any or all of the new notes at their principal amount at
maturity plus accrued interest and a premium initially equal
to 5.5% and declining annually after that date.
In addition, before March 15, 2003, we have the right to use
the net cash proceeds of qualifying offerings of stock to
redeem up to 35% of the aggregate principal amount of the
notes plus any interest that shall have accrued from the
issue date of the old notes at a redemption price equal to
111% of the principal amount. For more information, see
"Description of the Notes--Optional Redemption."
Covenants..................... The indenture under which the old notes have been and the
new notes are being issued contains covenants for your
benefit which, among other things and subject to certain
exceptions, restrict our ability and the ability of our
subsidiaries to:
- borrow money;
- pay dividends on stock or repurchase stock;
- make investments;
- use assets as security in other transactions; and
- sell certain assets or merge with or into other
companies
The indenture allows modification and amendment of these and
other covenants by a vote of holders of a majority in
aggregate principal amount of the notes, subject to
exceptions described in the indenture. Also, holders of a
majority in aggregate principal amount of the notes may
waive our compliance with certain other restrictive
covenants in the indenture.
</TABLE>
For additional information regarding the notes, see "Description of the
Note" and "Material United States Federal Income Tax Consequences."
RISK FACTORS
See "Risk Factors" immediately following this summary for a discussion of
risks relating to the new notes, all of which apply to the old notes as well.
7
<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. See Note 1 of our audited
consolidated financial statements for a discussion of our formation,
capitalization and basis of presentation.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS SIX MONTHS
DECEMBER 31, ENDED ENDED
-------------------- JUNE 30, JUNE 30,
1998 1999 2000 2000
-------- --------- --------------- -------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Operating revenues:
Service revenues......................................... $3,745 $28,136 $25,716 $40,699
Equipment revenues....................................... 1,564 4,584 5,997 9,523
-------- --------- ----------- -----------
Total revenues............................................. 5,309 32,720 31,713 50,222
Operating expenses:
Cost of service revenues................................. 6,108 18,807 17,225 28,433
Cost of equipment revenues............................... 2,935 10,742 11,360 17,818
Selling, general and administrative...................... 13,531 34,862 28,683 48,514
Stock based compensation................................. 447 27,256 17,017 35,053
Depreciation and amortization............................ 4,586 12,689 7,525 12,564
-------- --------- ----------- -----------
Total operating expenses................................... 27,607 104,356 81,810 142,382
-------- --------- ----------- -----------
Operating income (loss).................................... (22,298) (71,636) (50,097) (92,160)
Other income (expense):
Interest expense, net.................................... -- (65,362) (21,982) (43,596)
Interest income.......................................... -- 24,585 16,265 28,077
-------- --------- ----------- -----------
Total other (expense)...................................... -- (40,777) (5,717) (15,519)
-------- --------- ----------- -----------
Loss before income tax provision........................... (22,298) (112,413) (55,814) (107,679)
Income tax provision....................................... -- -- -- --
-------- --------- ----------- -----------
Loss before extraordinary item............................. (22,298) (112,413) (55,814) (107,679)
Extraordinary item--loss on early retirement of debt, net
of $0 income tax......................................... -- -- (23,485) (23,485)
-------- --------- ----------- -----------
Net loss................................................... (22,298) (112,413) (79,299) (131,164)
Mandatorily redeemable preferred stock dividends........... -- -- (763) (4,054)
-------- --------- ----------- -----------
Loss attributable to common stockholders................... $(22,298) $(112,413) $(80,062) $(135,218)
======== ========= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
---------------------- JUNE 30,
1998 1999 2000
--------- ---------- -------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents, short-term investments and
restricted cash(1)........................................ $ 16 $ 568,729 $ 953,752
Plant, property and equipment, net.......................... 107,948 252,223 362,144
FCC operating licenses, net................................. 133,180 151,056 154,087
Total assets.............................................. 247,666 1,015,327 1,538,299
Current liabilities......................................... 8,995 58,503 69,522
Long-term debt.............................................. -- 785,484 845,226
Series B redeemable preferred stock......................... -- -- 25,904
Total stockholders' equity.................................. 238,671 170,616 594,520
Total liabilities and stockholders' equity................ $247,666 $1,015,327 $1,538,299
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
--------------------- JUNE 30,
1998 1999 2000
--------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OTHER DATA:
Covered Pops (end of period) (millions)..................... -- 6.1 18.3
Subscribers (end of period)................................. 10,200 46,100 121,000
EBITDA as adjusted(2)....................................... $(17,265) $(31,691) $(44,543)
Capital expenditures(3)..................................... $104,334 $133,210 $122,228
Ratio of earnings to fixed charges(4)....................... -- -- --
</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 January 21, 2000 when the FCC approved Nextel WIP's
transfer of the broadband wireless licenses to us.
(2) 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.
(3) 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.
(4) "Earnings" is defined as earnings before extraordinary items and accounting
changes, interest expense, amortization of deferred financing costs, and
taxes. Fixed charges consist of interest expense, amortization of deferred
financing costs and a portion of rent expense under operating leases
representative of interest. For the years ended December 31, 1998 and 1999,
and the six months ended June 30, 2000 earnings were insufficient to cover
fixed charges by $28.6 million, $126.1 million and $118.2 million,
respectively. The difference between all amounts disclosed above and net
loss represents interest capitalized by us.
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RISK FACTORS
BEFORE TENDERING THE OLD NOTES IN THE EXCHANGE OFFER, YOU SHOULD CAREFULLY
CONSIDER THE RISK FACTORS DESCRIBED BELOW AS WELL AS ALL THE OTHER INFORMATION
IN THIS PROSPECTUS, INCLUDING OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED
NOTES. THE NEW NOTES, LIKE THE OLD NOTES, ENTAIL SUBSTANTIAL RISKS AND OUR
BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION COULD BE SERIOUSLY HARMED
DUE TO ANY OF THE FOLLOWING RISKS.
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 June 30, 2000, we had incurred operating losses of
approximately $163.8 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.
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
within 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, 1999 and
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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 risks presented by our affiliation with
Nextel. For a description of where this information can be obtained, see
"Available 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.
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 plan.
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 June 30, 2000, we had $914.7 million of total
indebtedness outstanding, including trade payables, $325 million outstanding
under our credit facility, $320.2 million of senior discount notes outstanding
at their accreted value and $200 million of senior notes outstanding. This
indebtedness represented approximately 62% of our total capitalization at that
date. As of June 30, 2000, we also had $25.9 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
- it limits our ability to react to changing market conditions, changes in
our industry and economic downturns.
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DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND OUR SUBSIDIARIES MAY STILL BE ABLE
TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER EXACERBATE THE RISKS
DESCRIBED ABOVE.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. The terms of the indenture do not fully prohibit us
or our subsidiaries from doing so. Our credit facility would permit additional
borrowing of up to $50 million after completion of this offering and all of
those borrowings would be senior to the notes. Our and our subsidiaries' level
of indebtedness could have important consequences to the holders of the notes,
including the following:
- the debt service requirements of any additional indebtedness could make it
very difficult for us to make payments of cash interest on the notes;
- a substantial portion of our cash flow from operations, if any, must be
dedicated to the payment of principal and interest on our indebtedness and
other obligations, and will not be available for use in our business;
- the level of indebtedness and related cash debt service needs could limit
our flexibility in planning for, or reacting to, changes in our business;
- we are more highly leveraged than some of our competitors, which may place
us at a competitive disadvantage; and
- our level of indebtedness and related cash debt service needs will make us
more vulnerable in the event of a downturn in our business.
See "Capitalization," "Selected Consolidated Financial Data" and
"Description of Notes--Covenants--Change of Control" and "Description of Other
Indebtedness--The Credit Facility."
WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH TO SERVICE OUR INDEBTEDNESS. OUR
ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on our indebtedness, including these notes, and
to fund planned capital expenditures will depend on our ability to generate cash
in the future. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control. These factors include, among other things, our ability to:
- successfully implement our business plan and related strategy, including
the construction and operation of our portion of the Nextel digital mobile
network;
- obtain and retain a significant number of subscribers; and
- achieve significant and sustained growth in our revenues and earnings from
operations.
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe our cash flow from operations, available cash
and available borrowings under our credit facility will be adequate to meet our
future liquidity until we become cash flow positive which we anticipate will not
occur before 2003.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that currently anticipated cost savings and operating
improvements will be realized on schedule or that future borrowings will be
available to us under our credit facility in an amount sufficient to enable us
to pay our indebtedness, including obligations under our credit facility, our
senior discount notes, existing senior notes, or these notes, or to fund our
other liquidity needs. Moreover, the fund raising efforts of Nextel or any of
its affiliates may also adversely affect our ability to raise additional funds.
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IN THE FUTURE WE MAY NEED TO REFINANCE OUR INDEBTEDNESS AND OUR ABILITY TO
REFINANCE OUR INDEBTEDNESS WILL DEPEND ON MANY FACTORS, SOME OF WHICH ARE BEYOND
OUR CONTROL, AND WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO DO SO.
Our credit facility will mature prior to the maturity of the notes, and our
obligations thereunder are senior to the notes in right of payment and are
secured by liens on assets of our subsidiaries and a pledge of their capital
stock. We expect that we may be required to refinance our indebtedness under our
credit facility. Our ability to refinance our indebtedness will depend on, among
other factors, our financial condition at the time of the refinancing, the
restrictions contained in the instruments governing our other indebtedness then
outstanding and other factors beyond our control, including market conditions.
If our indebtedness under our credit facility cannot be repaid at maturity or
refinanced, then we will not be able to meet our obligations under the indenture
or the notes.
BECAUSE THE NOTES THAT YOU HOLD ARE UNSECURED, YOU MAY NOT BE FULLY REPAID IF WE
BECOME INSOLVENT.
The notes are not secured by any of our assets or those of our subsidiaries.
Our obligations under our credit facility, however, are secured by liens on
assets of our subsidiaries and a pledge of their capital stock. You may not be
fully repaid if we become insolvent. In addition, as described above, the
indenture relating to the notes permits us to incur additional secured debt. If
we incur secured debt, and we become insolvent the holders of the secured debt
would receive payments from the assets used as security before you receive
payments.
THE INDENTURE AND OUR EXISTING DEBT INCLUDE RESTRICTIVE AND FINANCIAL COVENANTS
THAT LIMIT OUR OPERATING FLEXIBILITY.
Our credit facility and the indentures governing these notes, our existing
senior notes and 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 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.
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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 indentures
governing our senior discount notes, our existing senior notes and these notes,
other than a change of control involving certain of our existing stockholders,
we could be required to redeem our senior discount notes, our existing senior
notes and these notes. Our credit facility prohibits us, except under certain
circumstances, from redeeming any of our senior discount notes, our existing
senior notes and these 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 our senior discount notes, our existing senior notes and these notes,
our failure to redeem our senior discount notes, our existing senior notes and
these notes would constitute an event of default under the respective
indentures, which would in turn result in a default under the credit facility.
Any default under our indentures or credit facility could result in an
acceleration of such indebtedness, which 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 our senior discount notes, our
existing senior notes and these notes and still have sufficient funds available
to successfully pursue our business plan.
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.
- 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.
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- 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 revenues
may be adversely affected, which could adversely affect our operating
results.
- 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 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.
THE COMPLETION OF OUR PORTION OF THE NEXTEL DIGITAL MOBILE NETWORK DEPENDS ON
APPROVAL BY THE FCC OF THE TRANSFER OF LICENSES TO US FROM NEXTEL.
On July 11, 2000 we exercised our option with Nextel to acquire additional
frequencies in 12 markets. We intend to seek shortly and anticipate FCC approval
for the transfer of the SMR licenses covering these territories from Nextel WIP
to us. We cannot be sure, however, that the FCC will grant approval of the
transfer of control of these licenses. Pending FCC approval we have the right to
use the frequencies covered by these licenses pursuant to a management
agreement.
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
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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 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
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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 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.
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THESE NOTES.
Prior to this exchange, there was no public market for these notes. The
liquidity of the trading market in these notes, and the market price quoted for
these notes, may be adversely affected by changes in the overall market for high
yield securities and by changes in our financial performance or prospects or in
the prospects for companies in our industry generally. As a result, you cannot
be sure that an active trading market will develop for these notes.
IF YOU DO NOT EXCHANGE YOUR OUTSTANDING NOTES YOU MAY HAVE DIFFICULTY IN
TRANSFERRING THEM AT A LATER TIME.
We will issue exchange notes in exchange for the outstanding notes after the
exchange agent receives your outstanding notes, the letter of transmittal and
all related documents. You should allow adequate time for delivery if you choose
to tender your outstanding notes for exchange notes. Outstanding notes that are
not exchanged will remain subject to restrictions on transfer and will not have
any rights to registration.
18
<PAGE>
If you do participate in the exchange offer for the purpose of participating
in the distribution of the exchange notes, you must comply with the registration
and prospectus delivery requirements of the Securities Act of 1933 for any
resale transaction. Each broker-dealer who holds outstanding notes for its own
account due to market-making or other trading activities and who receives
exchange notes for its own account must acknowledge that it will deliver a
prospectus in connection with any resale of the exchange notes. If any
outstanding notes are not tendered in the exchange or are tendered but not
accepted, the trading market for such outstanding notes could be negatively
affected due to the limited number of outstanding notes expected to remain
outstanding following the completion of the exchange offer.
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. We anticipate FCC
regulation or Congressional legislation that creates additional spectrum
allocations that may also have the effect of adding new entrants into the mobile
telecommunications market.
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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<PAGE>
RISK FACTORS RELATING TO OUR CAPITAL STRUCTURE
NEXTEL WIP HAS APPROVAL RIGHTS THAT ALLOW IT TO EXERT SIGNIFICANT INFLUENCE OVER
OUR OPERATIONS, AND IT CAN ACQUIRE ADDITIONAL SHARES OF OUR STOCK.
Pursuant to our amended 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
amended shareholders' agreement or our restated certificate of
incorporation.
These approval 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 amended 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 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 FCC.
CERTAIN SIGNIFICANT STOCKHOLDERS REPRESENTED ON OUR BOARD OF DIRECTORS CAN EXERT
SIGNIFICANT INFLUENCE OVER US AND MAY HAVE INTERESTS THAT CONFLICT WITH THOSE OF
OUR NOTE HOLDERS, INCLUDING PURCHASERS IN THIS OFFERING.
As of September 30, 2000, our officers, directors and greater than 5%
stockholders together controlled approximately 78.4% 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.
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
20
<PAGE>
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 INVESTORS 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 investors 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 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, the indentures governing our senior
discount notes, our existing senior notes and these 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."
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 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.
FORWARD-LOOKING STATEMENTS
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;
- our business plan, its advantages and our strategy for implementing our
plan;
21
<PAGE>
- 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.
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new notes as
described in this prospectus. We will receive, in exchange for the new notes,
old notes in like principal amount. The old notes surrendered in exchange for
the news notes will be retired and cancelled and cannot be reissued.
Accordingly, the issuance of the new notes will not result in any change in the
indebtedness of Nextel Partners.
22
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000 on an
actual basis. 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: 4,738,052 shares of Class A
common stock issuable upon exercise of options outstanding as of June 30, 2000
having a weighted average exercise price of $2.04 per share.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------- JUNE 30,
1998 1999 2000
--------- --------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents, short-term investments and
restricted cash....................................... $ 16 $ 568,729 $ 953,752
======== ========= ==========
Debt:
Credit facility(1).................................... -- 325,000 325,000
14% senior discount notes due 2009(2)................. -- 460,484 320,226
11% senior notes due 2010............................. -- -- 200,000
-------- --------- ----------
Total long-term debt.................................. -- 785,484 845,226
-------- --------- ----------
Series B redeemable preferred stock due 2010(3)......... -- -- 25,904
-------- --------- ----------
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... 1,604 145,420 863,905
Class B common stock and additional paid-in capital... -- -- 127,051
Warrants outstanding.................................. -- 3,847 --
Other paid-in capital................................. 260,761 357,028 --
Subscriptions receivable.............................. -- (83,048) (46,542)
Deferred compensation................................. (1,141) (117,701) (79,710)
Accumulated deficit................................... (22,553) (134,966) (270,184)
-------- --------- ----------
Total stockholders' equity.......................... 238,671 170,616 594,520
-------- --------- ----------
Total capitalization................................ $238,671 $ 956,100 $1,465,650
======== ========= ==========
</TABLE>
------------------------
(1) One of our subsidiaries, Nextel Partners Operating Corp., entered into a
$425 million credit facility and, as of June 30, 2000, 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 and
June 30, 2000. On April 18, 2000, we redeemed 35% of the aggregate accreted
value of those notes at a price equal to 114% of the aggregate accreted
value with a portion of the proceeds from our recent initial public equity
offering in accordance with the terms thereof. As of September 30, 2000, the
accreted value of the outstanding senior discount notes was approximately
$331.3 million.
(3) Relates to Series B preferred stock subject to mandatory redemption by us in
February 2010 as a result of the initial public offering. Upon the closing
of the initial public offering of our Class A common stock we recorded 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 June 30, 2000 this amounted to $4.1 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>
SELECTED CONSOLIDATED FINANCIAL DATA
We have summarized below our historical consolidated financial data as of
December 31, 1998 and 1999 and June 30, 1999 and 2000 and for the years ended
December 31, 1998 and 1999 and the three and six months ended June 30, 1999 and
2000. 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 offering
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS SIX MONTHS
DECEMBER 31, ENDED JUNE 30, ENDED JUNE 30,
-------------------- ------------------- --------------------
1998 1999 1999 2000 1999 2000
-------- --------- -------- -------- -------- ---------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Operating revenues:
Service revenues............................. $3,745 $28,136 $5,797 $25,716 $9,290 $40,699
Equipment revenues........................... 1,564 4,584 1,033 5,997 1,844 9,523
-------- --------- -------- -------- -------- ---------
Total revenues................................. 5,309 32,720 6,830 31,713 11,134 50,222
-------- --------- -------- -------- -------- ---------
Operating expenses:
Cost of service revenues..................... 6,108 18,807 3,964 17,225 7,070 28,433
Cost of equipment revenues................... 2,935 10,742 3,080 11,360 4,798 17,818
Selling, general and administrative.......... 13,531 34,862 7,200 28,683 12,431 48,514
Stock-based compensation..................... 447 27,256 390 17,017 1,031 35,053
Depreciation and amortization................ 4,586 12,689 3,023 7,525 5,538 12,564
-------- --------- -------- -------- -------- ---------
Total operating expenses....................... 27,607 104,356 17,657 81,810 30,868 142,382
-------- --------- -------- -------- -------- ---------
Operating income (loss)........................ (22,298) (71,636) (10,827) (50,097) (19,734) (92,160)
-------- --------- -------- -------- -------- ---------
Other income (expense):
Interest expense, net........................ -- (65,362) (14,507) (21,982) (27,036) (43,596)
Interest income.............................. -- 24,585 5,875 16,265 9,888 28,077
-------- --------- -------- -------- -------- ---------
Total other (expense).......................... -- (40,777) (8,632) (5,717) (17,148) (15,519)
-------- --------- -------- -------- -------- ---------
Loss before income tax provision............... (22,298) (112,413) (19,459) (55,814) (36,882) (107,679)
Income tax provision........................... -- -- -- -- -- --
-------- --------- -------- -------- -------- ---------
Loss before extraordinary item................. (22,298) (112,413) (19,459) (55,814) (36,882) (107,679)
Extraordinary item--loss on early retirement of
debt, net of $0 income tax................... -- -- -- (23,485) -- (23,485)
-------- --------- -------- -------- -------- ---------
Net loss....................................... (22,298) (112,413) (19,459) (79,299) (36,882) (131,164)
Mandatorily redeemable preferred stock
dividend..................................... -- -- -- (763) -- (4,054)
-------- --------- -------- -------- -------- ---------
Loss attributable to common shareholders....... $(22,298) $(112,413) $(19,459) $(80,062) $(36,882) $(135,218)
======== ========= ======== ======== ======== =========
Loss per share attributable to common
stockholders, basic and diluted:
Loss before extraordinary item attributable to
common stockholders.......................... $-- $(38.18) $(6.56) $(0.24) $(12.63) $(0.66)
Extraordinary item............................. $-- $-- $-- $(0.10) $-- $(0.14)
-------- --------- -------- -------- -------- ---------
$-- $(38.18) $(6.56) $(0.34) $(12.63) $(0.80)
======== ========= ======== ======== ======== =========
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JUNE 30,
---------------------- ----------------------
1998 1999 1999 2000
--------- ---------- --------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents, short-term investments and
restricted cash(1)........................................ $ 16 $ 568,729 $466,013 $ 953,752
Plant, property and equipment, net.......................... 107,948 252,223 129,795 362,144
FCC operating licenses, net................................. 133,180 151,056 137,092 154,087
Total assets.............................................. 247,666 1,015,327 763,320 1,538,299
Current liabilities......................................... 8,995 58,503 28,640 69,522
Long-term debt.............................................. -- 785,484 605,411 845,226
Series B redeemable preferred stock......................... -- -- -- 25,904
Total stockholders' equity.................................. 238,671 170,616 129,269 594,520
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
--------------------- --------------------
1998 1999 1999 2000
--------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OTHER DATA:
Covered Pops (end of period) (millions)..................... -- 6.1 6.1 18.3
Subscribers (end of period)................................. 10,200 46,100 25,000 121,000
EBITDA as adjusted(2)....................................... $(17,265) $(31,691) $(13,165) $(44,543)
Capital expenditures(3)..................................... $104,334 $133,210 $ 19,388 $122,228
Ratio of earnings to fixed charges(4)....................... -- -- -- --
</TABLE>
------------------------------
(1) 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
January 21, 2000 when the FCC approved the transfer applications relating to
the licenses acquired by us on January 29, 1999.
(2) 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.
(3) 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.
(4) "Earnings" is defined as earnings before extraordinary items and accounting
changes, interest expense, amortization of deferred financing costs, and
taxes. Fixed charges consist of interest expense, amortization of deferred
financing costs and a portion of rent expense under operating leases
representative of interest. For the years ended December 31, 1998 and 1999
and the six months ended June 30, 1999 and 2000, earnings were insufficient
to cover fixed charges by $28.6 million, $126.1 million, $42.7 million and
$118.2 million, respectively. The difference between all amounts disclosed
above and net loss represents interest capitalized by us.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Some statements and information contained in this "Management's Discussion
and Analysis of Financial Condition and Results of Operations" are not
historical facts, but 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 the following 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 manage by Nextel. See Note 1 of our audited consolidated
financial statements for a discussion of our formation, capitalization and basis
of presentation.
OVERVIEW
On September 27, 2000 we completed the exercise of our option to acquire
from Nextel WIP frequencies in 12 additional markets where approximately
10.6 million people live and work. As a result, we currently hold or have the
right to use wireless frequencies in 58 markets where over 50 million people
live and work. As of June 30, 2000, we had commercial operations in markets with
total Pops of 24.3 million and the ability to offer service to, or cover,
approximately 18.3 million Pops. These operational markets are in Hawaii, New
York, Texas, Pennsylvania, Kentucky, Florida, Iowa, Nebraska, Idaho, Central
Illinois, Alabama, Louisiana and Mississippi.
As of June 30, 2000, we had approximately 121,000 digital subscribers.
Compared to June 30, 1999 with an ending subscriber count of approximately
25,000, our subscriber base grew 384%. In the three- and six-month periods ended
June 30, 2000, we added, net of deactivations, approximately 45,600 and 74,900
subscriber units, respectively.
In June 2000 we introduced Nextel Online services in all of our launched
markets except upstate New York and Hawaii. Nextel Online service provides
Internet-capable subscriber units with wireless Internet services, including
web-based applications and content. We plan to offer these same data services in
the remaining two launched markets by the end of 2000.
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
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999
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.
26
<PAGE>
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.
Total revenues increased 366% to $31.7 million during the second quarter of
2000 from $6.8 million during the same period in 1999. The growth in revenues
was due to launching new markets along with increased revenues from the existing
markets. The following table sets forth those markets launched during the second
quarter of 2000 and our previously launched markets:
<TABLE>
<CAPTION>
MARKETS MARKET LAUNCH
--------------------------------------------------------- -----------------
<S> <C>
Central Illinois (Peoria, Springfield, Champaign,
Bloomington, Decatur).................................. 2nd Quarter 2000
Eastern Iowa (Waterloo, Dubuque, Davenport, Cedar Rapids,
Iowa City)............................................. 2nd Quarter 2000
Nebraska (Omaha, Lincoln)................................ 2nd Quarter 2000
Des Moines, IA........................................... 2nd Quarter 2000
Idaho (Boise, Twin Falls)................................ 2nd Quarter 2000
Montgomery, AL........................................... 2nd Quarter 2000
Pensacola/Panama City/Fort Walton Beach, FL.............. 2nd Quarter 2000
Lafayette/Lake Charles, LA............................... 2nd Quarter 2000
Mobile, AL............................................... 2nd Quarter 2000
Beaumont, TX............................................. 2nd Quarter 2000
Pascagoula, MS........................................... 2nd Quarter 2000
Bryan/College Station, TX Jamestown, NY.................. 2nd Quarter 2000
Harrisburg/York/Lancaster, PA............................ 1st Quarter 2000
Wilkes-Barre/Scranton, PA................................ 1st Quarter 2000
Kentucky (Lexington-Fayette,Louisville).................. 1st Quarter 2000
Tallahassee, FL.......................................... 1st Quarter 2000
Jamestown, NY............................................ 1st Quarter 2000
Temple/Killeen/Waco, TX.................................. 4th Quarter 1999
Erie, PA................................................. 4th Quarter 1999
Hawaii (all islands)..................................... 3rd Quarter 1998
Rochester, NY............................................ 3rd Quarter 1998
Buffalo, NY.............................................. 3rd Quarter 1998
Syracuse/Utica-Rome/Binghamton/Elmira, NY................ 3rd Quarter 1998
Albany/Glen Falls, NY.................................... 3rd Quarter 1998
</TABLE>
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. Our ARPU
increased $11 from $62 at the end of second quarter 1999 to $73 for the same
period ended June 30, 2000. We credit the higher ARPU to increased minutes used
by subscribers, customers purchasing higher rate plans and additional features
such
27
<PAGE>
as voice mail and short message services. The following table sets forth our
recent revenues and ARPU:
REVENUES
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR ARPU)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTHS MONTHS
ENDED % OF ENDED % OF
JUNE 30, CONSOLIDATED JUNE 30, CONSOLIDATED
2000 REVENUES 1999 REVENUES
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Service and roaming revenues..... $25,716 81% $5,797 85%
Equipment revenues............... 5,997 19% 1,033 15%
------- --- ------ ---
Total revenues................. $31,713 100% $6,830 100%
======= === ====== ===
ARPU(1)........................ $ 73 $ 62
======= ======
</TABLE>
------------------------
(1) ARPU does not include roaming revenues generated from the use by Nextel
subscribers of our portion of the Nextel digital mobile network.
COST OF SERVICE REVENUES
Cost of service revenues consists primarily of network operating costs
composed of site and switch rent, utilities, maintenance and interconnect
charges. It also includes the amounts we must pay Nextel WIP when our customers
roam onto Nextel's portion of the Nextel digital mobile network. These expenses
depend mainly 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 three months ended June 30, 2000 our cost of service revenues was
$17.2 million compared to $4.0 million for the same period in 1999. The increase
in costs is primarily the result of bringing on-air approximately 720 additional
cell sites during the period from June 30, 1999 to June 30, 2000 for a total of
approximately 1,000 operating cell sites, as well as increases in airtime usage.
Increased airtime usage resulted from the 384% growth in number of subscribers
from June 30, 1999 along with the increased interconnect minutes of use per
subscriber. We expect cost of service revenues to increase as we place more cell
sites in service and the usage of minutes increases as our subscriber base
grows.
COST OF EQUIPMENT REVENUES
Cost of equipment revenues includes the cost of the subscriber wireless
telephones and accessories sold by us. For the three months ended June 30, 2000
our cost of equipment revenues was $11.4 million compared to $3.1 million for
the same period in 1999. The increase in costs is related mostly to the growth
in volume of 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 a loss of
$5.4 million and a loss of $2.0 million for the three months ended June 30, 2000
and 1999, 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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses consist of sales and marketing
expenses, customer care services and general and administrative costs. For the
three months ended June 30, 2000 these costs were $28.7 million compared to
$7.2 million for the same period ended June 30, 1999.
28
<PAGE>
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. These expenses increased as a
result of:
- increased sales and marketing activities to grow our subscriber base;
- our hiring of additional sales and marketing employees to accommodate the
growth in new and existing markets; and
- higher expenses related to higher sales from the indirect distribution
channel.
We anticipate that our cost per additional customer may be slightly higher
in the third quarter as compared to the second quarter of $480 per added
subscriber.
General and administrative costs relate to corporate overhead personnel
including tax, legal, planning, human resources, information technology,
treasury, accounting and our customer care center operations. The three-month
period ended June 30, 1999 was a transition period during which Nextel WIP made
many of the above services available to us. By June 30, 2000, we transferred the
majority of these services to our employees and systems. Therefore, our general
and administrative costs increased as a result of our:
- hiring employees to set-up functional departments and offices to support
the growth of the new and existing markets;
- staffing and operating our own customer care and fulfillment service
center in Las Vegas, NV to support the growing subscriber base; and
- hiring employees to maintain and support systems that were in development
during 1999.
STOCK BASED COMPENSATION EXPENSE
For the three-month periods ended June 30, 2000 and 1999, we recorded stock
based compensation expense associated with our restricted stock purchase plan
and employee stock options granted during 1999 of $17.0 million and $390,000,
respectively. This expense is a non-cash expense. These grants are considered
compensatory and we accounted for their deferred compensation expenses on a
basis similar to that used for stock appreciation rights. Upon the closing of
our initial public offering on January 27, 2000, the intrinsic value of the
options and restricted stock was recorded and is being amortized over the
remaining vesting periods.
DEPRECIATION AND AMORTIZATION EXPENSE
For the three months ended June 30, 2000, our depreciation and amortization
expense was $7.5 million compared to $3.0 million for the same period in 1999.
The $4.5 million increase relates primarily to depreciating the wireless network
assets for approximately 720 additional cell sites placed in service and
amortizing additional FCC licensed radio spectrum associated with the new
markets launched.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense increased from $14.5 million for the second quarter 1999 to
$22.0 million for the same period in 2000. The increase is due to the
$150 million term loan C obtained in September 1999, and the issuance of
$200 million 11% senior notes in March 2000, offset by redeeming 35% of the 14%
senior discount notes in April 2000.
For the three-month period ended June 30, 2000, interest income was
$16.3 million, compared to $5.9 million for the same period in 1999, due to the
income recognized on the investment of the net proceeds received from the term
loan C in September 1999, our initial public offering of class A common stock in
February 2000 and the issuance of 11% senior notes in March 2000.
29
<PAGE>
EXTRAORDINARY ITEM
On April 18, 2000 we utilized a portion of our proceeds from the initial
public offering in February 2000 to redeem 35% of the aggregate accreted value
of the 14% senior discount notes. As a result of the early retirement of these
senior discount notes, we recognized an extraordinary loss of approximately
$23.5 million, representing the excess of the redemption price over the accreted
value of the notes redeemed.
NET LOSS
For the second quarter 2000 we had losses attributable to common
stockholders of approximately $80.1 million compared to a loss of $19.5 million
for the same period in 1999. The $80.1 million loss includes an extraordinary
loss of approximately $23.5 million and redeemable preferred stock dividends of
approximately $763,000. Expenses have 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 the
new launch markets. We anticipate reporting net losses for the foreseeable
future as we grow and expand to meet the requirements of the business.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
REVENUES
Total revenues increased 352% to $50.2 million during the first six months
of 2000 compared to $11.1 million for the same period in 1999. The growth in
revenues is due to the subscribers added from the newly launched markets along
with increased customer base and revenues from the existing markets in upstate
New York and Hawaii. From the period ended June 30, 1999 to June 30, 2000, the
subscriber count grew 384% from approximately 25,000 to 121,000 units.
Additionally, our ARPU increased $7 from $63 to $70 for the six months ended
June 30, 1999 and 2000, respectively. The following table reflects our revenues
and ARPU for the first six months of 2000 and 1999:
REVENUES
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR ARPU)
<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX
MONTHS % OF MONTHS % OF
ENDED CONSOLIDATED ENDED CONSOLIDATED
JUNE 30, 2000 REVENUES JUNE 30, 1999 REVENUES
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Service and roaming revenues.............. $40,699 81% $ 9,290 83%
Equipment revenues........................ 9,523 19% 1,844 17%
------- --- ------- ---
Total revenues.......................... $50,222 100% $11,134 100%
======= === ======= ===
ARPU(1)................................. $ 70 $ 63
======= =======
</TABLE>
------------------------
(1) ARPU does not include roaming revenues generated from the use by Nextel
subscribers of our portion of the Nextel digital mobile network.
COST OF SERVICE REVENUES
For the six-month period ended June 30, 2000 our network costs were
$28.4 million compared to $7.1 million for the same period in 1999. The increase
in expenses from 1999 to 2000 is primarily due to adding approximately 720
additional operating cell sites for the new markets launched. For the first six
months of 1999, the only cell sites in operation were the Hawaii and upstate New
York markets.
30
<PAGE>
COST OF EQUIPMENT REVENUES
For the six months ended June 30, 2000 and 1999 our cost of subscriber
wireless telephones and accessories was $17.8 million and $4.8 million,
respectively. The increase in cost for the first half of 2000 compared to 1999
resulted primarily from the provision of wireless telephones and accessories to
new subscribers in our recently launched markets. As part of our business plan,
we often offer our equipment for less than the cost through discounts as part of
a promotion. As a result, the difference between equipment revenues and cost is
a loss of approximately $8.3 million for the six months ended June 30, 2000
compared to a loss of approximately $3.0 million for the same period in 1999. We
expect to continue to employ these discounts and promotions in an effort to grow
our number of subscribers and for the foreseeable future expect that the cost of
equipment will exceed our equipment revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the six months ended June 30, 2000 selling and general and
administrative expenses were $48.5 million compared to $12.4 million for the
same period ended June 30, 1999. The first six months ended June 30, 1999 were a
start-up and transition period, and by June 30, 2000 we launched new markets and
transferred the majority of the transition services provided to us by Nextel WIP
to our employees and systems.
Selling expenses increased from $6.0 million for the first half of 1999 to
$31.1 million for the same period ended June 30, 2000 due to the increased sales
and marketing activities to grow our subscriber base and hiring employees to
accommodate the growth in our existing and new markets. In 1999, the majority of
the sales and marketing activities related to Hawaii and the upstate New York
markets that we acquired from Nextel WIP. We anticipate that our cost per
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.
The general and administrative expenses for the six-month periods ended
June 30, 2000 and 1999 were $17.4 million and $6.4 million, respectively. The
increase in costs relate to hiring and setting up functional departments in
addition to transferring the majority of the transition services provided to us
by Nextel WIP to our employees and systems. Our customer care center also opened
in October 1999 which increased general and administrative expenses for the
first half 2000 compared to the same period for 1999.
STOCK BASED COMPENSATION EXPENSE
For the six-month periods ended June 30, 2000 and 1999, we recorded stock
based compensation expense associated with our restricted stock purchase plan
and employee stock options granted during 1999 of $35.1 million and
$1.0 million, respectively. This expense is a non-cash expense. The expense for
the first six months of 1999 includes only the expense associated with our
restricted stock purchase plan.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the six-month period ended June 30, 2000
was $12.6 million compared to $5.5 million for the same period in 1999. The
$7.1 million increase in expenses relates mostly to depreciating the wireless
network assets for the 720 additional cell sites placed in service along with
office set-up and equipment expenses of approximately $6.4 million and
amortization of additional FCC licensed radio spectrum associated with the new
markets launched of $662,000.
31
<PAGE>
INTEREST EXPENSE AND INTEREST INCOME
For the six months ended June 30, 2000 and 1999 interest expense was
$43.6 million and $27.0 million, respectively. The $16.6 million increase is a
result of the $150 million term loan C obtained in September 1999 and the
issuance of $200 million 11% senior notes in March 2000, offset by redeeming 35%
of the 14% senior discount notes in April 2000.
For the six-month period ended June 30, 2000, interest income was
$28.0 million compared to $9.9 million for the same period ended June 30, 1999.
The $18.1 million increase is due to the income recognized on the investment of
the net proceeds received from the term loan C in September 1999, our initial
public offering of class A common stock in February 2000 and the issuance of 11%
senior notes in March 2000.
EXTRAORDINARY ITEM
On April 18, 2000 we utilized a portion of our proceeds from the initial
public offering in February 2000 to redeem 35% of the aggregate accreted value
of the 14% senior discount notes. As a result of the early retirement of these
senior discount notes, we recognized an extraordinary loss of approximately
$23.5 million, representing the excess of the redemption price over the accreted
value of the notes redeemed.
NET LOSS
For the six-month period ended June 30, 2000 we had losses attributable to
common shareholders of approximately $135.2 million compared to a loss of
$36.9 million for the same period in 1999. The $135.2 million loss includes an
extraordinary loss of approximately $23.5 million and a dividend relating to
manditorily redeemable preferred stock of $4.1 million. Expenses increased in
all categories as we moved from the start-up and transition phase and have added
subscriber usage to the network, hired staff, set up functional departments and
offices, and increased marketing and sales activities for the new launch
markets. We anticipate reporting net losses for the foreseeable future as we
grow and expand to meet the requirements of the business.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
REVENUES
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 approximately 10,200 to 46,100.
32
<PAGE>
The following table sets forth our revenues and ARPU for the years ended
December 31, 1999 and 1998:
REVENUES
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR AVERAGE REVENUE PER UNIT)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED % OF ENDED % OF
DECEMBER 31, CONSOLIDATED DECEMBER 31, CONSOLIDATED
1999 REVENUES 1998 REVENUES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Service and roaming revenues............. $28,136 86% $3,745 71%
Equipment revenues....................... 4,584 14% 1,564 29%
------- ---- ------ ----
Total revenues......................... $32,720 100% $5,309 100%
======= ==== ====== ====
ARPU(1).................................. $ 66 N/A
======= ======
</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
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
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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
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
33
<PAGE>
$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.
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 markets we exercised our
option to purchase, and operating losses and working capital for the period from
inception through the end of 2003, will total approximately $1.9 billion,
including the in-kind contributions we have received or expect to receive from
Nextel WIP and Motorola.
For the first six months of 2000, we used $46.3 million in cash for
operating activities, compared to providing cash of $12.6 million for the same
period in 1999. The increased use of funds for operating activities was
primarily due to expenses relating to hiring employees, setting-up functional
departments and offices, network operating costs for additional sites placed in
service, increased marketing and sales activities along with purchasing
subscriber inventory and an increase in receivables due to additional customers.
In addition, during the first six months of 2000, we invested $123.9 million in
capital expenditures, including $3.5 million of non-cash capitalized interest,
spent primarily to build out the Nextel digital mobile network in Pennsylvania,
Kentucky, Iowa, Nebraska, Florida, Texas, Alabama, Louisiana, Mississippi,
Illinois and Idaho markets. During the same period in 1999, we invested
$19.4 million in capital expenditures, which was primarily for the Hawaii,
upstate New York, Pennsylvania and Kentucky markets. During the first half of
2000 we also invested $367.2 million in short-term investments from the proceeds
of the IPO declared effective February 22, 2000 and from the $200 million 11%
Senior Notes issued in March 2000.
34
<PAGE>
SOURCES OF FUNDING
To date, third-party financing activities have provided all of our funding.
As of June 30, 2000 these financings totaled $1.8 billion and included:
- proceeds from cash equity contributions of $156.2 million;
- the offering of our 14% senior discount notes for $406.4 million;
- term loans incurred by our operating subsidiary of $325.0 million;
- the contribution by Nextel WIP of FCC licenses valued at $142 million, in
exchange for preferred stock
- 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;
- proceeds from the sale of common stock in our initial public offering of
$540.5 million; and
- the offering of 11% senior notes for $200.0 million in March 2000.
In addition, as of June 30, 2000, we had irrevocable commitments from our
current stockholders to contribute an additional $46.6 million. Prefunded
installments of $36.5 million were contributed in May and June of 2000. The
remaining commitments will be paid in installments of $10.3 million in
September of 2000, $26.0 million in December 2000 and $10.3 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
$406.4 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. Cash interest will not accrue on the notes prior to February 1,
2004. On April 18, 2000, we redeemed 35% of the accreted value of these
outstanding notes for approximately $191.2 million with proceeds from our
initial public offering. The redemption payment of $191.2 million included
$167.7 million of these outstanding notes plus a 14% premium of approximately
$23.5 million. The notes still outstanding will accrete in value representing
the amortization of original issue discount at a rate of 14%, compounded
semiannually, to an aggregate principal amount of $520 million by February 1,
2004. As of June 30, 2000, the accreted value of the outstanding senior discount
notes was approximately $320.2 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 June 30, 2000, 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
35
<PAGE>
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 maintenance
of certain defined financial ratios and meeting operational targets including
service revenues, subscriber units and network coverage. As of June 30, 2000 we
were in compliance with all covenants associated with this credit facility.
On March 10, 2000, we issued $200 million of 11% Senior Notes due 2010, and
on July 27, 2000 we issued an additional $200 million of 11% Senior Notes, each
in a private placement. We exchanged the March notes for registered notes having
the same financial terms and covenants. Interest will accrue for these notes at
the rate of 11% per annum, payable semiannually in cash in arrears on March 15
and September 15 of each year, commencing September 15, 2000.
While we believe we have sufficient funds to complete the build-out of our
existing markets, 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, we cannot assure you that additional funding will not
be necessary. As of June 30, 2000, our cash and cash equivalents and short-tem
investments balance was approximately $953.8 million. We could require
additional financing to complete our existing 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.
BUILD-OUT SCHEDULE
For purposes of our build-out, we have divided our territory into 58
markets, including 12 markets on which we exercised our option to build out. Our
agreements with Nextel WIP require us to build out and provide service in all
existing markets by June 2001 and in all but one of the additional markets on
which we exercised our option by the end of 2001. The table below identifies our
historical and planned build-out schedule for these markets
NEXTEL PARTNERS BUILD-OUT SCHEDULE*
<TABLE>
<CAPTION>
INCREMENTAL COVERED CUMULATIVE COVERED NUMBER OF MARKETS LAUNCHED
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 15.7 million 21.8 million 27
2001 9.6 million 31.4 million **23
</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 1999
county census data published by the U.S. Bureau of the Census.
** Includes all but one of the markets which we exercised our option to
acquire. We are not required to build out this one market until 2003.
36
<PAGE>
OPTION TERRITORIES
Under our agreements with Nextel WIP, we had the right, but not the
obligation, to elect to build out additional markets. On July 11, 2000, we
exercised part of this option to acquire frequencies in 12 markets where over
10.6 million people live and work and closed the transaction on September 27,
2000. These markets are in the following states: Idaho, Iowa, Kansas, Kentucky,
Minnesota, Nebraska, New York, North Dakota, Texas, Vermont, Virginia, West
Virginia and Wisconsin. We intend to seek shortly and anticipate FCC approval
for the transfer of the SMR licenses covering these territories from Nextel WIP
to us. Our option to acquire any additional markets has expired.
We must build out all but one of these optioned markets by the end of 2001.
We are not required to build out one of the markets until the third quarter of
2003. When we build out the optioned 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 or
approvals from its financing entities and the FCC, Nextel WIP will transfer to
us licenses held by Nextel to operate certain frequencies in these option
territories in exchange for Class B Common Stock.
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.
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 and 2000, we entered
into interest rate swap agreements for $60 million and $50 million of these
borrowings,
37
<PAGE>
respectively, 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 $2.2 million.
In January 1999, we issued our 14% senior discount notes, and in each of
March 2000 and July 2000, we issued our existing 11% senior notes. While
fluctuations in interest rates may affect the fair value of these notes,
interest expense will not be affected due to the fixed interest rate of these
notes.
We do not use financial instruments for trading or other speculative
purposes.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
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.
In December of 1999, the SEC released Staff Accounting Bulletin Number
101--Revenue Recognition in Financial Statements. This bulletin will become
effective for us during the fourth quarter of 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.
In March 2000, FASB released FASB Interpretation No. 44, "ACCOUNTING FOR
CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION, an interpretation of APB
Opinion No. 25," which provides clarification of Opinion 25 for certain issues
such as the determination of an employee, the criteria for determining whether a
plan qualifies as a non-compensatory plan and the accounting consequences of
various modifications to the terms of a previously fixed stock option or award.
We believe that our practices are in conformity with this guidance, and
therefore Interpretation No. 44 will have little or no impact on our financial
statements.
38
<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 wireless
frequencies in 58 markets where over 50 million people live and work. We are
licensed or have the right to operate in 15 of the top 100 metropolitan
statistical areas in the United States ranked by population and 55 of the top
200 metropolitan statistical areas. In January 1999, we entered into an
affiliation with Nextel, whose wholly owned subsidiary owned 32.4% of our common
stock as of September 30, 2000 and is our largest stockholder. This relationship
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 uses 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. We offer
a package of services under the Nextel brand name targeted to business users. We
currently offer these fully-integrated services, which are 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 recently launched its Nextel Online service that
provides Internet-capable subscriber units with wireless Internet services,
including web-based applications and content. As part of our agreements with
Nextel WIP, we introduced in June 2000 Nextel Online Service in all of our
launched markets except upstate New York and Hawaii and expect to offer these
same data services in those markets by the end of 2000.
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. 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 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 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.
39
<PAGE>
- 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.
- RAPIDLY DEPLOY ROBUST NETWORK. 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 wireless frequencies in 58 markets where
over 50 million people live and work. 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 58 markets in which we have launched or intend to
launch digital wireless service as of September 30, 2000, including the markets
on which we have exercised our option. We must first receive FCC approval before
the licenses covering the option territories are transferred to us. We do not
anticipate any difficulties in receiving such authorization.
<TABLE>
<CAPTION>
LICENSED ACTUAL OR
REGION MARKETS(1) POPS PLANNED LAUNCH
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------
NORTHEAST Syracuse/Utica-Rome/Binghamton/Elmira, NY 2,039,082 2nd Half 1998
Harrisburg/York/Lancaster, PA 1,658,157 1st Half 2000
Central Pennsylvania (Altoona, Johnstown, State
College, Williamsport) 1,355,266 2nd Half 2001
Buffalo, NY 1,331,256 2nd Half 1998
Rochester, NY 1,191,412 2nd Half 1998
Albany/Glens Falls, NY 1,160,447 2nd Half 1998
Wilkes-Barre/Scranton, PA 1,113,665 1st Half 2000
Burlington, VT 680,845 2nd Half 2003
Erie, PA 366,102 2nd Half 1999
Jamestown, NY 137,431 1st Half 2000
----------
Total 11,033,663
----------
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
LICENSED ACTUAL OR
REGION MARKETS(1) POPS PLANNED LAUNCH
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------
MIDWEST Central Illinois (Peoria, Springfield, Champaign,
Bloomington, Decatur) 1,938,868 1st Half 2000
Eastern Iowa (Waterloo, Dubuque, Davenport, Cedar
Rapids, Iowa City) 1,820,414 1st Half 2000
Nebraska (Omaha, Lincoln) 1,736,895 1st Half 2000
Evansville/Owensboro, KY/IN 1,660,469 1st Half 2001
Green Bay/Fond du Lac/Appleton/Sheboygan, WI 1,374,957 1st Half 2001
Sioux City/Sioux Falls, IA/SD 1,239,353 2nd Half 2001
Fargo/Grand Forks, ND 757,597 2nd Half 2001
Rochester/Mankato, MN 752,469 1st & 2nd Half 2001
Des Moines, IA 735,116 1st Half 2000
Boise/Twin Falls, ID 629,417 1st Half 2000
Eau Claire/La Crosse, WI 525,696 2nd Half 2000
Duluth, MN 338,728 1st Half 2001
Terre Haute, IN 338,520 1st Half 2001
Idaho Falls/Pocatello, ID 336,240 2nd Half 2001
Wausau, WI 218,555 2nd Half 2001
----------
Total 14,403,294
----------
SOUTH Kentucky (Lexington-Fayette, Louisville) 2,966,795 1st Half 2000
Fayetteville/Fort Smith/Pine Bluff, AR 1,811,547 1st Half 2001
Western Virginia (Roanoke/Lynchburg/Charlottesville) 1,670,705 1st & 2nd Half 2001
Shreveport/Monroe/Tyler/Longview, LA/TX 1,584,914 2nd Half 2000
Hattiesburg/Jackson, MS 1,401,096 1st Half 2001
McAllen/Harlingen/Brownsville, TX 983,769 1st Half 2001
Montgomery, AL 925,088 1st Half 2000
Pensacola/Panama City/Fort Walton Beach, FL 869,437 1st Half 2000
Corpus Christi/Victoria, TX 841,801 2nd Half 2000
Huntington-Ashland, WV 840,738 2nd Half 2001
Macon-Warner Robins, GA 751,501 2nd Half 2000
Charleston, WV 737,543 2nd Half 2001
Lafayette/Lake Charles, LA 723,920 1st Half 2000
Albany, GA 679,601 2nd Half 2000
Temple-Killeen/Waco, TX 667,905 2nd Half 1999
Odessa-Midland/San Angelo, TX 625,055 2nd Half 2001
Little Rock, AR 559,074 1st Half 2001
Bristol/Johnson City/Kingsport, TN 554,284 2nd Half 2000
Mobile, AL 535,472 1st Half 2000
Parkersburg-Marietta, WV 503,646 2nd Half 2001
Alexandria, LA 452,765 2nd Half 2000
Tallahassee, FL 451,893 1st Half 2000
Lubbock, TX 421,685 2nd Half 2001
Beaumont, TX 376,256 1st Half 2000
Pascagoula, MS 353,205 1st Half 2000
Texarkana, TX/AR 330,184 2nd Half 2000
Columbus, GA 316,938 2nd Half 2000
Amarillo, TX 314,108 2nd Half 2001
Laredo, TX 297,403 1st Half 2001
Dothan/Auburn-Opelika, GA 251,926 2nd Half 2000
Abilene, TX 184,685 1st Half 2001
Bryan-College Station, TX 174,277 1st Half 2000
----------
Total 24,159,216
----------
NONCONTINENTAL US Hawaii (all islands) 1,185,497 2nd Half 1998
----------
Combined Total 50,781,670
==========
</TABLE>
(1) We may, from time to time, reconfigure our markets to take advantage of
build out and management synergies and marketing opportunities. While the
actual territories and population estimates will not change, the way we
group our markets may increase or decrease the total number of markets.
41
<PAGE>
We have calculated total Pops for a given market by utilizing the Population
Estimates Program published by the U.S. Bureau of the Census which lists
population estimates by county for 1999. Future launch schedules for our markets
are subject to the various factors discussed under the heading "Risk Factors" in
this offering memorandum.
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 July, 2000, we exercised our option to elect to build out additional
markets in Idaho, Iowa, Kansas, Kentucky, Minnesota, Nebraska, New York, North
Dakota, Texas, Vermont, Virginia, West Virginia and Wisconsin. These markets
contain an additional 10.6 million Pops. Nextel will file with the FCC a
transfer of control application seeking FCC approval of the transfer of the
licenses covering the frequencies in these territories to us. We entered into a
frequency management agreement with Nextel WIP to allow us to manage and use the
frequencies in these territories until FCC approval is obtained.
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.
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,
which 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
- 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 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
42
<PAGE>
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 generates
approximately 40% 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.
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.
On April 25, 2000, Nextel commercially launched the Nextel Online service
offering in 43 major markets, including more than 750 cities across the United
States, for Internet-capable devices developed and manufactured by Motorola, the
"i1000plus," "i500plus," and "i700plus." These new devices are the first in a
product line that incorporates micro-browsers and enables wireless Internet
services, by supplying web-based applications and content directly to the
subscribers.
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
June 30, 2000, it provided digital service to about 5.6 million subscriber
units in the United States.
- SUBSCRIBER REVENUES. As reported in its quarterly report for the period
ended June 30, 2000, Nextel's average monthly ARPU for its services was
approximately $74 for the three months ended June 30, 2000, as compared
with a wireless industry average of approximately $41 for the year ended
December 31, 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.
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.
43
<PAGE>
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.
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 launch of our 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 than one mile and up to 30 miles. This process
avoids interference, while permitting significantly more customers to use
the frequencies allotted to us.
This system, 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.
44
<PAGE>
NETWORK BUILD-OUT AND CAPITAL EXPENDITURE PLAN
For purposes of our build-out, we have divided our territory into 58
markets. Our agreements with Nextel WIP require us to build out and provide
service in all but one of our markets by the end of 2001. The table below
identifies our historical and planned build-out schedule for these markets:
NEXTEL PARTNERS BUILD-OUT SCHEDULE*
<TABLE>
<CAPTION>
INCREMENTAL COVERED CUMULATIVE COVERED NUMBER OF MARKETS LAUNCHED
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 15.7 million 21.8 million 27
2001 9.6 million 31.4 million 23**
</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 1999
county census data published by the U.S. Bureau of the Census.
** Includes all but one of the markets which we exercised our option to
acquire. We are not required to build out this one market until 2003.
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.
If our required markets are not built out on a timely basis, Nextel will
have the right to build out these markets. If Nextel completes the build-out of
these areas in a timely manner, we will have no right to acquire or operate in
those areas.
CELL SITE ACQUISITION AND CONSTRUCTION. As of June 30, 2000, we had
leasehold interests in 1,362 cell site locations for our transmission equipment
throughout our territory, which is 76% 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, 1,001 were equipped and
operational at June 30, 2000.
Initially, we leased approximately 40 of these sites from Nextel WIP. In
April 1999, Nextel WIP sold the towers on these sites to SpectraSite
Holdings, Inc., along with other towers, and entered into agreements pursuant to
which SpectraSite agreed to build or purchase additional towers, including
towers in our territory. We have entered into leasing arrangements with
SpectraSite on agreed terms for space on 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
45
<PAGE>
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.
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 Nextel.
We intend to develop our own relationships with vendors and seek from
Nextel's distributors the same or comparable terms as Nextel's.
46
<PAGE>
- 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's 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 before the
launch of services. We expect to continue to benefit from Nextel's national
advertising campaigns. We use 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.
- 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
located our credit and activation, order fulfillment, and collection services in
the call center.
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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.
Under these 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 some 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
- assisting us in contracting with Nextel's vendors on the same terms as
Nextel's 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
- 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 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
- we must adhere to standards in other operating areas, such as frequency
design, site acquisition, construction, cell site maintenance and
marketing and advertising
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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 in June 30, 1985 to over 86 million at December 31, 1999,
which reflected a penetration rate of 31.2%.
The following table sets forth certain U.S. wireless industry statistics:
U.S. WIRELESS SUBSCRIBERS
1992--1999
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
WIRELESS INDUSTRY STATISTICS(1) 1992 1993 1994 1995 1996 1997 1998 1999
------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total service revenues (in
billions)................ $ 7.8 $ 10.9 $ 14.2 $ 19.1 $ 23.6 $ 27.5 $ 33.1 $ 40.0
Wireless subscribers at end of
period (in millions)..... 11.0 16.0 24.1 33.8 44.0 55.3 69.2 86.0
Subscriber growth.......... 46.0% 45.1% 50.8% 40.0% 30.4% 25.6% 25.1% 24.3%
Average monthly revenues per
subscriber............... $68.68 $61.49 $56.21 $51.00 $47.70 $42.78 $39.43 $41.24
Ending penetration......... 4.3% 6.2% 9.2% 12.9% 16.6% 20.0% 25.0% 31.2%
Digital subscribers at end of
period (in millions)..... -- -- -- -- -- 6.5 18.3 38.5
</TABLE>
------------------------
Source: Cellular Telecommunications Industry Association and Census Bureau
Data.
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(1) Reflects domestic U.S. commercially operational cellular, ESMR and PCS
providers.
WIRELESS COMMUNICATIONS SYSTEMS
In the U.S. wireless communications industry, there are three mobile
wireless telephone services: cellular, ESMR and PCS. Currently, cellular is the
predominant service available and has several competitive advantages. Cellular
and ESMR services utilize radio spectrum in the 800 MHz band while PCS operates
at higher frequencies of 1850 to 1990 MHz. Use of the 800 MHz band gives
cellular and ESMR superior ability to penetrate buildings and other physical
obstacles and spread or "propagate" through air, thereby reducing infrastructure
costs since fewer base radios are needed to cover a given area.
All cellular services transmissions were originally analog-based, although
some cellular providers have now overlaid digital systems alongside their analog
systems in many markets. Analog cellular technology has the advantage of using a
consistent standard nationwide, permitting nationwide roaming using a single
mode, single band telephone. On the other hand, analog technology has several
disadvantages, including less efficient use of spectrum, which reduces effective
call capacity; inconsistent service quality; decreased privacy, security and
reliability as compared to digital technologies; and the inability to offer
services such as voice mail, call waiting or caller identification.
All PCS services, like ESMR, are all-digital systems which convert voice or
data signals into a stream of binary digits that is compressed before
transmission, enabling a single radio channel to carry multiple simultaneous
signal transmissions. This enhanced capacity, along with improvements in digital
signaling, allows digital-based wireless technologies to offer new and enhanced
services, and improved voice quality and system flexibility, as compared with
analog technologies. Call forwarding, call waiting and greater call privacy are
among the enhanced services that digital systems provide. In addition, due to
the reduced power consumption of digital handsets, users benefit from an
extended battery life.
The FCC has also assigned non-contiguous portions of the 800 MHz band to
SMR, which was initially dedicated to analog two-way radio dispatch services.
This service only became viable in the wireless telephone market with the
introduction in 1993 of ESMR, which applies digital technology to make use of
the 800 MHz spectrum band and its superior propagation characteristics to
deliver the advantages of a digital wireless mobile telephone system while
retaining and significantly enhancing the value of SMR's traditional dispatch
feature.
Unlike analog cellular, which has been implemented in a uniform manner
across the United States, several mutually incompatible digital technologies are
currently in use in the United States. Roaming into different areas often
requires multi-mode (analog/digital) and/or multi-band (PCS/ cellular)
telephones that function at both cellular and PCS frequencies and/or are
equipped for more than one type of modulation technology. Time-division
technologies, which include GSM, TDMA and iDEN, break up each transmission
channel into time slots that increase effective capacity. Code Division Multiple
Access, or CDMA technology, is a spread-spectrum technology which transmits
portions of many messages over a broad portion of the available spectrum rather
than a single channel. iDEN phones presently operate only in the iDEN mode
within SMR frequencies, and therefore cannot roam onto other digital or analog
wireless networks.
NEXTEL
Nextel deployed a second generation of Motorola's iDEN technology beginning
in the third quarter of 1996. In its quarterly and annual reports, Nextel has
reported a high rate of customer growth since that time, and has been an
industry leader in terms of net subscriber additions as compared to information
reported by other cellular and digital service providers. Based on Nextel's
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quarterly and annual reports, over the past three years the number of Nextel's
ESMR customers in the United States has grown at a 16% compounded growth rate
quarter over quarter, and as of June 30, 2000 the number of Nextel's ESMR
customers in the United States, as reported by the company, has grown to
approximately 5.6 million.
Because our physical network will take several years to build out fully, and
because of the smaller size of our territory as compared to Nextel's, our rate
of customer growth may not equal or exceed Nextel's results. Moreover, we cannot
assure you that Nextel, whose growth we believe has been driven primarily by its
success in penetrating its core market of industries dependent upon mobile work
groups and more recent broadening of its customer base to include the white
collar segment, will sustain its recent growth rates in the future.
Nextel's reported monthly ARPU has generally increased throughout the period
from 1993 to 1999, a fact that stands in notable contrast to the overall trend
in the wireless industry, where, according to data reported by the Cellular
Telecommunications Industry Association, monthly ARPU declined from 1993 to 1998
with a slight increase during 1999. Nextel's monthly ARPU may be adversely
affected in the future as it attempts to broaden its customer base and faces
increasing competition. There can be no assurance that our monthly ARPU will
duplicate that of Nextel because we set our prices independently, and our
markets are distinct from Nextel's.
Nextel has consistently reported its monthly ARPU to be $70 or higher for
each quarter over the past two years, making it an industry leader in terms of
monthly ARPU as compared to information reported by other cellular and digital
service providers. We believe that Nextel has increased and maintained its
monthly ARPU as a result of the unique features of its differentiated product,
its focus on mobile work groups and recent broadening of its customer base to
include white collar customers. Nextel has reported that it believes that these
groups have made its service an integral part of their business operations,
which we believe contributes to high usage and improved customer satisfaction.
iDEN service offers the same mobile telephone features as digital cellular and
PCS service, including call forwarding, call waiting and greater call privacy.
Moreover, iDEN technology's unique differentiation from other digital standards
is its dispatch service, which is marketed by Nextel and us as Nextel Direct
Connect service.
The Nextel Direct Connect service dispatch capability allows any member of a
mobile team to immediately communicate with any or all of a prearranged Nextel
phone-equipped team of up to 100 members with the push of a button. This
"push-to-talk" feature works like a two-way radio, but, in contrast to analog
dispatch SMR radios, iDEN technology allows only the person or persons being
called to hear the conversation.
Nextel Direct Connect service, together with other enhancements, including
call alert, speakerphone capability, short text paging and "hot-sync"
programming (on certain subscriber unit models), differentiate Nextel's digital
service from those of cellular and PCS providers, and we believe it has been
responsible for Nextel's strong appeal to business users in mobile occupations,
including transportation, delivery, real property and facilities management,
construction and building, landscaping, and other service sectors. "Hot-sync"
programming allows users to quickly and easily program their subscriber units
with the data necessary to form a Direct Connect work group by inserting each
unit into a cradle connected to a personal computer. In addition to its
advantages to users, Nextel Direct Connect service uses only half the bandwidth
that an interconnected call over an iDEN network would use, and this efficient
use of spectrum gives the iDEN service provider the opportunity to offer
attractive pricing for Nextel Direct Connect service.
COMPETITION
In each of the markets where our portion of the Nextel digital mobile
network will operate, we will compete with the two established cellular
licensees and as many as six PCS licensees,
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including AT&T Wireless, Sprint PCS, Verizon Wireless, VoiceStream, BellSouth
and SBC Communications (Bell South and SBC have recently merged their wireless
operations into Alloy, L.L.C.). Our ability to compete effectively with other
wireless communications service providers depends on a number of factors,
including:
- the continued satisfactory performance of iDEN technology
- the establishment and maintenance of roaming service among our market
areas and those of Nextel
- the development of cost-effective direct and indirect channels of
distribution for our portion of the Nextel digital mobile network and our
products and services
A substantial number of the entities that have been awarded PCS licenses are
current cellular communications service providers and joint ventures of current
and potential wireless communications service providers, many of which have
financial resources, customer bases and name recognition greater than ours. PCS
operators will likely compete with us in providing some or all of the services
available through our network. Additionally, we expect that existing cellular
service providers, some of which have been operational for a number of years and
have significantly greater financial and technical resources, customer bases and
name recognition than us, will continue to upgrade their systems to provide
digital wireless communications services competitive with those available on our
network. Moreover, cellular and wireline companies are authorized to participate
in dispatch and SMR services, respectively. We also expect our business to face
competition from other technologies and services developed and introduced in the
future.
We believe that the mobile telephone service currently being provided on the
Nextel digital mobile network utilizing the iDEN technology is similar in
function to and achieves performance levels competitive with those being offered
by other current wireless communications service providers in our market areas.
There are, however, and will in certain cases continue to be, differences
between the services provided by us and by cellular and/or PCS system operators
and the performance of our respective systems. The all-digital networks that we
and Nextel operate provide customers with digital quality and advanced features
wherever they roam on the Nextel digital mobile network, in contrast to hybrid
analog/digital networks of cellular competitors, which do not support these
features in the large analog-only portion of their networks. Nevertheless, our
ability to provide roaming services will be more limited than that of carriers
whose subscribers use handsets that can operate on both analog and digital
cellular networks and who have roaming agreements covering larger parts of the
country. As the Nextel digital mobile network expands to cover a greater
geographic area, this disadvantage will be reduced, but we can give no assurance
that the Nextel digital mobile network will ever cover the same geographic areas
as other mobile telephone services. In addition, if either PCS or cellular
operators provide two-way radio dispatch services in the future, our competitive
advantage in being uniquely able to combine that service with our mobile
telephone service would be impaired.
Telephones used on the Nextel digital mobile network are not compatible with
those employed on cellular or PCS systems, and vice versa. This lack of
interoperability may impede our ability to attract cellular or PCS customers or
those new mobile telephone customers that desire the ability to access different
service providers in the same market.
We plan to market the multi-function telephones manufactured by Motorola.
These telephones are and are likely to remain significantly more expensive than
analog telephones, and are and are likely to remain somewhat more expensive than
digital cellular or PCS telephones that do not incorporate a comparable
multi-function capability. We therefore expect to charge higher prices for the
telephones to be used by our customers than those charged by operators for
analog cellular telephones and possibly than those charged by operators for
digital cellular telephones. However,
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we believe that our multi-function telephones currently are competitively priced
compared to multi-function--mobile telephone service and short text
messaging--digital, cellular and PCS telephones.
During the transition to digital technology, certain participants in the
U.S. cellular industry are offering telephones with dual mode--analog and
digital--compatibility. Additionally, certain analog cellular system operators
that directly or through their affiliates also are constructing and operating
digital PCS systems have made available to their customers dual mode/dual
band--800 MHz cellular/1900 MHz PCS--telephones, to combine the enhanced feature
set available on digital PCS systems within their digital service coverage areas
with the broader wireless coverage area available on the analog cellular
network. We do not have comparable hybrid telephones available to our customers.
We can give no assurances that potential customers will be willing to accept
system coverage limitations as a trade-off for the enhanced multi-function
wireless communications package we plan to provide on our portion of the Nextel
digital mobile network.
Over the past several years as the number of wireless communications
providers in our market areas has increased, the prices of such providers'
wireless service offerings to customers in those markets have generally been
decreasing. We may encounter market pressures to reduce our service offering
prices or to restructure our service offering packages to respond to particular
short-term, market-specific situations, such as special introductory pricing or
packages that may be offered by new providers launching their service in a
market, or to remain competitive in the event that wireless service providers
generally continue to reduce the prices charged to their customers, particularly
if PCS operators enter the smaller markets that we intend to serve.
Because many of the cellular operators and certain of the PCS operators in
our markets have substantially greater financial resources than us, they may be
able to offer prospective customers equipment subsidies or discounts that are
substantially greater than those, if any, that could be offered by us and may be
able to offer services to customers at prices that are below prices that we are
able to offer for comparable services. Thus, our ability to compete based on the
price of our digital mobile network telephones and service offerings will be
limited. We cannot predict the competitive effect that any of these factors, or
any combination thereof, will have on us.
Cellular operators and PCS operators and entities that have been awarded PCS
licenses each control more spectrum than is allocated for SMR service in each of
the relevant market areas. Specifically, each cellular operator is licensed to
operate 25 MHz of spectrum and certain PCS licensees have been licensed for 30
MHz of spectrum in the markets in which they are licensed, while no more than
21.5 MHz is available in the 800 MHz band to all SMR systems, including our
systems, in those markets. The control of more spectrum gives cellular operators
and such PCS licensees the potential for more system capacity and, therefore,
the ability to serve more subscribers than SMR operators, including Nextel and
us. We believe that we generally have adequate spectrum to provide the capacity
needed on our portion of the Nextel digital mobile network currently and for the
reasonably foreseeable future.
In 1997, the FCC reallocated and auctioned 30 MHz of 2.3 GHz spectrum to
wireless services. However, the strict operational and technical limitations the
FCC placed on use of the spectrum will likely prohibit the provision of mobile
services using current technology. Additionally, the FCC has reallocated 220 MHz
of radio spectrum for use by "emerging telecommunications technologies," such as
PCS, low-earth orbit satellites and mobile satellite systems. The FCC has
authorized a consortium of communications companies to provide nationwide mobile
satellite services. Additionally, the FCC recently reallocated 36 MHz of the
former analog television channels to commercial services, including broadcasts,
fixed and mobile services. The FCC has announced that it intends to auction 30
MHz of this spectrum in March 2001 and it intends to exclude this spectrum from
the spectrum cap, discussed below. It is possible that this spectrum will be
used to offer
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services that are competitive with our service. The FCC will continue to auction
spectrum in the future, and we cannot predict how these frequencies will be
used, the technologies that will develop or what impact, if any, they will have
on our ability to compete for wireless communications services customers.
The FCC has also announced plans to reauction over 150 PCS licenses on
December 12, 2000. However, these licenses are presently subject to ongoing
litigation in federal court. If and when these licenses go into service, they
may be purchased by our competitors, subject to the FCC's spectrum cap,
discussed below, and may increase the level of competition in our markets. The
FCC or Congress may also allocate additional spectrum at any time and create
rules that would make services provided on that spectrum competitive with our
ESMR service.
EMPLOYEES
As of June 30, 2000, we had approximately 908 employees. None of our
employees are or are expected to be represented by a labor union or subject to a
collective bargaining agreement, nor have we experienced any work stoppage due
to labor disputes. We believe that our relations with our employees are good.
PROPERTIES
We own no material real property. We lease our headquarters located in
Kirkland, Washington. This facility is approximately 10,000 square feet and we
have a lease commitment on the facility through July 25, 2001. We recently
signed a letter of intent to extend our lease on this space through
January 2003 and to expand the space to include an additional 4,000 square feet.
We lease administrative offices of approximately 22,800 square feet in
Minnetonka, Minnesota under a lease expiring March 31, 2002. We lease office
space of approximately 23,000 square feet in Las Vegas, Nevada for operation of
our customer service call center under a lease expiring May 11, 2004. We lease
cell sites for the transmission of radio service under various master site lease
agreements as well as individual site leases. The terms of these leases
generally range from five to 25 years at monthly rents ranging from $300 to
$2,200. As of June 30, 2000, we had approximately 1,040 constructed sites at
leased locations, of which 1,001 were operational.
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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
- 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. The FCC has held two auctions for EA licenses which include the
frequencies we and Nextel operate in the 800 MHz band. The first auction, in
1997, included the upper 200 channels. In both auctions, Nextel, or a bidding
consortium made up of Nextel and us, was the largest successful bidder, and, as
a result, we, or a Nextel subsidiary, hold EA licenses for most, but not all, of
the territories that we intend to serve.
The first EA licenses granted 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
license has priority, but must compensate the incumbent for the cost of changing
to another frequency. We, or a Nextel subsidiary, hold all of the EA licenses
from this auction that include our frequencies. 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.
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In the second EA auction, we acquired almost all of the EA licenses that
include frequencies which we operate on a site-by-site basis. As a result, we
will be able to provide service throughout the EA territory on those
frequencies. Unlike the previous EA auction, however, the EA licensee does not
have exclusive use of the frequencies in the EA territory. Therefore, in those
limited areas where another entity may have acquired the EA license at auction
but where we are an incumbent licensee operating on a site-by-site basis on the
same frequency, we have the right to continue to operate under the existing
site-by-site authorization.
EA licenses to operate on these frequencies were granted pursuant to a
one-time auction and are issued for ten years, after which we need to apply for
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. In
addition, 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 schedules 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. We expect to meet all of the build-out
requirements of our licenses. However, from time to time the FCC has notified us
that certain of our licenses have been revoked for failure to meet construction
deadlines. In all such instances we have requested that the licenses be
reinstated. We do not believe that a refusal to reinstate the licenses will have
a material adverse effect on our operations.
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. We are in the process of implementing such
capabilities. In some states, we may not be able to recover our costs of
implementing such enhanced 911 capabilities. At this time, we don't believe that
these costs will have a material adverse impact on our operations. 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'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
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providers. These rules may affect our ability to obtain additional spectrum. The
FCC has stated that it intends to review the continued applicability of the
spectrum cap later this year.
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 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. On July 18, 2000 the United States Court of Appeals for the Eighth
Circuit overturned the FCC's order that required compensation based on the most
efficient network configuration. This decision has been appealed to the Supreme
Court. Relatedly, on June 5, 2000, the Supreme Court agreed to hear an appeal
which challenges the FCC's cost-based compensation arrangements in another
proceeding. The outcome of these appeals may have a significant impact on the
charges we pay to other carriers and on the compensation we receive for
interconnection. 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. On August 15, 2000, the United States Court of Appeals for
the D.C. Circuit reversed an FCC requirement that certain additional call
identifying information be provided to law enforcement. This decision may be
appealed to the Supreme Court. Moreover, implementation of certain capabilities
affecting the transmission of protected data, as required by the FCC, must be
completed by September 30, 2001. 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, the National Historic Preservation 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
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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. While states cannot, generally, regulate our rates for
universal services, 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.
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. In addition, 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.............................. 47 President, Chief Executive Officer and
Chairman of the Board
John Thompson............................. 47 Vice President, Chief Financial Officer
and Treasurer
David Thaler.............................. 45 Vice President--Business Operations
David Aas................................. 47 Vice President--Engineering and Technical
Operations
Perry Satterlee........................... 40 Vice President--Sales and Marketing
Mark Fanning.............................. 41 Vice President--People Development
Donald Manning............................ 40 Vice President, General Counsel and
Secretary
Steven Dodge.............................. 55 Director
Timothy Donahue........................... 51 Director
Andrew Rush............................... 43 Director
Andrew Sinwell............................ 36 Director
Dennis Weibling........................... 49 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 21 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 21 years
of finance experience, including 13 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
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<PAGE>
Financial Officer for AT&T Wireless Services. Mr. Thompson has served on the
boards of a number of AT&T Wireless Services joint ventures, including Bay Area
Cellular Telephone Company.
DAVID THALER has been the Vice President-Business Operations of Nextel
Partners and our subsidiaries since August 1998 and has nearly 18 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 22 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 13 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 18 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.
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
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<PAGE>
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.
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.
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
360networks, 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.
BOARD OF DIRECTORS
Our board of directors is comprised of six directors. Pursuant to the
shareholders' agreement, as amended, certain parties to the agreement other than
DLJ Merchant Banking, who together owned approximately 60.9% of our outstanding
common stock as of September 30, 2000, 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
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<PAGE>
- our chief executive officer: currently, John Chapple.
Prior to the initial public offering of our Class A common stock, 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.
The obligation of the other parties to the shareholders' agreement to vote in
favor of the DLJ Merchant Banking designee terminated upon the amendment to 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. 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. The shareholders' agreement, as amended, is now in effect. In
addition, the shareholders' agreement was amended a second time effective
February 22, 2000. This amendment, among other things, removed several
stockholders from the shareholders' agreement. The current parties to the
shareholders' agreement now include Nextel WIP, DLJ Merchant Banking, Madison
Dearborn Partners, Eagle River, Motorola and our senior management stockholders.
All directors will hold office until the next annual meeting of stockholders
and until their successors are duly elected.
COMMITTEES
Our audit committee consists of Messrs. Rush, Sinwell and Dodge. The audit
committee makes recommendations to our board of directors regarding the
selection of independent auditors, reviews the scope of audit and other services
by our independent auditors, reviews the accounting principles and auditing
practices and procedures to be used for our financial statements and reviews 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 other than Mr. Dodge. In February 2000 we granted
to Mr. Dodge an option to purchase 25,000 shares of Class A common stock, which
option vests in three equal annual installments and has an exercise price equal
to $20.00 per share. Going forward, our non-employee and non-strategic
shareholder directors will receive compensation of $2,500 per quarter, plus
$1,000 for each meeting they attend in person and $500 for each meeting they
attend via conference call. 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
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<PAGE>
in recognition of such officer's service prior to such date. See "--Executive
Employment Contracts and Termination of Employment Arrangements."
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 $1.85 per share and vests in three equal annual
installments. See "--Option Grants in Fiscal Year 1999."
(9) Represents lump sum payments made to officers on January 29, 1999 for
services rendered to us prior to that date. See "--Executive Employment
Contracts and Termination of Employment Arrangements."
OPTION GRANTS IN FISCAL YEAR 1999
The following table sets forth certain information with respect to stock
options granted to each of our named executive officers during the fiscal year
ended December 31, 1999. In accordance with the rules of the Securities and
Exchange Commission, also shown below is the potential realizable value over the
term of the option, the period from the grant date to the expiration date, based
on assumed rates of stock appreciation of 5% and 10%, compounded annually. These
amounts are mandated by the Securities and Exchange Commission and do not
represent our estimate of future stock price. Actual gains, if any, on stock
option exercises will depend on the future performance of our Class A common
stock. In fiscal year 1999, we granted options to acquire up to an aggregate of
5,049,600 shares to employees and directors, excluding options that were
subsequently forfeited due to termination, all under our stock option plan and
all at an
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exercise price equal to the fair market value of our Class A common stock on the
date of grant as determined in good faith by our board of directors.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED (#) FISCAL 1999 PER SHARE DATE 5%($) 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 a price of $19.25 per share, which was the
reported last sale price of our Class A common stock on the Nasdaq National
Market on October 18, 2000, minus the per share exercise price multiplied by the
number of shares underlying the option.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 1999 DECEMBER 31, 1999 ($)
--------------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
John Chapple..................................... 0 105,000 $ -- $1,827,000
John Thompson.................................... 210,000 105,000 3,691,800 1,827,000
David Thaler..................................... 0 60,000 -- 1,044,000
David Aas........................................ 0 60,000 -- 1,044,000
Perry Satterlee.................................. 0 120,000 -- 2,088,000
</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 in fiscal
year 2000 ranging from $150,000 to $175,000, with an additional cash payment of
up to 50% 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 was 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, was approved by our stockholders in February 2000 and is now in
effect. Initially, a total of
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3,000,000 shares of Class A common stock has been 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 quarterly offering
periods. The initial offering period under the employee stock purchase plan
began on June 1, 2000 and terminated on 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 June 30, 2000, Nextel WIP owed us
$4.2 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. As of September 30, 2000, Nextel WIP was the owner of 32.4%
of our common stock, 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. As of September 30, 2000,
Motorola was the beneficial owner of 5.4% of our outstanding common stock.
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, which were the beneficial owners
of 11.7% of our outstanding common stock as of September 30, 2000. One of
our directors, Andrew Rush, is affiliated with DLJ Merchant Banking;
- Madison Dearborn Partners, which was the beneficial owner of 11.2% of our
outstanding common stock as of September 30, 2000. One of our directors,
Andrew Sinwell, is affiliated with Madison Dearborn Partners;
- Eagle River, which was the beneficial owner of 8.0% of our outstanding
common stock as of September 30, 2000. One of our directors, Dennis
Weibling, is affiliated with Eagle River;
- The Huff Alternative Income Fund, L.P., which was the beneficial owner of
5.8% of our outstanding common stock as of September 30, 2000, and holds a
portion of our 14% senior discount notes; and
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- John Chapple, our chief executive officer and a director, and the
beneficial owner of 1.4% of our outstanding common stock as of
September 30, 2000.
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 $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 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.
With the consummation of the IPO on February 25, 2000 all the outstanding
shares of the Company's Series A preferred stock converted into
125,834,646 shares of Class A common stock and all the outstanding Company's
Series C and D preferred stock automatically converted into 77,782,626 shares of
Class B common stock. In addition, the Series B redeemable preferred stock held
by Nextel WIP became subject to mandatory cash redemption 375 days after
February 1, 2009. The Series B preferred stock, plus accrued dividends, was
reclassified from stockholder's equity to the section of the balance sheet
between liabilities and stockholder's equity. Simultaneously, an adjustment was
made to the accumulated deficit representing the 12% dividend accrued from the
time of issuance to the closing date of the IPO.
SEPTEMBER 27, 2000 EXPANSION TRANSACTIONS. On September 27, 2000, one of
our subsidiaries entered into an expansion territory asset transfer and
reimbursement agreement with Nextel WIP to acquire for approximately
$3.4 million certain assets, properties, rights and interests to be used in
connection with the construction and operation of additional territories. As
part of this expansion, we issued to Nextel WIP 1,273,602 shares of our Class B
common stock 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 new expansion territory.
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 the initial public 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 February 2000 in connection with the initial public offering of
our Class A common stock. After the amendments, the current parties to the
agreement are Nextel WIP, DLJ Merchant Banking, Madison Dearborn Partners, Eagle
River, Motorola and our senior management stockholders.
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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 owned approximately 60.9% of our outstanding common stock as of
September 30, 2000, 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 the initial public offering of our Class A common stock, 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 terminated upon the amendment of the
shareholders' agreement. The parties to the amended shareholders' agreement have
also agreed that DLJ Merchant Banking may nominate a director for election by
our 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, Motorola and
the management stockholders may transfer shares only to family members,
affiliates and certain other permitted transferees; provided, however, that 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 the other parties to the
shareholders' agreement 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. Stockholders who are
parties to the shareholders' agreement may transfer their shares to third
parties in a private transaction, subject to the rights of first offer and
rights of first refusal described above. However, other than as set forth above,
the stockholders may transfer shares under Rule 144. 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 the initial public offering of our Class A
common stock, entities affiliated with DLJ Merchant Banking and Madison Dearborn
Partners have the following registration
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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 entities
affiliated with DLJ Merchant Banking collectively then hold 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 and the
parties to the registration rights agreement described below 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 and parties to our
registration rights 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
the initial public offering of our Class A common stock.
PREEMPTIVE 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, DLJ
Merchant Banking or Madison Dearborn Partners and to purchase all of the stock
being offered.
STOCKHOLDER APPROVAL RIGHTS. Approval of a majority of the parties to the
shareholders' agreement who are non-Nextel stockholders is required prior to any
acquisition or disposition of our assets or operations, or the assets or
operations of any of our subsidiaries, in an amount in excess of $25.0 million.
REIMBURSEMENT OF CERTAIN EXPENSES. In 1999 we reimbursed Nextel, Nextel WIP
and Eagle River an aggregate of $16.6 million and $1.2 million for operating
advances and expenses, respectively, 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
exchange.
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REGISTRATION RIGHTS AGREEMENT
Pursuant to a registration rights agreement dated effective February 2000,
stockholders who had formerly been parties to our shareholders' agreement were
granted rights to include, at our expense, their shares of common stock in a
registration of our securities under the Securities Act either for our own
account or for the account of other security holders exercising registration
rights. These registration rights are subject to the right of the underwriters
of such an offering to limit the number of shares included in such registration.
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 again on September 27, 2000, 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.
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.
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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. On March 20, 2000 the FCC granted
approval to transfer ownership from Nextel WIP to us of the option territory
licenses we acquired from Nextel WIP as part of our expansion in September 1999.
The licenses we acquired from Nextel WIP as part of our expansion in September
2000 are still subject to FCC approval, although we have the right currently to
use those frequencies pending FCC approval. 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;
- 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,
- do not use Motorola iDEN or other digital service on 800 MHz
frequencies, and
- do not offer interconnection services with other landline carriers.
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
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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 and the three- and six-month periods ended
June 30, 2000, we were charged approximately $455,000, $226,000 and $432,000,
respectively, 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 "--Certain Obligations Under Our Charter."
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 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 and the
three- and six-month periods ended June 30, 2000, we earned approximately
$8.5 million, $5.0 million and $8.8 million, respectively, from Nextel customers
roaming on our portion of the Nextel digital mobile network and paid Nextel WIP
approximately $1.2 million, $1.1 million and $1.7 million for our subscribers
roaming on Nextel's portion.
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ANALOG MANAGEMENT AGREEMENT
Through the analog management agreement, as amended, 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.
SECOND EXPANSION TERRITORY MANAGEMENT AGREEMENT
Through the second expansion territory management agreement, Nextel WIP
permits us to manage and use the SMR frequencies that are covered by the
licenses that Nextel WIP has agreed to transfer to us in connection with our
option exercise pending FCC approval of the transfer. When the FCC approves the
transfer of the licenses, the second expansion territory management agreement
will terminate.
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.
SEPTEMBER 27, 2000 EXPANSION TRANSACTIONS
On September 27, 2000, one of our subsidiaries entered into an expansion
territory asset transfer and reimbursement agreement with Nextel WIP to acquire
for approximately $3.4 million assets, properties, rights and interests to be
used in connection with the construction and operation of additional
territories. As part of this expansion, we issued to Nextel WIP
1,273,602 shares of our Class B common stock 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 new expansion territory.
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. For the three months ended June 30,
2000 Nextel WIP compensated us a difference of $57,600 and for the six months
ended June 30, 2000 we paid a net amount of $121,000.
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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 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, and the three- and six month
periods ended June 30, 2000 we were charged approximately $2.7 million, $781,000
and $1.5 million, respectively, 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 and the three- and six-month periods ended June 30, 2000, we
were charged approximately $2.4 million, $3.2 million and $4.3 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
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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.
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. 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>
- 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 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
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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>
- 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 with - Cash, Nextel stock or a combination of
Nextel WIP as a result of a breach by Nextel both, at Nextel WIP's option
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
- 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.
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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
will be required to participate.
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, 1998 and 1999 and the three- and six-month periods ended
June 30, 2000, we purchased approximately $47.5 million, $40.7 million (includes
$22 million of purchases from the Motorola vendor credit), $35.8 million and
$61.3 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.
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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 notes and senior discount notes and received customary
discounts and commissions in connection with each such offering. 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 was a co-lead manager of the initial
public offering of our Class A common stock and we may from time to time enter
into other investment banking relationships with it or one of its affiliates.
See "Plan of Distribution."
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
"Management--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.
We have 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
Steven Dodge................................................ 2/25/00 25,000 20.00
</TABLE>
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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 September 30, 2000,
consisting of Class A and Class B common stock 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 of our 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 and restated 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. This table is based on information supplied by officers,
directors, principal stockholders and Schedules 13G filed with the SEC.
Unless otherwise noted, the address for each stockholder below is: c/o
Nextel Partners, Inc., 4500 Carillon Point, Kirkland, WA 98033.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES NUMBER OF SHARES COMMON STOCK
NAME AND ADDRESS OF COMMON STOCK UNDERLYING OPTIONS OUTSTANDING
---------------- ---------------- ------------------ ----------------
<S> <C> <C> <C>
Parties to Amended and Restated Shareholders'
Agreement(1)................................. 177,156,288 210,000 72.6%
Nextel WIP Corp.
2001 Edmund Halley Drive
Reston, VA 20191............................. 79,056,228 -- 32.4
Entities affiliated with DLJ Merchant Banking
Partners II, L.P.(2)
277 Park Avenue
New York, NY 10172........................... 28,533,132 -- 11.7
Madison Dearborn Capital Partners II, L.P.
Three First National Plaza, Suite 3800
Chicago, IL 60602............................ 27,218,904 -- 11.2
Eagle River Investments, LLC
2300 Carillon Point
Kirkland, WA 98033........................... 19,500,012 -- 8.0
The Huff Alternative Income Fund, L.P.
1776 On The Green
67 Park Place
Morristown, NJ 07960......................... 14,119,380 -- 5.8
</TABLE>
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<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES NUMBER OF SHARES COMMON STOCK
NAME AND ADDRESS OF COMMON STOCK UNDERLYING OPTIONS OUTSTANDING
---------------- ---------------- ------------------ ----------------
<S> <C> <C> <C>
Motorola, Inc.
1303 East Algonquin Road, 11th Floor
Schaumburg, IL 60196......................... 13,076,376 -- 5.4
John Chapple(3)................................ 3,336,024 -- 1.4
John Thompson(4)............................... 2,210,664 210,000 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)................................. 28,533,132 -- 11.7
Dennis Weibling(7)............................. 98,556,240 -- 40.4
Timothy Donahue(8)............................. 79,056,228 -- 32.4
Andrew Sinwell(9).............................. 27,218,904 -- 11.2
Steven Dodge................................... -- -- --
Directors and officers as a group (12
persons)(10)................................. 164,139,912 270,000 67.3%
</TABLE>
--------------------------
* Less than 1%
(1) The following stockholders are parties to a shareholders' agreement 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: Nextel WIP, DLJ Merchant Banking, Madison
Dearborn Partners, Eagle River, Motorola and our senior management
stockholders. 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: AXA, AXA Assurances I.A.R.D. Mutuelle, AXA
Assurances Vie Mutuelle, AXA Conseil Vie Assurance Mutuelle, AXA Courtage
Assurance Mutuelle, AXA Financial Inc., DLJ Capital Investors, Inc., DLJ
Diversified Partners, Inc., DLJ LBO Plans Management Corporation, Donaldson,
Lufkin & Jenrette, Inc., 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.
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<PAGE>
THE EXCHANGE OFFER
BACKGROUND
On July 27, 2000, we privately placed the old notes in a transaction exempt
from registration under the Securities Act. Accordingly, the old notes may not
be reoffered, resold or otherwise transferred in the United States unless so
registered or unless an exemption from the Securities Act registration
requirements is available.
In the registration rights agreement, we agreed with the initial purchasers
to, at our cost:
- file an exchange offer registration statement within 120 days after
July 27, 2000,
- use our commercially reasonable efforts to cause the exchange offer
registration statement to become effective under the Securities Act at the
earliest possible time, but no later than 180 days following July 27,
2000, and
- upon effectiveness of the exchange offer registration statement, offer new
notes in exchange for surrender of the old notes.
In addition, we agreed to keep the exchange offer open for at least
20 days, or longer if required by applicable law, after the date notice of the
exchange offer is mailed to holders of the old notes. The new notes are being
offered under this prospectus to satisfy these obligations under the
registration rights agreement.
A copy of the registration rights agreement is filed as an exhibit to the
registration statement of which this prospectus is a part.
TERMS OF THE EXCHANGE
Upon the terms and subject to the conditions contained in this prospectus
and in the letter of transmittal that accompanies this prospectus, we will
accept any and all old notes validly tendered and not withdrawn before
5:00 p.m., New York City time, on the expiration date of the exchange offer. We
will issue an equal principal amount at maturity of new notes in exchange for
the principal amount of old notes accepted in the exchange offer. Old notes may
be tendered only in integral multiples of $1,000.
The form and terms of the new notes are substantially identical to the form
and terms of the old notes, except that:
- the new notes will be freely transferable, other than as described in this
prospectus, and will not contain any legend restricting their transfer;
- holders of the new notes will not be entitled to certain rights of holders
of old notes under the registration rights agreement, which rights will
terminate on consummation of the exchange offer; and
- the new notes will not contain any provisions regarding the payment of
liquidated damages.
The new notes will evidence the same debt as the old notes and will be
entitled to the benefits of the indenture. See "Description of the Notes."
The exchange offer is not conditioned on any minimum aggregate principal
amount at maturity of old notes being tendered for exchange.
RESALE OF THE NEW NOTES
Based on interpretations by the staff of the SEC in no-action letters issued
to third parties, we believe that the new notes issued pursuant to the exchange
offer in exchange for the old notes may
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<PAGE>
be offered for resale, resold and otherwise transferred by holders of the new
notes without complying with the registration and prospectus delivery
requirements of the Securities Act if:
- the holder acquired the new notes in the ordinary course of its business;
- the holder is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the new notes;
- the holder is not an "affiliate" of Nextel Partners within the meaning of
Rule 405 under the Securities Act;
- the holder is not a broker-dealer who acquired the old notes directly from
us; and
- the holder is not a broker-dealer who acquired the old notes as a result
of market-making or other trading activities.
Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of those new notes. The letter of transmittal that accompanies
this prospectus states that by so acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit that it is an underwriter within the
meaning of the Securities Act. A participating broker-dealer must acknowledge
that it acquired the old notes as a result of market-making activities or other
trading activities and that it will deliver a prospectus meeting the
requirements of the Securities Act. The broker-dealer may use this prospectus,
as it may be amended or supplemented from time to time, in connection with
resales of new notes received in exchange for old notes. We will make this
prospectus available to any participating broker-dealer in connection with any
resale of this kind for a period of one year after the consummation of the
exchange offer.
See "Plan of Distribution."
SHELF REGISTRATION STATEMENT
If applicable law or interpretations of the staff of the SEC are changed
such that either:
(1) the exchange offer is no longer permitted or
(2) the new notes received by a holder who makes all of the above
representations in the letter of transmittal are not, or would not be
upon receipt, transferable by such holder without restriction under the
Securities Act,
We will, at our cost:
- file a shelf registration statement covering resales of the old notes,
within 60 days after we determine clause (1) above or we receive notice of
clause (2) above.
- use all commercially reasonable efforts to cause the shelf registration
statement to be declared effective under the Securities Act within
90 days after the filing deadline, and
- use all commercially reasonable efforts to keep effective the shelf
registration statement until the earlier of July 27, 2002 or the time when
all of the applicable old notes are no longer outstanding.
We will, if and when we file the shelf registration statement:
- provide to each holder of the old notes copies of the prospectus which is
a part of the shelf registration statement,
- notify each holder when the shelf registration statement has become
effective, and
- take other actions as are required to permit unrestricted resales of the
old notes.
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A holder that sells old notes pursuant to the shelf registration statement
generally:
- must be named as a selling security holder in the related prospectus,
- must deliver a prospectus to purchasers,
- will be subject to civil liability provisions under the Securities Act in
connection with these sales, and
- will be bound by the provisions of the registration rights agreement which
are applicable to the holder, including certain indemnification
obligations.
In addition, within 20 days of receiving a request to deliver information to
be used in connection with the shelf registration statement and provide comments
on the shelf registration statement, each holder of old notes must provide the
information and comments in order to have its old notes included in the shelf
registration statement and benefit from the provisions regarding any liquidated
damages described below.
LIQUIDATED DAMAGES
Liquidated damages will accrue on the principal amount at maturity of the
old notes, in addition to the stated interest on the old notes, from the date on
which a registration default occurs to the date such registration default is
cured.
The occurrence of any of the following is a registration default:
- neither the exchange offer registration statement nor the shelf
registration statement has been filed with the SEC on or before the
applicable deadline described above;
- neither the exchange offer registration statement nor the shelf
registration statement has been declared effective by the SEC on or before
the applicable deadline described above;
- the exchange offer has not been consummated by the 30th business day after
the exchange offer registration statement has become effective; or
- after either the exchange offer registration statement or the shelf
registration statement has been declared effective, that registration
statement ceases to be effective or usable, subject to certain exceptions,
without being succeeded within two days by an amendment to that
registration statement that cures such failure and is declared effective
within five days of such filing.
Liquidated damages will accrue at a rate of $0.05 per week per $1,000 in
principal amount at maturity of the notes during the 90-day period after the
occurrence of the registration default and will increase by an additional $0.05
per week per $1,000 in principal amount at maturity at the end of each
subsequent 90-day period until all registration defaults have been cured. In no
event will the rate exceed $0.50 per week per $1,000 in principal amount at
maturity of the notes.
The sole remedy available to the holders of the old notes will be the
immediate assessment of liquidated damages on the old notes as described above.
Any amount of liquidated damages due as described above will be payable in cash
on the same interest payment dates as the old notes.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date of the exchange offer is 5:00 p.m., New York City time,
on , 2000, unless we, in our reasonable discretion, extend the
exchange offer, in which case the expiration date shall be the latest date and
time to which the exchange offer is extended.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral or written notice and will make a public announcement of
the extension prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
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We reserve the right, in our reasonable discretion:
- to delay accepting any old notes, to extend the exchange offer or to
terminate the exchange offer if, in its reasonable judgment, any of the
conditions described below under "--Conditions" shall not have been
satisfied, by giving oral or written notice of the delay, extension or
termination to the exchange agent, or
- to amend the terms of the exchange offer in any manner.
We will promptly announce any such event by making a timely release to the
Dow Jones News Service and may or may not do so by other means as well.
PROCEDURES FOR TENDERING
To tender old notes in the exchange offer, the holder must:
- properly complete, sign and date the letter of transmittal, or a facsimile
of the letter of transmittal,
- have the signatures thereon guaranteed if required by the letter of
transmittal, and
- except as discussed in "Guaranteed Delivery Procedures," mail or otherwise
deliver the letter of transmittal, or facsimile thereof, together with the
old notes and any other required documents, to the exchange agent prior to
5:00 p.m., New York City time, on the expiration date of the exchange
offer.
The exchange agent must receive the old notes, a completed letter of
transmittal and all other required documents at the address listed below under
"--Exchange Agent" before 5:00 p.m., New York City time, on the expiration date
for the tender to be effective. You may deliver your old notes by using the
book-transfer procedures described below, as long as the exchange agent receives
confirmation of the book-entry transfer before the expiration date.
The Depository Trust Company has authorized its participants that hold old
notes on behalf of beneficial owners of old notes through The Depository Trust
Company to tender their old notes as if they were holders. To effect a tender of
old notes, The Depository Trust Company participants should either:
- complete and sign the letter of transmittal, have the signature thereon
guaranteed if required by the instructions to the letter of transmittal
and mail or deliver the letter of transmittal, or the manually signed
facsimile, to the exchange agent according to the procedures described
above, or
- transmit their acceptance to The Depository Trust Company through its
automated tender offer program for which the transaction will be eligible
and follow the procedure for book-entry transfer as described in
"Book-Entry; Delivery and Form."
By tendering, each holder will make the representations contained in the
first paragraph under the heading "--Resale of the New Notes." Each
participating broker-dealer must acknowledge that it will deliver a prospectus
in connection with any resale of such new notes. See "Plan of Distribution."
The tender by a holder and the acceptance of the tender by us will
constitute the agreement between the holder and us in accordance with the terms
and subject to the conditions set forth in this prospectus and in the letter of
transmittal.
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THE METHOD OF DELIVERY OF THE OLD NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, HOLDERS SHOULD ALLOW
SUFFICIENT TIME TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES OR BOOK-ENTRY CONFIRMATION SHOULD BE
SENT TO NEXTEL PARTNERS. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
ON THEIR BEHALF.
Any beneficial owner whose old notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. If the beneficial owner
wishes to tender on its own behalf, such owner must, prior to completing and
executing the letter of transmittal and delivering its old notes, either make
appropriate arrangement to register ownership of the old notes in such owner's
name or obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible guarantor institution that is a member of a recognized
signature guarantee medallion program unless the old notes are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter of
transmittal, or
- for the account of an eligible guarantor institution.
If signatures on a letter of transmittal or notice of withdrawal, as the
case may be, are required to be guaranteed, the guarantee must be by a member
firm of a registered national securities exchange or of the National Association
of Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an eligible guarantor institution.
If a letter of transmittal is signed by a person other than the registered
holder of any old notes listed in the letter of transmittal, the old notes must
be endorsed or accompanied by a properly completed bond power and signed by the
registered holder as the registered holder's name appears on the old notes.
If a letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by Nextel Partners,
evidence satisfactory to Nextel Partners of their authority to so act must be
submitted with the letter of transmittal.
Promptly after the date of this prospectus, the exchange agent will
establish a new account or utilize an existing account with respect to the old
notes at the book-entry transfer facility, The Depository Trust Company, for the
purpose of facilitating the exchange offer. Subject to the establishment of the
accounts, any financial institution that is a participant in The Depository
Trust Company's system may make a book-entry tender of old notes by causing The
Depository Trust Company to transfer such old notes into the exchange agent's
account in accordance with book-transfer procedures. Although delivery of the
old notes may be effected through book-entry transfer into the exchange agent's
account at The Depository Trust Company, an appropriate letter of transmittal
properly completed and duly executed or an agent's message with any required
signature guarantee and all other required documents, must be received by the
exchange agent at its address listed below on or prior to the expiration date of
the exchange offer, or, if the guaranteed
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delivery procedures described below must be complied with, within the time
period provided under such procedures. Delivery of documents to The Depository
Trust Company does not constitute delivery to the exchange agent.
The term "agent's message" means a message transmitted by The Depository
Trust Company to, and received by, the exchange agent, which states that The
Depository Trust Company has received an express acknowledgment from the
participant in The Depository Trust Company tendering the old notes stating:
- the aggregate principal amount at maturity of old notes which have been
tendered by such participant,
- that such participant has received and agrees to be bound by the terms of
the letter of transmittal, and
- that we may enforce such agreement against the participant.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of tendered old notes will be determined by
us, which determination shall be final and binding. We reserve the right to
reject any and all old notes not properly tendered or any old notes the
acceptance of which would, in the opinion of counsel for us, be unlawful. We
also reserve the right to waive any defects, irregularities or conditions of
tender as to particular old notes. Our interpretation of the terms and
conditions of the exchange offer, including the instructions in the letter of
transmittal, will be final and binding on all parties. Unless waived, any
defects of irregularities in connection with tenders of old notes must be cured
within such time as we shall determine. Neither we, the exchange agent nor any
other person shall incur any liability for failure to give notice of any defect
or irregularity with respect to any tender of old notes. Tender of old notes
will not be deemed to have been made until such defects or irregularities have
been cured or waived. Any old notes received by the exchange agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the exchange agent to the tendering holders,
unless otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date.
GUARANTEED DELIVERY PROCEDURES
A holder who wishes to tender old notes and:
- whose old notes are not immediately available,
- who cannot deliver the old notes, the letter of transmittal or any other
required documents to the exchange agent prior to the expiration date, or
- who cannot complete the procedures for book-entry transfer before the
expiration date
may effect a tender if:
- the tender is made through an eligible guarantor institution,
- before the expiration date, the exchange agent receives from the eligible
guarantor institution a properly completed and duly executed notice of
guaranteed delivery by facsimile transmission, mail or hand delivery
setting forth the name and address of the holder, the certificate
number(s) of the old notes and the principal amount at maturity of the old
notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days after
the expiration date, the letter of transmittal (or facsimile thereof)
together with the certificate(s) representing the old notes (or a
confirmation of book-entry transfer of the old notes into the exchange
agent's account at The Depository
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Trust Company), and any other documents required by the letter of
transmittal will be deposited by the eligible guarantor institution with
the exchange agent, and
- the exchange agent receives, within three New York Stock Exchange trading
days after the expiration date, a properly completed and executed letter
of transmittal or facsimile, as well as the certificate(s) representing
all tendered old notes in proper form for transfer or a confirmation of
book-entry transfer of the old notes into the exchange agent's account at
The Depository Trust Company, and all other documents required by the
letter of transmittal.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of old notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the expiration date of
the exchange offer.
To withdraw a tender of old notes in the exchange offer, a letter or
facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the expiration date. Any notice of withdrawal must:
- specify the name of the person having deposited the old notes to be
withdrawn,
- identify the old notes to be withdrawn, including the certificate
number(s) and principal amount of such old notes, or in the case of old
notes transferred by book-entry transfer, the name and number of the
account at the book-entry transfer facility to be credited, and otherwise
comply with the procedures of the exchange agent,
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such old notes were tendered, including
any required signature guarantees, or be accompanied by documents of
transfer sufficient to have the trustee under the indenture governing the
old notes register the transfer of the old notes into the name of the
person withdrawing the tender, and
- specify the name in which any such old notes are to be registered, if
different from that of the person who deposited the notes.
If certificates for old notes have been delivered or otherwise identified to
the exchange agent, then, before the release of the certificates, the
withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an eligible guarantor.
All questions as to the validity, form and eligibility, including time of
receipt, of such notices will be determined by us, and our determination shall
be final and binding on all parties. Any old notes so withdrawn will be deemed
not to have been validly tendered for purposes of the exchange offer, and no new
notes will be issued, unless the old notes so withdrawn are validly retendered.
Any old notes which have been tendered but which are not accepted for exchange
will be returned to the holder of the notes without cost to the holder as soon
as practicable after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn old notes may be retendered by following any
of the procedures described above under "Procedures for Tendering" at any time
prior to the expiration date.
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CONDITIONS
Despite any other term of the exchange offer, we are not required to accept
for exchange, or exchange new notes for, any old notes, and may terminate the
exchange offer as provided in this prospectus prior to the expiration date if:
- any action or proceeding is instituted or threatened in any court or by or
before any governmental agency with respect to the exchange offer which,
in our reasonable judgment, might materially impair our ability to proceed
with the exchange offer or materially impair the contemplated benefits of
the exchange offer to us, or any material adverse development has occurred
in any existing action or proceeding with respect to us or any of our
subsidiaries;
- any change, or any development involving a prospective change, in our
business or financial affairs or any of our subsidiaries has occurred
which, in our reasonable judgment, might materially impair our ability to
proceed with the exchange offer or materially impair the contemplated
benefits of the exchange offer to us;
- any law, statute, rule or regulation is proposed, adopted or enacted,
which, in our reasonable judgment, might materially impair our ability to
proceed with the exchange offer or materially impair the contemplated
benefits of the exchange offer to us; or
- any governmental approval has not been obtained, which approval we shall,
in our reasonable discretion, deem necessary for the consummation of the
exchange offer as contemplated hereby.
The conditions listed above are for the sole benefit of us and may be
asserted by us regardless of the circumstances giving rise to any of these
conditions. We may waive these conditions in its reasonable discretion in whole
or in part from time to time. The failure by us at any time to exercise any of
the above rights shall not be deemed a waiver of such right and each such right
shall be deemed an ongoing right which may be asserted at any time and from time
to time.
If we determine in our reasonable discretion that any of the conditions are
not satisfied, we may:
- refuse to accept any old notes and return all tendered old notes to the
tendering holders,
- extend the exchange offer and retain all old notes tendered prior to the
expiration of the exchange offer, subject, however, to the rights of
holders to withdraw these old notes (see "--Withdrawal of Tenders" above),
or
- waive unsatisfied conditions with respect to the exchange offer and accept
all properly tendered old notes which have not been withdrawn. If this
waiver constitutes a material change to the exchange offer, we will
promptly disclose the waiver by means of a prospectus supplement that will
be distributed to the registered holders. We will also extend the exchange
offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders, if the exchange offer would otherwise expire during such five to
ten business day period.
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EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the exchange
offer. Questions and requests for assistance and requests for additional copies
of this prospectus or of the letter of transmittal should be directed to The
Bank of New York addressed as follows:
<TABLE>
<S> <C>
For Information by Telephone: (212) 815-2824
By Hand or Overnight Delivery Service: The Bank of New York 101
Barclay Street, Floor 7
East New York, NY 10286
Attention: Tolutope Adeyoju
By Facsimile Transmission: (212) 815-4699
Telephone Confirmation (212) 815-2824
</TABLE>
The Bank of New York also acts as trustee under the indenture governing the
notes.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. We have not retained any
dealer-manager in connection with the exchange offer and will not make any
payments to brokers, dealers or others soliciting acceptances of the exchange
offer. We, however, will pay the exchange agent reasonable and customary fees
for its services and will reimburse it for its reasonable out-of-pocket expenses
in connection with providing the services.
The cash expenses to be incurred in connection with the exchange offer will
be paid by us. Such expenses include fees and expenses of The Bank of New York
as exchange agent and as trustee under the indenture governing the notes,
accounting and legal fees and printing costs, among others.
Tendering holders of the old notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the letter of
transmittal, transfer taxes relating to the exchange of old notes for new notes
in the exchange offer.
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the old notes
as reflected in our accounting records on the date of exchange. Accordingly, no
gain or loss for accounting purposes will be recognized by us. The expenses of
the exchange offer and the unamortized expenses related to the issuance of the
old notes will be amortized over the term of the notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of old notes who are eligible to participate in the exchange offer
but who do not tender their old notes will not have any further registration
rights, and their old notes will continue to be subject to restrictions on
transfer. Accordingly, such old notes may be resold only:
- to us, upon redemption of these notes or otherwise,
- so long as the old notes are eligible for resale pursuant to Rule 144A
under the Securities Act, to a person inside the United States whom the
seller reasonably believes is a qualified institutional buyer within the
meaning of Rule 144A in a transaction meeting the requirements of
Rule 144A,
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- in accordance with Rule 144 under the Securities Act, or under another
exemption from the registration requirements of the Securities Act, and
based upon an opinion of counsel reasonably acceptable to us,
- outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or
- pursuant to an effective registration statement under the Securities Act,
- in each case in accordance with any applicable securities laws of any
state of the United States.
REGULATORY APPROVALS
We do not believe that the receipt of any material federal or state
regulatory approvals will be necessary in connection with the exchange offer,
other than the effectiveness of the exchange offer registration statement under
the Securities Act.
OTHER
Participation in the exchange offer is voluntary and holders of old notes
should carefully consider whether to accept the terms and conditions of this
offer. Holders of the old notes are urged to consult their financial and tax
advisors in making their own decisions on what action to take with respect to
the exchange offer.
DESCRIPTION OF THE NOTES
The new notes, like the old notes, will be issued under the indenture, dated
July 27, 2000, between us and The Bank of New York, as trustee. The new notes
are the same as the old notes except that the new notes:
- will not bear legends restricting their transfer, and
- will not contain certain terms providing for the payment of liquidated
damages under the circumstances described in the registration rights
agreement.
The indenture and its associated documents contain the full legal text of
the matters described in this section. A copy of the indenture has been filed
with the SEC as part of our registration statement of which this prospectus
forms a part. See "Where You Can Find More Information" on page 138 for
information on how to obtain a copy.
Because this section is a summary of the material provisions of the
indenture, it does not describe every aspect of the indenture or the notes. This
summary is subject to and qualified in its entirety by reference to the Trust
Indenture Act. In this section we use capitalized words to signify defined terms
that have been given special meaning in the indenture. We describe the meaning
for only the more important terms under "Certain Definitions." We also include
references in parentheses to certain sections of the indenture.
In this description of the notes, the term "Nextel Partners" refers to
Nextel Partners, Inc. and does not include its subsidiaries except for purposes
of financial data determined on a consolidated basis.
BRIEF DESCRIPTION OF THE NOTES
These notes:
- will be senior unsecured obligations of Nextel Partners;
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- will be limited to $400.0 million in aggregate principal amount, of which
$200.0 million in aggregate principal amount has been issued;
- will mature on March 15, 2010; and
- will bear interest at the rate of 11% per annum.
Interest will be paid semi-annually on March 15 and September 15 of each
year, commencing September 15, 2000, to the registered holder at the close of
business on the preceding March 1 or September 1.
Interest on the notes will be computed on the basis of a 360-day year of
twelve 30-day months. (Sections 3.01, 3.09 and 3.12)
METHODS OF RECEIVING PAYMENTS ON THE NOTES
Nextel Partners will pay interest, principal and any other money due on the
notes at the corporate trust office of the trustee in New York City. That office
is currently located at 101 Barclay Street, New York, New York 10286. You must
make arrangements to have your payments picked up at or wired from that office.
Nextel Partners may also choose to pay interest by mailing checks. (Sections
3.01 and 10.02)
The notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. (Section 3.02) You
will not be required to pay a service charge to transfer or exchange notes, but
you may be required to pay for any tax or other governmental charge associated
with the exchange or transfer. (Section 3.05)
RANKING
The notes:
- will be senior unsecured obligations of Nextel Partners;
- will rank equally in right of payment to all existing and future senior
unsecured obligations of Nextel Partners; and
- will rank senior in right of payment to all existing and future
subordinated obligations of Nextel Partners.
Holders of secured obligations of Nextel Partners will, however, have claims
that are prior to the claims of the holders of the notes with respect to the
assets securing those other obligations.
Nextel Partners' principal operations are conducted through its
Subsidiaries, and Nextel Partners is therefore dependent upon the cash flow of
its Subsidiaries to meet its obligations. Nextel Partners' Subsidiaries will
have no obligation to guarantee or otherwise pay amounts due under the notes.
Therefore, the notes will be effectively subordinated to all indebtedness and
other liabilities and commitments, including borrowings under the credit
facility and trade payables, of Nextel Partners' Subsidiaries. Any right of
Nextel Partners to receive assets of any Subsidiary upon any liquidation or
reorganization of that Subsidiary (and the consequent right of holders of the
notes to participate in those assets) will be effectively subordinated to the
claims of the Subsidiary's creditors, except to the extent that Nextel Partners
itself is recognized as a creditor of the Subsidiary.
As of June 30, 2000, the total amount of outstanding consolidated
liabilities of Nextel Partners and its Subsidiaries, including trade payables,
was approximately $915 million, of which $325 million were secured obligations.
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For more information, see "Description of Other Indebtedness--Description of
Credit Facility" and "Selected Consolidated Financial Data."
OPTIONAL REDEMPTION
Nextel Partners may redeem the notes, in whole or in part, at any time on or
after March 15, 2005, upon not less than 30 nor more than 60 days' prior written
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below, plus an amount in cash equal to all accrued and unpaid interest
and any Liquidated Damages, if any, to the redemption date, if redeemed during
the twelve-month period beginning on March 15 of each of the years set forth
below.
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ------------------
<S> <C>
2005.................................................... 105.5000%
2006.................................................... 103.6667%
2007.................................................... 101.8333%
2008 and thereafter..................................... 100.0000%
</TABLE>
(Sections 2.03, 11.01, 11.05 and 11.07)
Prior to March 15, 2003, Nextel Partners may redeem up to 35% of the
aggregate principal amount of notes issued under the indenture at a redemption
price of 111.0% of the principal amount of the notes redeemed, plus accrued and
unpaid interest and Liquidated Damages, if any, to the redemption date if:
- Nextel Partners receives net proceeds of at least $75 million from one or
more sales of its Capital Stock (other than Redeemable Stock) prior to
March 15, 2003;
- at least 65% of the notes originally issued under the indenture remain
outstanding immediately after the redemption; and
- the redemption occurs within 60 days of such sale.
MANDATORY REDEMPTION; SINKING FUND
Except as described under "--Covenants--Limitation on Asset Sales" and
"--Covenants--Change of Control" below, Nextel Partners is not required to
purchase or make mandatory redemption payments or sinking fund payments with
respect to the notes.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
- if the notes are listed on any national securities exchange, in compliance
with the requirements of the principal national securities exchange on
which the notes are listed; or
- if the notes are not listed on any national securities exchange, on a pro
rata basis, by lot or by such method as the trustee shall deem fair and
appropriate.
No notes of $1,000 or less will be redeemed in part. Notices of redemption
will be mailed by first class mail at least 30 but not more than 45 days before
the redemption date to each Holder of notes to be redeemed at its registered
address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount of that note
that is to be redeemed. A new note in principal amount equal to the unredeemed
portion of the original note will be issued in the name of
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the Holder thereof upon cancellation of the original note. Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on notes or portions of them called
for redemption.
COVENANTS
In the indenture, Nextel Partners agreed to certain restrictions that limit
its and its Restricted Subsidiaries' ability to:
- incur additional Debt;
- to pay dividends, acquire shares of Nextel Partners, make Investments or
redeem Debt of Nextel Partners which is subordinate in right of payment to
the notes;
- designate Unrestricted Subsidiaries;
- enter into transactions with Affiliates;
- engage in any business other than telecommunications;
- create Liens;
- pay dividends, to make loans or advances to Nextel Partners or any other
Restricted Subsidiary or to transfer any of its property or assets to
Nextel Partners or any other Restricted Subsidiary;
- issue or sell shares of Capital Stock of Restricted Subsidiaries; and
- make Asset Sales.
In addition, if a Change of Control occurs, each holder of notes will have
the right to require Nextel Partners to repurchase all or part of such holder's
notes at a price equal to 101% of the aggregate principal amount of notes
repurchased plus accrued and unpaid interest and Liquidated Damages, if any, on
the notes repurchased to the date of purchase. The above limitations are
"restrictive covenants" that are promises that we make to you about how we will
run our business, or business actions that we promise not to take. A more
detailed description of the restrictive covenants and the exceptions to them
follows below.
LIMITATION ON CONSOLIDATED DEBT
Nextel Partners will not, and will not permit any Restricted Subsidiary to,
Incur any Debt (including Acquired Debt), other than Permitted Debt, unless
immediately after giving effect to the Incurrence of such Debt and the receipt
and application of the net proceeds therefrom (including, without limitation,
the application or use of the net proceeds therefrom to repay Debt or make any
Restricted Payment):
(1) the Consolidated Debt to Annualized Operating Cash Flow Ratio would be
less than 7.0 to 1.0, or
(2) in the case of any incurrence of Debt prior to January 1, 2005 only,
Consolidated Debt would be equal to or less than 80% of Total Invested Capital.
(Section 10.08)
LIMITATION ON RESTRICTED PAYMENTS
Nextel Partners will not, directly or indirectly:
(1) declare or pay any dividend on, or make any distribution in respect of,
its Capital Stock or to holders thereof (in their capacity as such), excluding
any dividends or distributions payable
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solely in its shares of Capital Stock (other than Redeemable Stock) or in
options, warrants or other rights to purchase any such Capital Stock (other than
Redeemable Stock);
(2) and will not permit any Restricted Subsidiary to, directly or
indirectly, purchase, redeem or otherwise acquire or retire for value (other
than value consisting solely of Capital Stock of Nextel Partners that is not
Redeemable Stock or options, warrants or other rights to acquire such Capital
Stock that is not Redeemable Stock), any Capital Stock of Nextel Partners
(including options, warrants or other rights to acquire such Capital Stock);
(3) and will not permit any Restricted Subsidiary to, directly or
indirectly, redeem, repurchase, defease or otherwise acquire or retire for value
(other than value consisting solely of Capital Stock of Nextel Partners that is
not Redeemable Stock or options, warrants or other rights to acquire such
Capital Stock that is not Redeemable Stock), prior to any scheduled maturity,
scheduled repayment or scheduled sinking fund payment, any Debt that is
subordinate (whether pursuant to its terms or by operation of law) in right of
payment to the notes; or
(4) and will not permit any Restricted Subsidiary to, directly or
indirectly, make any Investment, except for Permitted Investments, in any
Person, other than in a Restricted Subsidiary or a Person that becomes a
Restricted Subsidiary as a result of such Investment (each of the actions set
forth in clauses (1) through (4), other than any such action that is a Permitted
Investment or a Permitted Distribution, being referred to as a "Restricted
Payment") unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default has occurred and is continuing;
(b) Nextel Partners would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable period, have been permitted to Incur
at least $1.00 of additional Debt pursuant to the terms of the indenture
described in clause (1) under the caption "Limitation on Consolidated Debt"
above; and
(c) after giving effect to such Restricted Payment on a pro forma basis,
the aggregate amount of all Restricted Payments made from the Closing Date
does not exceed:
(A) the amount of the Operating Cash Flow of Nextel Partners after
December 31, 2002 through the end of the latest full fiscal quarter for
which consolidated financial statements of Nextel Partners are available
preceding the date of such Restricted Payment (treated as a single
accounting period) less 150% of the cumulative Consolidated Interest
Expense of Nextel Partners after December 31, 2002 through the end of the
latest full fiscal quarter for which consolidated financial statements of
Nextel Partners are available preceding the date of such Restricted
Payment (treated as a single accounting period), plus
(B) the aggregate net proceeds (other than proceeds from a Committed
Capital Contribution), including the fair market value of property other
than cash, as determined:
(x) in the case of any property other than cash with a value less
than $25.0 million, by Nextel Partners' Board of Directors, whose
good faith determination will be conclusive and as evidenced by a
Board Resolution, or
(y) in the case of any property other than cash with a value
equal to or greater than $25.0 million, by an accounting, appraisal
or investment banking firm of national standing and evidenced by a
written opinion of such firm, received by Nextel Partners from the
issuance and sale (other than to a Restricted Subsidiary) after
February 24, 2000 of shares of its Capital Stock (other than
Redeemable Stock), or any options, warrants or other rights to
purchase such Capital Stock (other than Redeemable
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Stock), other than shares of Capital Stock or options, warrants or
other rights to purchase Capital Stock (or shares issuable upon
exercise thereof), the proceeds of the issuance of which is used to
make a Directed Investment, unless such designation has been revoked
by Nextel Partners' Board of Directors and Nextel Partners is able to
make such Investment pursuant to this covenant (other than as a
Directed Investment), plus
(C) the aggregate net proceeds, including the fair market value of
property other than cash, as determined:
(x) in the case of any property other than cash with a value less
than $25.0 million, by Nextel Partners' Board of Directors, whose
good faith determination will be conclusive and as evidenced by a
Board Resolution, or
(y) in the case of any property other than cash with a value
equal to or greater than $25.0 million, by an accounting, appraisal
or investment banking firm of national standing and evidenced by a
written opinion of such firm, received by Nextel Partners from the
issuance or sale (other than to a Restricted Subsidiary) after
February 24, 2000 of any Capital Stock of Nextel Partners (other than
Redeemable Stock), or any options, warrants or other rights to
purchase such Capital Stock (other than Redeemable Stock), upon the
conversion of, or exchange for, Debt of Nextel Partners or a
Restricted Subsidiary.
Nothing contained in this section limits or restricts Nextel Partners from
making any Permitted Distribution, Permitted Investment or Directed Investment,
and neither a Permitted Distribution nor a Permitted Investment will be counted
as a Restricted Payment for purposes of clause (c) above.
In addition, the foregoing limitations do not prevent Nextel Partners from:
(1) paying any dividend on its Capital Stock within 60 days after the
declaration thereof if, on the date when the dividend was declared, Nextel
Partners could have paid such dividend in accordance with the provisions of the
indenture, repurchasing its Capital Stock (including options, warrants or other
rights to acquire such Capital Stock) from former employees or directors of
Nextel Partners or any Subsidiary thereof for consideration not to exceed:
(a) in the case of all such employees or directors (other than Itemized
Executives), $500,000 in the aggregate in any fiscal year, with amounts not
used in any given fiscal year being carried over into subsequent fiscal
years, and
(b) in the case of any Itemized Executive, $2.0 million per Itemized
Executive (plus the amount of any proceeds of any key man life insurance
received by Nextel Partners in respect to such Itemized Executive) in any
fiscal year, with the aggregate amount of such repurchases under this
clause (2)(b) not to exceed $5.0 million in any fiscal year;
PROVIDED that the aggregate amount of all such repurchases made pursuant to this
paragraph (2) does not exceed $17.0 million in the aggregate (not including the
amount of any proceeds of key man life insurance received by Nextel Partners in
respect to any Itemized Executive),
(3) the repurchase, redemption or other acquisition for value of Capital
Stock of Nextel Partners to the extent necessary to prevent the loss or secure
the renewal or reinstatement of any license or franchise held by Nextel Partners
or any of its Subsidiaries from any governmental agency,
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(4) making a loan in the aggregate principal amount of approximately
$2.2 million to a certain officer of Nextel Partners as described in this
prospectus (with Restricted Payments pursuant to this clause not being counted
as Restricted Payments for purposes of clause (c) above),
- the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to the
notes, including premium, if any, and accrued and unpaid interest, with
the proceeds of, or in exchange for:
(a) the proceeds of a capital contribution or a substantially
concurrent offering of, shares of Capital Stock of Nextel Partners (other
than Redeemable Stock) or options, warrants or other rights to acquire
such Capital Stock, the proceeds of which are not designated as a Directed
Investment, or
(b) Debt that is at least as subordinated in right of payment to the
notes, including premium, if any, and accrued and unpaid interest, as the
Debt being purchased (with Restricted Payments pursuant to this paragraph
not being counted as Restricted Payments for purposes of
clause (c) above),
- the repurchase, redemption or other acquisition of Capital Stock of Nextel
Partners, or options, warrants or other rights to acquire such Capital
Stock, in exchange for, or out of the proceeds of a capital contribution
or a substantially concurrent offering of, shares of Common Stock of
Nextel Partners (other than Redeemable Stock), or options, warrants or
other rights to acquire such Capital Stock) the proceeds of which are not
designated as a Directed Investment, or
- other Restricted Payments not to exceed $5.0 million in the aggregate at
any time outstanding (with Restricted Payments pursuant to this paragraph
not being counted as Restricted Payments for purposes of
clause (c) above).
Notwithstanding the foregoing, no Investment in a Person that immediately
thereafter would be a Restricted Subsidiary will be a Restricted Payment. In
addition, if any Person in which an Investment is made, which Investment
constitutes a Restricted Payment when made, thereafter becomes a Restricted
Subsidiary, all such Investments previously made in such Person will no longer
be counted as Restricted Payments for purposes of calculating the aggregate
amount of Restricted Payments pursuant to clause (c) above or the aggregate
amount of Investments pursuant to paragraph (5)(a) above, in each case to the
extent such Investments would otherwise be so counted.
For purposes of clause (c)(C) above, the net proceeds received by Nextel
Partners from the issuance or sale of its Capital Stock either upon the
conversion of, or exchange for, Debt of Nextel Partners or any Restricted
Subsidiary will be deemed to be an amount equal to:
(a) the sum of (i) the principal amount or accreted value (whichever is
less) of such Debt on the date of such conversion or exchange and (ii) the
additional cash consideration, if any, received by Nextel Partners upon such
conversion or exchange, less any payment on account of fractional shares,
MINUS
(b) all expenses incurred in connection with such issuance or sale.
In addition, for purposes of clause (c)(C) above, the net proceeds received
by Nextel Partners from the issuance or sale of its Capital Stock upon the
exercise of any options or warrants of Nextel Partners or any Restricted
Subsidiary will be deemed to be an amount equal to the additional cash
consideration, if any, received by Nextel Partners upon such exercise, minus all
expenses incurred in connection with such issuance or sale.
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For purposes of this "Limitation on Restricted Payments" covenant, if a
particular Restricted Payment involves a non-cash payment, including a
distribution of assets, then such Restricted Payment will be deemed to be an
amount equal to the cash portion of such Restricted Payment, if any, plus an
amount equal to the fair market value of the non-cash portion of such Restricted
Payment, as determined by Nextel Partners' Board of Directors (whose good faith
determination shall be conclusive and evidenced by a Board Resolution).
The amount of any Investment outstanding at any time will be deemed to be
equal to the amount of such Investment on the date made, less the return of
capital, repayment of loans and return on capital (including interest and
dividends), in each case, received in cash, up to the amount of such Investment
on the date made. (Section 10.09)
RESTRICTED SUBSIDIARIES
Subject to compliance with the "Limitation on Restricted Payments" covenant,
Nextel Partners' Board of Directors may designate any Restricted Subsidiary as
an Unrestricted Subsidiary.
The designation by the Board of Directors of a Restricted Subsidiary as an
Unrestricted Subsidiary will, for all purposes of the "Limitation on Restricted
Payments" covenant (including clause (b) thereof), be deemed to be a Restricted
Payment of an amount equal to the fair market value of Nextel Partners'
ownership interest in such Subsidiary (including, without duplication, such
indirect ownership interest in all Subsidiaries of such Subsidiary), as
determined by Nextel Partners' Board of Directors in good faith and evidenced by
a Board Resolution.
Notwithstanding the foregoing provisions of this "Restricted Subsidiaries"
covenant, the Board of Directors may not designate a Subsidiary of Nextel
Partners to be an Unrestricted Subsidiary if, after such designation:
(a) Nextel Partners or any of its other Restricted Subsidiaries:
(i) provides credit support for, or a Guarantee of, any Debt of such
Subsidiary (including any undertaking, agreement or instrument evidencing
such Debt) or
(ii) is directly or indirectly liable for any Debt of such
Subsidiary,
(b) a default with respect to any Debt of such Subsidiary (including any
right which the holders thereof may have to take enforcement action against
such Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any other Debt of Nextel Partners or any Restricted Subsidiary to
declare a default on such other Debt or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity, or
(c) such Subsidiary owns any Capital Stock of, or owns or holds any Lien
on any property of, any Restricted Subsidiary which is not a Subsidiary of
the Subsidiary to be so designated.
Nextel Partners' Board of Directors, from time to time, may designate any
Person that is about to become a Subsidiary of Nextel Partners as an
Unrestricted Subsidiary, and may designate any newly-created Subsidiary as an
Unrestricted Subsidiary, if at the time such Subsidiary is created it contains
no assets (other than such DE MINIMIS amount of assets then required by law for
the formation of corporations) and no Debt. Subsidiaries of Nextel Partners that
are not designated by Nextel Partners' Board of Directors as Restricted or
Unrestricted Subsidiaries shall be deemed to be Restricted Subsidiaries.
Notwithstanding any provisions of this "Restricted Subsidiaries" covenant, all
Subsidiaries of an Unrestricted Subsidiary shall be Unrestricted Subsidiaries.
(Section 10.10)
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TRANSACTIONS WITH AFFILIATES
Nextel Partners will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into any transaction (including the purchase,
sale, lease or exchange of any property or the rendering of any service) or
series of related transactions with any Affiliate of Nextel Partners on terms
that are less favorable to Nextel Partners or such Restricted Subsidiary, as the
case may be, than those which might be obtained at the time of such transaction
from a Person that is not such an Affiliate. However, this "Transactions with
Affiliates" covenant will not limit, or be applicable to:
- any transaction between Unrestricted Subsidiaries not involving Nextel
Partners or any Restricted Subsidiary,
- any transaction between Nextel Partners and any Restricted Subsidiary or
between Restricted Subsidiaries, or
- any Permitted Transactions.
In addition, any transaction or series of related transactions, other than
Permitted Transactions, between Nextel Partners or any Restricted Subsidiary and
any Affiliate of Nextel Partners (other than a Restricted Subsidiary) involving
an aggregate consideration of $5 million or more must be approved in good faith
by:
- a majority of Nextel Partners' Disinterested Directors (of which there
must be at least one) and evidenced by a Board Resolution, or
- if there is no Disinterested Director at such time or such transaction
involves aggregate consideration of $25.0 million or more, by an opinion
as to fairness to Nextel Partners or such Subsidiary from a financial
point of view issued by an accounting, appraisal or investment banking
firm of national standing.
For purposes of this "Transactions with Affiliates" covenant, any
transaction or series of related transactions between Nextel Partners or any
Restricted Subsidiary and an Affiliate of Nextel Partners that is approved by a
majority of the Disinterested Directors (of which there must be at least one to
utilize this method of approval) and evidenced by a Board Resolution or for
which a fairness opinion has been issued will be deemed to be on terms as
favorable as those that might be obtained at the time of such transaction (or
series of transactions) from a Person that is not such an Affiliate and thus
will be permitted under this "Transactions with Affiliates" covenant.
(Section 10.11)
LIMITATION ON THE ACTIVITIES OF NEXTEL PARTNERS AND ITS RESTRICTED SUBSIDIARIES
Nextel Partners will not, and will not permit any Restricted Subsidiary to,
engage in any business other than the telecommunications business and related
activities and services, including such businesses, activities and services as
Nextel Partners and the Restricted Subsidiaries were engaged in on the Closing
Date. (Section 10.15)
LIMITATION ON LIENS
Nextel Partners will not and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien of any kind (other than Permitted Liens) upon any of
their property or assets, now owned or hereafter acquired, unless all payments
due under the indenture and the notes are secured on an equal and ratable basis
with the obligations so secured until such time as such obligations are no
longer secured by a Lien. (Section 10.12)
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LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
Nextel Partners will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions to Nextel Partners or any
of its Restricted Subsidiaries with respect to its Capital Stock or any other
interest or participation in, or measured by, its profits, or pay any
indebtedness owed to Nextel Partners or any of its Restricted Subsidiaries,
(2) make loans or advances to Nextel Partners or any of its Restricted
Subsidiaries, or
(3) transfer any of its properties or assets to Nextel Partners or any of
its Restricted Subsidiaries.
However, the foregoing restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
- existing Debt as in effect on the date of the indenture,
- any Credit Facility as in effect as of the date of the indenture (or in
the case of the New Credit Facility, as initially executed by the parties
thereto), and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
PROVIDED that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings are no
more restrictive, taken as a whole, with respect to such dividend and
other payment restrictions than those contained in such Credit Facility as
in effect on the date of the indenture (as conclusively determined in good
faith by Nextel Partners' Board of Directors and set forth in a Board
Resolution),
- the indenture and the notes,
- applicable law,
- any instrument governing Debt and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements
or refinancings thereof, PROVIDED that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings are no more restrictive, taken as a whole, with respect to
such dividend and payment restrictions other than those contained in such
Debt as in effect on the date of its incurrence by Nextel Partners or any
Restricted Subsidiary (as conclusively determined in good faith by an
executive officer of Nextel Partners) or Capital Stock of a Person
acquired by Nextel Partners or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such Debt was
incurred in connection with or in contemplation of such acquisition),
which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, PROVIDED that, in the case of Debt,
such Debt was permitted by the terms of the indenture to be incurred,
- customary non-assignment provisions in leases entered into in the ordinary
course of business,
- purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (3)
above on the property so acquired,
- any agreement for the sale or other disposition of a Restricted Subsidiary
that restricts distributions by that Subsidiary pending its sale or other
disposition,
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- Liens securing Debt otherwise permitted to be incurred pursuant to the
provisions of the covenant described above under the caption "Limitation
on Liens" that limit the right of Nextel Partners or any of its Restricted
Subsidiaries to dispose of the assets subject to such Lien,
- provisions with respect to the disposition or distribution of assets or
property in joint venture agreements and other similar agreements entered
into in the ordinary course of business, and
- restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business.
(Section 10.14)
LIMITATION ON ISSUANCES AND SALES OF EQUITY INTERESTS IN WHOLLY OWNED
SUBSIDIARIES
Nextel Partners will not and will not permit any of its Restricted
Subsidiary to:
- transfer, convey, sell or otherwise dispose of any Capital Stock in any
Wholly Owned Restricted Subsidiary of Nextel Partners to any Person (other
than Nextel Partners or any Wholly Owned Restricted Subsidiary of Nextel
Partners) unless:
- such transfer is of all the Capital Stock in such Wholly Owned Restricted
Subsidiary and
- the cash Net Proceeds from such transfer are applied in accordance with
the covenant described under the caption "--Limitation on Asset Sales,"
and
- will not permit any Wholly Owned Restricted Subsidiary of Nextel Partners
to issue any of its Capital Stock (other than, if necessary, shares of its
Capital Stock constituting directors' qualifying shares) to any Person
other than to Nextel Partners or a Wholly Owned Restricted Subsidiary of
Nextel Partners.
The foregoing restrictions will not apply to:
- the creation of Permitted Joint Ventures,
- any transfer required by applicable law or regulation,
- the issuance of Redeemable Stock that is otherwise permitted to be issued
pursuant to the terms of the indenture, and
- transfers in which Nextel Partners or a Restricted Subsidiary acquires at
the same time not less than its proportionate share in such issuance of
Capital Stock. (Section 10.20)
LIMITATION ON ASSET SALES
Nextel Partners will not, and will not permit any Restricted Subsidiary to,
make any Asset Sale unless:
- Nextel Partners or the Restricted Subsidiary, as the case may be, receives
consideration for such Asset Sale at least equal to the fair market value
of the assets or Capital Stock issued or sold or otherwise disposed of as
determined by Nextel Partners' Board of Directors in good faith and
evidenced by a Board Resolution set forth in an Officers' Certificate
delivered to the trustee, which determination shall be conclusive, and
- at least 80% of the consideration for such disposition consists of cash;
PROVIDED that the amount of:
- any liabilities (as shown on Nextel Partners' or such Restricted
Subsidiary's most recent balance sheet), of Nextel Partners or any
Restricted Subsidiary (other than contingent
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liabilities and liabilities that are by their terms subordinated to the
notes or any guarantee thereof) that are assumed by the transferee of any
such assets and
- any securities, notes or other obligations received by Nextel Partners or
any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted by
Nextel Partners or such Subsidiary into cash (to the extent of the cash
received) shall be deemed to be cash for purposes of this provision.
Within 360 days after receipt of any Net Proceeds from an Asset Sale, Nextel
Partners may apply those Net Proceeds at its option:
- to repay Debt under a Credit Facility or any Vendor Financing Debt,
- to make a capital expenditure in the same or similar line of business as
Nextel Partners is engaged in on the date of the indenture or in a
business reasonably related thereto, or
- to acquire Capital Stock of an entity that is or becomes a Restricted
Subsidiary or other long-term assets that are used or useful in the same
or similar line of business as Nextel Partners or such Restricted
Subsidiaries were engaged in on the date of the indenture or in businesses
reasonably related thereto.
Pending the final application of any such Net Proceeds, Nextel Partners may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds
$5.0 million, Nextel Partners will be required to make an offer (an "Asset Sale
Offer") to all holders of notes and all holders of other Debt that is PARI PASSU
with the notes containing provisions similar to those set forth in the indenture
with respect to offers to purchase or redeem with the proceeds of sales of
assets to purchase the maximum principal amount at maturity of notes and such
other PARI PASSU Debt that may be purchased out of the Excess Proceeds. The
offer price for such Asset Sale Offer shall be an amount in cash equal to 100%
of the principal amount thereof plus accrued and unpaid interest thereon, if
any, to the date of purchase, in accordance with the procedures set forth in the
indenture and the instrument or instruments governing such other PARI PASSU
Debt, respectively.
To the extent that any Excess Proceeds remain after consummation of an Asset
Sale Offer, Nextel Partners may use such Excess Proceeds for any purpose not
otherwise prohibited by the indenture. If the aggregate principal amount of
notes tendered into such Asset Sale Offer surrendered by holders thereof exceeds
the amount of Excess Proceeds, the trustee shall select the notes to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero. (Section 10.22)
CHANGE OF CONTROL
Within 30 days of the occurrence of a Change of Control, Nextel Partners
will be required to make an Offer to Purchase all outstanding notes at a cash
purchase price equal to 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
repurchase. (Section 10.13)
Except as described above with respect to a Change of Control, the indenture
does not contain provisions that permit the holders of the notes to require
Nextel Partners to repurchase or redeem the notes in the event of a takeover,
recapitalization or similar restructuring.
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Restrictions in the indenture on the ability of Nextel Partners and its
Restricted Subsidiaries to incur additional Indebtedness, to grant Liens on its
or their property, to make Restricted Payments and to make Asset Sales may also
make more difficult or discourage a takeover of Nextel Partners, whether favored
or opposed by the management of Nextel Partners. Consummation of any such
transaction in certain circumstances may require redemption or repurchase of the
notes, and there can be no assurance that Nextel Partners or the acquiring party
will have sufficient financial resources to effect such redemption or
repurchase. Such restrictions and the restrictions on transactions with
Affiliates may, in certain circumstances, make more difficult or discourage any
leveraged buyout of Nextel Partners or any of its Subsidiaries by the management
of Nextel Partners or other Persons. While such restrictions cover a variety of
arrangements which have traditionally been used to effect highly leveraged
transactions, the indenture may not afford the holders of notes protection in
all circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
Nextel Partners does not currently have adequate financial resources to
effect such repurchases and repurchase the notes upon a Change of Control and
there can be no assurance that Nextel Partners will have such resources in the
future. The inability of Nextel Partners to repurchase the notes upon a Change
of Control would constitute an Event of Default.
In addition, there may be restrictions contained in instruments evidencing
Indebtedness incurred by Nextel Partners or its Restricted Subsidiaries
permitted under the indenture which restrict or prohibit the ability of Nextel
Partners to effect any repurchase required under the indenture in connection
with a Change of Control.
In the event that Nextel Partners makes an Offer to Purchase the notes,
Nextel Partners intends to comply with any applicable securities laws and
regulations, including any applicable requirements of Section 14(e) of, and
Rule 14e-1 under, the Exchange Act.
PROVISION OF FINANCIAL INFORMATION
Whether or not Nextel Partners is subject to Section 13(a) or 15(d) of the
Exchange Act, or any successor provision thereto, Nextel Partners will, for so
long as any notes remain outstanding, file with the SEC copies of the annual and
quarterly reports and the information, documents, and other reports that Nextel
Partners would have been required to file with the SEC pursuant to such
Section 13(a) or 15(d) or any successor provision thereto if Nextel Partners
were subject thereto on or prior to the respective dates (the "Required Filing
Dates") by which Nextel Partners would have been required to file such document.
Nextel Partners will also, within 15 days of each Required Filing Date, transmit
by mail to all holders without cost to such holders and file with the trustee,
copies of the required filings. If under the Exchange Act Nextel Partners is not
permitted to file such documents with the SEC, promptly upon written request of
any prospective holder, Nextel Partners shall supply copies of these documents.
(Section 10.16)
In addition, Nextel Partners has agreed that, for so long as any notes
remain outstanding, it will furnish to the holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A under the Securities Act.
MERGER, SALE OF ASSETS, ETC.
Nextel Partners shall not, in any transaction or series of related
transactions:
- merge or consolidate with or into, or sell, assign, convey, transfer or
otherwise dispose of its properties and assets substantially as an
entirety to, any Person; and
- permit any of its Restricted Subsidiaries to enter into any such
transaction or series of transactions if such transaction or series of
transactions, in the aggregate, would result in a
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sale, assignment, conveyance, transfer or other disposition of the
properties and assets of Nextel Partners and its Restricted Subsidiaries,
taken as a whole, substantially as an entirety to any Person, unless:
(a) either:
(A) if the transaction or series of transactions is a
consolidation of Nextel Partners with or a merger of Nextel Partners
with or into any other Person, Nextel Partners shall be the surviving
Person of such merger or consolidation, or
(B) the Person formed by any consolidation with or merger with or
into Nextel Partners, or to which the properties and assets of Nextel
Partners or Nextel Partners and its Restricted Subsidiaries, taken as
a whole, as the case may be, substantially as an entirety are sold,
assigned, conveyed or otherwise transferred shall be a corporation,
partnership, limited liability company or trust organized and
existing under the laws of the United States of America, any state
thereof or the District of Columbia and shall expressly assume by a
supplemental indenture executed and delivered to the trustee, in form
satisfactory to the trustee, all the obligations of Nextel Partners
under the notes and the indenture and, in each case, the indenture,
as so supplemented, shall remain in full force and effect, and
(b) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (including any
Debt Incurred or anticipated to be Incurred in connection with or in
respect of such transaction or series of transactions), no Default or Event
of Default shall have occurred and be continuing, and
(c) Nextel Partners or the successor entity to Nextel Partners will, at
the time of such transaction and after giving pro forma effect thereto as
if such transaction had occurred at the beginning of the applicable period:
(A) have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of Nextel
Partners immediately preceding the transaction and
(B) be permitted to Incur at least $1.00 of additional Debt
pursuant to clause (1) of the covenant described above under
"--Covenants--Limitation on Consolidated Debt."
The foregoing requirements shall not apply to any transaction or series of
transactions involving the sale, assignment, conveyance, transfer or other
disposition of the properties and assets by any Restricted Subsidiary to any
other Restricted Subsidiary, or the merger or consolidation of any Restricted
Subsidiary with or into any other Restricted Subsidiary. The indenture also
provides that Nextel Partners may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person.
In connection with any consolidation, merger, sale, assignment, conveyance,
transfer or other disposition contemplated by the foregoing provisions, Nextel
Partners shall deliver, or cause to be delivered, to the trustee, in form and
substance reasonably satisfactory to the trustee, an Officers' Certificate
stating that such consolidation, merger, sale, assignment, conveyance, transfer,
or other disposition and the supplemental indenture in respect thereof (required
under clause (a)(B) of the preceding paragraph) comply with the requirements of
the indenture and an opinion of counsel. Each such Officers' Certificate shall
set forth the manner of determination of Nextel Partners' compliance with
clause (c) of the preceding paragraph.
For all purposes of the indenture and the notes (including the provisions
described in the two immediately preceding paragraphs and the "Limitation on
Consolidated Debt" and "Restricted
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Subsidiaries" covenants), Subsidiaries of any successor entity will, upon such
transaction or series of transactions, become Restricted Subsidiaries or
Unrestricted Subsidiaries as provided pursuant to the "Restricted Subsidiaries"
covenant and all Debt of the successor entity and its Subsidiaries that was not
Debt of Nextel Partners and its Subsidiaries immediately prior to such
transaction or series of transactions shall be deemed to have been Incurred upon
such transaction or series of transactions.
The successor entity shall succeed to, and be substituted for, and may
exercise every right and power of Nextel Partners under the indenture, and the
predecessor company shall be released from all its obligations and covenants
under the indenture and the notes. (Sections 8.01 and 8.02)
CERTAIN DEFINITIONS
Set forth below is a summary of some of the definitions used in the
indenture. Reference is made to the indenture for the definition of all such
terms, as well as any other term used herein for which no definition is
provided. (Section 1.01)
"ACQUIRED DEBT" means Debt of a Person:
- existing at the time such Person becomes a Restricted Subsidiary or
assumed by Nextel Partners or a Restricted Subsidiary in connection with
the acquisition of assets from such Person, and
- secured by a Lien encumbering any asset of such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For purposes of the covenant described under
"--Covenants--Transactions with Affiliates" only, "affiliate" shall be deemed to
include, any Person owning, directly or indirectly, (i) 10% or more of the
outstanding Common Stock of Nextel Partners or (ii) securities having 10% or
more of the total voting power of the Voting Stock of Nextel Partners. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. No individual shall be deemed to be
controlled by or under common control with any specified Person solely by virtue
of his or her status as an employee or officer of such specified Person or of
any other Person controlled by or under common control with such specified
Person.
"ANNUALIZED OPERATING CASH FLOW" means, for any fiscal quarter, the
Operating Cash Flow for such fiscal quarter multiplied by four.
"ASSET SALE" means:
- the sale, lease, conveyance or other disposition of any assets or rights
(including, without limitation, by way of a sale and leaseback) other than
sales of inventory and obsolete equipment in the ordinary course of
business (PROVIDED that the sale, conveyance or other disposition of all
or substantially all of the assets of Nextel Partners and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
indenture described above under the caption "--Covenants--Change of
Control" and/or the provisions described above under the caption
"--Covenants--Merger, Sale of Assets, Etc." and not by the provisions of
the Asset Sale covenant), and
- the issue or sale by Nextel Partners or its Restricted Subsidiaries of
Capital Stock of any of Nextel Partners' Subsidiaries
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provided in each case, the transaction or a series of related transactions has a
fair market value in excess of $5.0 million or net proceeds in excess of
$5.0 million.
The following items shall not be deemed to be Asset Sales:
- a transfer of assets by Nextel Partners to a Wholly Owned Restricted
Subsidiary or by a Wholly Owned Restricted Subsidiary to Nextel Partners
or to another Wholly Owned Restricted Subsidiary;
- an issuance of Capital Stock by a Wholly Owned Restricted Subsidiary to
Nextel Partners or to another Wholly Owned Restricted Subsidiary;
- a Restricted Payment that is permitted by the covenant described under
"--Covenants--Limitation on Restricted Payments";
- Permitted Joint Ventures, and
- any License Exchange.
"AVERAGE LIFE" means, at any date of determination with respect to any Debt,
the quotient obtained by dividing:
- the sum of the products of the number of years from such date of
determination to the dates of each successive scheduled principal payment
of such Debt and the amount of such principal payment by
- the sum of all such principal payments.
"BENEFICIAL OWNER" means a beneficial owner as defined in Rules 13d-3 and
13d-5 under the Exchange Act (or any successor rules), including the provision
of such Rules that a person shall be deemed to have beneficial ownership of all
securities that such person has a right to acquire within 60 days, PROVIDED that
a person shall not be deemed a beneficial owner of, or to own beneficially, any
securities if such beneficial ownership arises solely as a result of a revocable
proxy delivered in response to a proxy or consent solicitation made pursuant to,
and in accordance with, the Exchange Act and the applicable rules and
regulations thereunder and is not also then reportable on Schedule 13D (or any
successor schedule) under the Exchange Act.
"BOARD RESOLUTION" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of Nextel Partners to have been duly adopted by its
Board of Directors (unless the context specifically requires that such
resolution be adopted by a majority of the Disinterested Directors, in which
case by a majority of such directors) and to be in full force and effect on the
date of such certification and delivered to the trustee.
"CAPITAL LEASE OBLIGATIONS" of any Person means the obligations to pay rent
or other amounts under lease of (or other Debt arrangements conveying the right
to use) real or personal property of such Person which are required to be
classified and accounted for as a capital lease or a liability on the face of a
balance sheet of such Person determined in accordance with generally accepted
accounting principles and the amount of such obligations shall be the
capitalized amount thereof in accordance with generally accepted accounting
principles and the stated maturity thereof shall be the date of the last payment
of rent or any other amount due under such lease prior to the first date upon
which such lease may be terminated by the lessee without payment of a penalty.
"CAPITAL STOCK" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of stock of, or other
ownership interests in, such Person.
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"CHANGE OF CONTROL" means the occurrence of any of the following events:
(1) any person or group of persons (as such term is used in
Section 13(d)(3) of the Exchange Act and the regulations thereunder) other than
a Permitted Holder is or becomes the Beneficial Owner, directly or indirectly,
of more than 50% of the total Voting Stock or Total Common Equity of Nextel
Partners; PROVIDED that no Change of Control shall be deemed to occur pursuant
to this clause (1) if the person is a corporation with outstanding debt
securities having a maturity at original issuance of at least one year and if
such debt securities are rated Investment Grade by S&P or Moody's for a period
of at least 90 consecutive days, beginning on the date of such event (which
period will be extended up to 90 additional days for as long as the rating of
such debt securities is under publicly announced consideration for possible
downgrading by the applicable rating agency); or
(2) Nextel Partners consolidates with, or merges with or into, another
Person other than a Permitted Holder or sells, assigns, conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets to any
Person other than a Permitted Holder, or any Person other than a Permitted
Holder consolidates with, or merges with or into, Nextel Partners, in any such
event pursuant to a transaction in which the outstanding Voting Stock of Nextel
Partners is converted into or exchanged for cash, securities or other property,
other than any such transaction where:
(a) the outstanding Voting Stock of Nextel Partners is converted into or
exchanged for:
(A) Voting Stock (other than Redeemable Stock) of the surviving or
transferee Person or
(B) cash, securities and other property in an amount which could be
paid by Nextel Partners as a Restricted Payment under the indenture, and
(b) immediately after such transaction no person or group of persons (as
such term is used in Section 13(d)(3) of the Exchange Act and the
regulations thereunder) is the Beneficial Owner, directly or indirectly, of
more than 50% of the total Voting Stock or Total Common Equity of the
surviving or transferee Person; PROVIDED that no Change of Control shall be
deemed to occur pursuant to this clause (2), if the surviving or transferee
Person or the person referred to in clause (2)(b) is a corporation with
outstanding debt securities having a maturity at original issuance of at
least one year and if such debt securities are rated Investment Grade by S&P
or Moody's for a period of at least 90 consecutive days, beginning on the
date of such event (which period will be extended up to 90 additional days
for as long as the rating of such debt securities is under publicly
announced consideration for possible downgrading by the applicable rating
agency); or
(3) during any consecutive two-year period, individuals who at the beginning
of such period constituted the Board of Directors together with:
(a) any directors who are members of the Board of Directors on the
Closing Date,
(b) any new directors whose election by such Board of Directors or whose
nomination for election by the stockholders of Nextel Partners was approved
by a vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved, and
(c) any new directors appointed or selected by a Permitted Holder,
whether pursuant to a transaction of a type described in either of the
preceding paragraphs (a) and (b), pursuant to a contractual right or
pursuant to a right granted under Nextel Partners' certificate of
incorporation or by-laws) cease for any reason to constitute a majority of
the Board of Directors then in office; or
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(4) the adoption of a plan relating to the liquidation or dissolution of
Nextel Partners.
Any event that would constitute a Change of Control pursuant to clause (1)
or (2) above but for the exceptions thereto shall not be deemed to be a Change
of Control until such time (if any) as the conditions described in such
exceptions cease to have been met.
"CLOSING DATE" means July 27, 2000, the date on which the notes were first
issued under the indenture.
"CLOSING PRICE" on any Trading Day with respect to the per share price of
any shares of Capital Stock means the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such shares are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the Nasdaq
Stock Market or, if such shares are not listed or admitted to trading on any
national securities exchange or quoted on the Nasdaq Stock Market but the issuer
is a Foreign Issuer (as defined in Rule 3b-4(b) under the Exchange Act) and the
principal securities exchange on which such shares are listed or admitted to
trading is a Designated Offshore Securities Market (as defined in
Rule 902(a) under the Securities Act), the average of the reported closing bid
and asked prices regular way on such principal exchange, or, if such shares are
not listed or admitted to trading on any national securities exchange or quoted
on the Nasdaq Stock Market and the issuer and principal securities exchange do
not meet such requirements, the average of the closing bid and asked prices in
the over-the-counter market as furnished by any New York Stock Exchange member
firm of national standing that is selected from time to time by Nextel Partners
for that purpose.
"CODE" means the Internal Revenue Code, as amended from time to time, and
the rules and regulations thereunder.
"COMMITTED CAPITAL CONTRIBUTION" means the irrevocable cash commitments
pursuant to those certain subscription and contribution agreements by and among
Nextel Partners, Nextel WIP Corp., Motorola and the Cash Equity Investors (as
defined therein), as in effect on the date of the indenture.
"COMMON STOCK" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"CONSOLIDATED DEBT" means the aggregate amount of Debt of Nextel Partners
and its Restricted Subsidiaries on a Consolidated basis outstanding at the date
of determination.
"CONSOLIDATED DEBT TO ANNUALIZED OPERATING CASH FLOW RATIO" means, as at any
date of determination, the ratio of (i) Consolidated Debt to (ii) the Annualized
Operating Cash Flow of Nextel Partners for the most recently completed fiscal
quarter of Nextel Partners for which financial statements are available.
"CONSOLIDATED INTEREST EXPENSE" of any Person means, for any period:
- the aggregate interest expense and fees and other financing costs in
respect of Debt (including amortization of original issue discount and
non-cash interest payments and accruals),
- the interest component in respect of Capital Lease Obligations and any
deferred payment obligations of such Person and its Restricted
Subsidiaries, determined on a Consolidated basis in accordance with
generally accepted accounting principles,
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- all commissions, discounts, other fees and charges owed with respect to
letters of credit and bankers' acceptance financing and net costs
(including amortizations of discounts) associated with interest rate swap
and similar agreements and with foreign currency hedge, exchange and
similar agreements and
- the product of:
- all dividend payments, whether or not in cash, on any series of
Preferred Capital Stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Capital Stock payable
solely in Capital Stock of Nextel Partners (other than Redeemable
Stock) or to Nextel Partners or its Restricted Subsidiary, times
- a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each
case, on a Consolidated basis in accordance with generally accepted
accounting principles.
"CONSOLIDATED NET INCOME" and "CONSOLIDATED NET LOSS" mean, for any period,
the net income or net loss, as the case may be, of Nextel Partners and its
Restricted Subsidiaries for such period, all as determined on a Consolidated
basis in accordance with generally accepted accounting principles, adjusted, to
the extent included in calculating such net income or net loss, as the case may
be, by excluding without duplication:
- any after-tax gain or loss attributable to the sale, conversion or other
disposition of assets other than in the ordinary course of business,
- any after-tax gains resulting from the write-up of assets and any loss
resulting from the write-down of assets,
- any after-tax gain or loss on the repurchase or redemption of any
securities (including in connection with the early retirement or
defeasance of any Debt),
- any foreign exchange gain or loss,
- all payments in respect of dividends on shares of Preferred Capital Stock
of Nextel Partners,
- any other extraordinary, non-recurring or unusual items incurred by Nextel
Partners or any Restricted Subsidiary,
- the net income (or loss) of any Person acquired by Nextel Partners or any
Restricted Subsidiary in a pooling-of-interests transaction for any period
prior to the date of such transaction,
- all income or losses of Unrestricted Subsidiaries and Persons (other than
Subsidiaries) accounted for by Nextel Partners using the equity method of
accounting, and
- the net income (but not net loss) of any Restricted Subsidiary which is
subject to any judgment, decree, order or governmental regulation which
prevent the payment of dividends or the making of distributions to Nextel
Partners but only to the extent of such restrictions.
"CONSOLIDATED NET INCOME (LOSS)" means, for any period, Nextel Partners'
Consolidated Net Income or Consolidated Net Loss for such period, as applicable.
"CONSOLIDATED NET WORTH" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
generally accepted accounting principles, less amounts attributable to
Redeemable Stock of such Person; PROVIDED that, with respect to Nextel Partners,
no effect shall be given to adjustments following the Closing Date to the
accounting books and records of Nextel Partners in accordance with Accounting
Principles Board
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Opinions Nos. 16 and 17 (or successor opinions thereto) or otherwise resulting
from the acquisition of control of Nextel Partners by another Person.
"CONSOLIDATION" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of Nextel Partners, if and to the extent that
the accounts of each such Restricted Subsidiary would normally be consolidated
with those of Nextel Partners in accordance with generally accepted accounting
principles; PROVIDED, HOWEVER, that "Consolidation" shall not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of Nextel Partners or any Restricted Subsidiary in any Unrestricted Subsidiary
shall be accounted for as an investment. The term "Consolidated" has a
correlative meaning.
"CREDIT FACILITY" means any credit facility (whether a term or revolving
type or both), including the New Credit Facility) or letter of credit facility
of the type customarily entered into with banks or any Hedging Agreement (as
defined), between Nextel Partners and/or any of its Restricted Subsidiaries, on
the one hand, and any banks or other lenders or affiliates thereof, on the other
hand (and any renewals, refundings, extensions or replacements of any such
credit facility), which credit facility is designated by Nextel Partners as a
"Credit Facility" for purposes of the indenture, and shall include all such
credit facilities in existence on the Closing Date whether or not so designated.
"DEBT" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent:
(1) every obligation of such Person for money borrowed, including without
limitation, in each case, premium, interest (including interest accruing
subsequent to the filing of, or which would have accrued but for the filing of,
a petition for bankruptcy, whether or not such interest is an allowable claim in
such bankruptcy proceeding), fees and expenses relating thereto,
(2) every obligation of such Person evidenced by bonds, debentures, notes or
other similar instruments, including obligations Incurred in connection with the
acquisition of property, assets or businesses,
(3) every reimbursement obligation of such Person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account of
such Person,
(4) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business which are not
overdue or which are being contested in good faith),
(5) every Capital Lease Obligation of such Person,
(6) the maximum fixed redemption or repurchase price of Redeemable Stock of
such Person at the time of determination plus accrued but unpaid dividends,
(7) every obligation of such Person under interest rate swap or similar
agreements or foreign currency hedge, exchange or similar agreements of such
Person (collectively, "Hedging Agreements"), and
(8) every obligation of the type referred to in clauses (1) through (7) of
another Person and all dividends of another Person the payment of which, in
either case, such Person has Guaranteed or is liable, directly or indirectly, as
obligor, Guarantor or otherwise.
The amount of Debt of any Person issued with original issue discount is the
face amount of such Debt less the unamortized portion of the original issue
discount of such Debt at the time of its issuance as determined in conformity
with generally accepted accounting principles, and money borrowed at the time of
the Incurrence of any Debt in order to pre-fund the payment of interest on
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such Debt shall be deemed not to be "Debt." The amount of Debt represented by an
obligation under an agreement referred to in clause (7) shall be equal to:
- zero if such obligation has been Incurred under clause (5)(b) of the
definition of Permitted Debt and
- the notional amount of such obligation if it is not so incurred.
"DEFAULT" means an event that is, or after notice or passage of time, or
both, would be, an Event of Default.
"DEFAULT AMOUNT" means, in respect of any note the principal amount payable
in respect of the note at the Stated Maturity thereof.
"DIRECTED INVESTMENT" by Nextel Partners or any of its Restricted
Subsidiaries means any Investment for which the cash or property used for such
Investment is received by Nextel Partners from the issuance and sale (other than
to a Restricted Subsidiary) on or after February 24, 2000 of shares of its
Capital Stock (other than any of the Preferred Stock), or any options, warrants
or other rights to purchase such Capital Stock (other than any of the Preferred
Stock) designated by Nextel Partners' Board of Directors as a "Directed
Investment" to be used for one or more specified investments in the
telecommunications business (including related activities and services) and is
so designated and used at any time within 365 days after the receipt thereof;
PROVIDED that the aggregate amount of any such Directed Investments may not at
any time exceed fifty percent (50%) of the aggregate amount of such cash or
property received by Nextel Partners on or after the date of the indenture from
any such issuance and sale or capital contribution; and provided further that
any proceeds from any such issuance or sale may not be used for such an
Investment if such proceeds were, prior to being designated for use as a
Directed Investment, used to make a Restricted Payment.
"DISINTERESTED DIRECTOR" means, with respect to any proposed transaction
between Nextel Partners and an Affiliate thereof, a member of Nextel Partners'
Board of Directors who is not an officer or employee of Nextel Partners, would
not be a party to, or have a financial interest in, such transaction and is not
an officer, director or employee of, and does not have a financial interest in,
such Affiliate. For purposes of this definition, no person would be deemed not
to be a Disinterested Director solely because such person holds Capital Stock of
Nextel Partners.
"DLJMB" means DLJ Merchant Banking Partners II, L.P. and its Affiliates.
"EXCHANGE NOTES" means the new notes of Nextel Partners that may be
exchanged for the notes pursuant to a registration rights agreement.
"FAIR MARKET VALUE" means, for purposes of clause (1) of the "Limitation on
Consolidated Debt" covenant, the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by Nextel Partners' Board of Directors, whose determination shall be
conclusive if evidenced by a Board Resolution, PROVIDED that:
- the Fair Market Value of any security registered under the Exchange Act
shall be the average of the closing prices, regular way, of such security
for the 20 consecutive trading days immediately preceding the sale of
Capital Stock and
- in the event the aggregate Fair Market Value of any other property
received by Nextel Partners exceeds $10 million, the Fair Market Value of
such property shall be determined in good faith by Nextel Partners' Board
of Directors, including a majority of the Disinterested Directors who are
then members of such Board of Directors, which determination shall be
conclusive if evidenced by a Board Resolution.
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"GUARANTEE" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing any Debt of any other Person (the "primary obligor") in
any manner, whether directly or indirectly, and including any obligation of such
Person:
- to purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt or to purchase (or to advance or supply funds for the
purchase of) any security for the payment of such Debt,
- to purchase property, securities or services for the purpose of assuring
the holder of such Debt of the payment of such Debt, or
- to maintain working capital, equity capital or other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Debt (and "Guaranteed," "Guaranteeing" and "Guarantor"
shall have meanings correlative to the foregoing);
PROVIDED, HOWEVER, that the Guarantee by any Person shall not include
endorsements by such Person for collection or deposit, in either case, in the
ordinary course of business.
"INCUR" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume (pursuant
to a merger, consolidation, acquisition or other transaction), Guarantee or
otherwise become liable in respect of such Debt or other obligation or the
recording, as required pursuant to generally accepted accounting principles or
otherwise, of any such Debt or other obligation on the balance sheet of such
Person (and "Incurrence" and "Incurred" shall have meanings correlative to the
foregoing); PROVIDED, HOWEVER, that a change in generally accepted accounting
principles that results in an obligation of such Person that exists at such time
becoming Debt shall not be deemed an Incurrence of such Debt; provided further,
however, that the accretion of original issue discount on Debt shall not be
deemed to be an Incurrence of Debt. Debt otherwise Incurred by a Person before
it becomes a Subsidiary of Nextel Partners shall be deemed to have been Incurred
at the time it becomes such a Subsidiary.
"INVESTMENT" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution to (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise), or purchase or acquisition of Capital
Stock, bonds, notes, debentures or other securities or evidence of Debt issued
by, any other Person or the designation of a Subsidiary as an Unrestricted
Subsidiary; PROVIDED that a transaction will not be an Investment to the extent
it involves:
- the issuance or sale by Nextel Partners of its Capital Stock (other than
Redeemable Stock), including options, warrants or other rights to acquire
such Capital Stock (other than Redeemable Stock),
- a transfer, assignment or contribution by Nextel Partners of shares of
Capital Stock (or any options, warrants or rights to acquire Capital
Stock), or all or substantially all of the assets of, any Unrestricted
Subsidiary of Nextel Partners to another Unrestricted Subsidiary of Nextel
Partners, or
- extensions of trade credit by Nextel Partners and its Restricted
Subsidiaries on commercially reasonable terms in the ordinary course of
business and consistent with their normal practice.
"INVESTMENT GRADE" means a rating of at least BBB-, in the case of S&P, or
Baa3, in the case of Moody's.
"ITEMIZED EXECUTIVE" means any of the following individuals: (i) John
Chapple; (ii) John Thompson; (iii) David Thaler; (iv) David Aas; (v) Perry
Satterlee; and (vi) Mark Fanning.
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"LICENSE EXCHANGE" means:
- any exchange of Licenses between Nextel Partners and Nextel or any
Affiliates of Nextel which Nextel Partners' Board of Directors determines
in good faith, on the date of such exchange, are, in the aggregate, of at
least equivalent value; provided, however, that the aggregate value of all
such Licenses exchanged pursuant to this clause shall not exceed
$25.0 million, or
- any transaction pursuant to which Nextel Partners transfers certain of its
Licenses to Nextel or any Affiliates of Nextel in exchange for Licenses
from a third party, the purchase price for which was funded by Nextel or
any Affiliates of Nextel; provided, however, that the aggregate value of
all such Licenses exchanged pursuant to this clause shall not exceed
$25.0 million.
"LICENSES" means SMR licenses granted by the FCC that entitle the holder to
use the radio channels covered thereby, subject to compliance with FCC
rules and regulations, in connection with the SMR business.
"LIEN" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement, encumbrance, preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
on or with respect to such property or assets (including any conditional sale or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"LIQUIDATED DAMAGES" means all liquidated damages then owing pursuant to
section 5 of the registration rights agreement.
"MARKETABLE SECURITIES" means:
(1) securities either issued directly or fully guaranteed or insured by the
government of the United States of America or any agency or instrumentality
thereof having maturities of not more than one year;
(2) time deposits and certificates of deposit, having maturities of not more
than six months from the date of deposit, of any domestic commercial bank having
capital and surplus in excess of $500 million and having outstanding long-term
debt rated A or better (or the equivalent thereof) by S&P or Aaa or better (or
the equivalent thereof) by Moody's;
(3) commercial paper rated A-1 or the equivalent thereof by S&P or P-1 or
the equivalent thereof by Moody's, and in each case maturing within one year;
(4) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above; and
(5) investments in money market funds substantially all of whose assets
comprise securities of the types described in clauses (1) through (4).
"MOODY'S" means Moody's Investors Service, Inc. or, if Moody's Investors
Service, Inc. shall cease rating debt securities having a maturity at original
issuance of at least one year and such ratings business shall have been
transferred to a successor Person, such successor Person; PROVIDED, HOWEVER,
that if Moody's Investors Service, Inc. ceases rating debt securities having a
maturity at original issuance of at least one year and its ratings business with
respect thereto shall not have been transferred to any successor Person, then
"Moody's" shall mean any other national recognized rating agency (other than
S&P) that rates debt securities having a maturity at original issuance of at
least one year and that shall have been designated by Nextel Partners by a
written notice given to the trustee.
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"NET PROCEEDS" means the aggregate cash proceeds received by Nextel Partners
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of:
- the direct costs relating to such Asset Sale (including, without
limitation, legal, accounting, appraisal, investment banking fees, and
sales and brokerage commissions),
- any relocation expenses incurred as a result thereof,
- taxes paid or payable as a result thereof,
- amounts required to be applied to the repayment of Debt secured by a Lien
on the asset or assets that were the subject of such Asset Sale,
- amounts required to be paid in order to obtain a necessary consent to such
Asset Sale,
- appropriate amounts to be provided by such Person or any Subsidiary
thereof, as the case may be, as a reserve in accordance with generally
accepted accounting principles against any liabilities associated with
such assets that are the subject thereof, as the case may be, after such
Asset Sale, including liabilities under any indemnification obligations
and severance and other employee termination costs associated with such
Asset Sale, in each case, as conclusively determined by the board of
directors of such Person.
"NEW CREDIT FACILITY" means that certain credit agreement, dated as of
January 29, 1999, as amended and restated in September 1999, by and among a
subsidiary of Nextel Partners and a syndicate of banks and other financial
institutions led by Donaldson, Lufkin & Jenrette Securities Corporation, as
arranger, DLJ Capital Funding, as syndication agent and the Bank of Montreal, as
administrative agent, governing a $175.0 million term loan facility, a
$150 million term loan facility and a $100.0 million revolving credit facility,
and Hedging Agreements with Persons that were lenders under the New Credit
Facility (or were affiliates of such lenders) at the time such Hedging
Agreements were entered into, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, as such credit agreement, Hedging Agreements and/or related documents
may be amended, restated, supplemented, renewed, replaced or otherwise modified
from time to time whether or not with the same agent or lenders and irrespective
of any changes in the terms and conditions thereof.
"OFFER TO PURCHASE" means a written offer (the "Offer") sent by Nextel
Partners by first class mail, postage prepaid, to each holder at the address
appearing in the security register maintained by the trustee (the "Security
Register") on the date of the Offer offering to purchase the notes at the
purchase price specified in such Offer (as determined pursuant to the
indenture). Unless otherwise required by applicable law, the Offer will specify
an expiration date (the "Expiration Date") of the Offer to Purchase which shall
be, subject to any contrary requirements of applicable law, not less than
30 days or more than 60 days after the date of such Offer and a settlement date
(the "Purchase Date") for purchase of notes within five Business Days after the
Expiration Date. Nextel Partners will notify the trustee at least 15 days (or
such shorter period as is acceptable to the trustee), prior to the mailing of
the Offer of Nextel Partners' obligation to make an Offer to Purchase, and the
Offer will be mailed by Nextel Partners or, at Nextel Partners' request, by the
trustee, in the name and at the expense of Nextel Partners. The Offer will
contain information concerning the business of Nextel Partners and its
Subsidiaries which, at a minimum, will include:
(1) the most recent annual and quarterly financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the documents required to be filed with the Trustee
pursuant to the indenture (which requirements may be satisfied by delivery of
such documents together with the Offer),
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(2) a description of material developments in Nextel Partners' business
subsequent to the date of the latest of such financial statements referred to in
clause (1) (including a description of the events requiring Nextel Partners to
make the Offer to Purchase),
(3) if required under applicable law, pro forma financial information
concerning, among other things, the Offer to Purchase and the events requiring
Nextel Partners to make the Offer to Purchase and
(4) any other information required by applicable law to be included therein.
The Offer will contain all instructions and materials necessary to enable
such holders to tender their notes pursuant to the Offer to Purchase.
The Offer shall also state:
- the section of the indenture pursuant to which the Offer to Purchase is
being made;
- the Expiration Date and the Purchase Date;
- the aggregate principal amount of the outstanding notes offered to be
purchased by Nextel Partners pursuant to the Offer to Purchase (the
"Purchase Amount");
- the purchase price to be paid by Nextel Partners for each $1,000 principal
amount of notes accepted for payment (as specified pursuant to the
indenture) (the "Purchase Price");
- that the holder may tender all or any portion of the notes registered in
the name of such holder and that any portion of notes tendered must be
tendered in an integral multiple of $1,000 of principal amount;
- the place or places where the notes are to be surrendered for tender
pursuant to the Offer to Purchase;
- that interest, if any, on any notes not tendered or tendered but not
purchased by Nextel Partners pursuant to the Offer to Purchase will
continue to accrue;
- that on the Purchase Date the Purchase Price will become due and payable
upon each note being accepted for payment pursuant to the Offer to
Purchase;
- that each holder electing to tender notes pursuant to the Offer to
Purchase will be required to surrender such notes at the place or places
Nextel Partners or the trustee so requires, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to
Nextel Partners and the trustee duly executed by the holder thereof or his
attorney duly authorized in writing);
- that holders will be entitled to withdraw all or any portion of the notes
tendered if Nextel Partners (or its Paying Agent) receives, not later than
the close of business on the Expiration Date, a facsimile transmission or
letter setting forth the name of the holder, the principal amount of the
notes the holder tendered, the certificate number of the notes the holder
tendered and a statement that such holder is withdrawing all or a portion
of his tender;
- that Nextel Partners will purchase all such notes duly tendered and not
withdrawn pursuant to the Offer to Purchase; and
- that in the case of any holder whose notes are purchased only in part,
Nextel Partners will execute, and the trustee will authenticate and
deliver to the holder of such notes without service charge, new notes of
any authorized denomination as requested by such holder, in an aggregate
principal amount equal to and in exchange for the unpurchased portion of
the aggregate principal amount of the notes so tendered.
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Any Offer to Purchase will be governed by and effected in accordance with
the Offer for such Offer to Purchase.
"OFFICERS' CERTIFICATE" means a certificate signed by the Chairman of the
Board, the President or Vice President, and by the Treasurer, an Assistant
Treasurer, the Secretary, or an Assistant Secretary, of Nextel Partners, and
delivered to the trustee.
"OPERATING CASH FLOW" means, for any fiscal quarter:
- Nextel Partners' Consolidated Net Income (Loss) plus depreciation,
amortization and other non-cash charges in respect thereof for such fiscal
quarter, plus
- all amounts deducted in calculating Consolidated Net Income (Loss) for
such fiscal quarter in respect of Consolidated Interest Expense, and all
income taxes, whether or not deferred, applicable to such income period,
all as determined on a Consolidated basis in accordance with generally
accepted accounting principles. For purposes of calculating Operating Cash
Flow for the fiscal quarter most recently completed for which financial
statements are available prior to any date on which an action is taken
that requires a calculation of the Operating Cash Flow to Consolidated
Interest Expense Ratio or Consolidated Debt to Annualized Cash Flow Ratio:
(A) any Person that is a Restricted Subsidiary on such date (or would
become a Restricted Subsidiary in connection with the transaction that
requires the determination of such ratio) will be deemed to have been a
Restricted Subsidiary at all times during such fiscal quarter,
(B) any Person that is not a Restricted Subsidiary on such date (or would
cease to be a Restricted Subsidiary in connection with the transaction that
requires the determination of such ratio) will be deemed not to have been a
Restricted Subsidiary at any time during such fiscal quarter, and
(C) if Nextel Partners or any Restricted Subsidiary shall have in any
manner acquired (including through commencement of activities constituting
such operating business) or disposed (including through termination or
discontinuance of activities constituting such operating business) of any
operating business during or subsequent to the most recently completed
fiscal quarter, such calculation will be made on a pro forma basis on the
assumption that such acquisition or disposition had been completed on the
first day of such completed fiscal quarter and may give effect to projected
quantifiable improvements in operating results (on an annualized basis) due
to cost reductions calculated in accordance with Regulation S-X of the
Securities Act and evidenced by:
(x) in the case of cost reductions of less than $10.0 million, an
Officers' Certificate delivered to the trustee, and
(y) in the case of cost reductions of $10.0 million or more, a
resolution of Nextel Partners' Board of Directors set forth in an
Officers' Certificate delivered to the trustee.
"PAYING AGENT" means any Person authorized by Nextel Partners to pay the
principal of (and premium, if any) or interest on any notes on behalf of Nextel
Partners.
"PERMITTED DEBT" means:
(1) any Debt (including Guarantees thereof) outstanding on the Closing Date
(including the old notes and the new notes) and any accretion of original issue
discount and accrual of interest with respect to such Debt;
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(2) any additional Debt outstanding under a Credit Facility in aggregate
principal amount at any one time outstanding under this clause not to exceed
$325.0 million in the aggregate for all such credit facilities, less permanent
repayments of Debt under such Credit Facilities made by Nextel Partners or any
of its Restricted Subsidiaries pursuant to the covenant described above under
the caption "Asset Sales";
(3) any Vendor Financing Debt in an aggregate principal amount outstanding
at any time not to exceed $100.0 million;
(4) Debt to Nextel Partners or to any Restricted Subsidiary; provided that
any event which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of such Debt (other than to
Nextel Partners or another Restricted Subsidiary) will be deemed, in each case,
to constitute an Incurrence of such Debt not permitted by this clause;
(5) Debt:
(a) in respect of performance, surety or appeal bonds or bankers'
acceptances provided in the ordinary course of business,
(b) under foreign currency hedge, foreign currency exchange, interest
rate swap or similar agreements; PROVIDED that such agreements:
(A) are designed solely to protect Nextel Partners or its Restricted
Subsidiaries against fluctuations in foreign currency exchange rates or
interest rates and
(B) do not increase the Debt of the obligor outstanding at any time
other than as a result of fluctuations in foreign currency exchange rates
or interest rates or by reason of fees, indemnities and compensation
payable thereunder; and
(c) arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guarantees or letters of
credit, surety bonds or performance bonds securing any obligations of Nextel
Partners or any Restricted Subsidiary pursuant to such agreements, in any
case Incurred in connection with the disposition of any business, assets or
Restricted Subsidiary (other than Guarantees of Debt Incurred by any Person
acquiring all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition), in a principal
amount not to exceed the gross proceeds actually received by Nextel Partners
or any Restricted Subsidiary in connection with such disposition;
(6) renewals, refundings or extensions of any Debt referred to in
clause (1) or (3) above or (8) below or Incurred pursuant to clause (2) under
the caption "Limitation on Consolidated Debt" and any renewals, refundings or
extensions thereof, plus:
(a) the amount of any premium reasonably determined by Nextel Partners
as necessary to accomplish such renewal, refunding or extension and
(b) such other fees and expenses of Nextel Partners reasonably incurred
in connection with the renewal, refunding or extension, provided that such
renewal, refunding or extension shall constitute Permitted Debt only:
(A) to the extent that it does not result in an increase in the
aggregate principal amount (or, if such Debt provides for an amount less
than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, in an amount not
greater than such lesser amount) of such Debt (except as permitted by
paragraphs (a) or (b) above), and
(B) to the extent such renewed, refunded or extended Debt does not
have a mandatory redemption date prior to the mandatory redemption date
of the Debt being
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renewed, refunded or extended or have an Average Life shorter than the
remaining Average Life of the Debt being renewed, refunded or extended;
(7) Debt payable solely in, or mandatorily convertible into, Capital Stock
(other than Redeemable Stock) of Nextel Partners;
(8) all new notes issued pursuant to the terms of the registration rights
agreement for the notes;
(9) Debt (in addition to Debt permitted under clauses (1) through
(8) above) in an aggregate principal amount outstanding at any time not to
exceed $50.0 million.
In the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness specified in the above clauses (1) through (9),
Nextel Partners shall have the right, at any time in its sole discretion, to
classify such item as one of the types and shall only be required to include
such item under the clause permitting such Indebtedness as so classified.
"PERMITTED DISTRIBUTION" of a Person means:
- the exchange by such Person of Capital Stock (other than Redeemable Stock)
for outstanding Capital Stock; and
- the redemption, repurchase, defeasance or other acquisition or retirement
for value of Debt of Nextel Partners that is subordinate in right of
payment to the notes, in exchange for (including any such exchange
pursuant to the exercise of a conversion right or privilege in connection
with which cash is paid in lieu of the issuance of fractional shares or
scrip), or out of the proceeds of a substantially concurrent issue and
sale (other than to a Restricted Subsidiary) of, either:
(a) Capital Stock of Nextel Partners (other than Redeemable Stock) or
(b) Debt of Nextel Partners that is subordinate in right of payment to
the notes on subordination terms no less favorable to the holders of the
notes in their capacities as such than the subordination terms (or other
arrangement) applicable to the Debt that is redeemed, repurchased, defeased
or otherwise acquired or retired for value, PROVIDEDthat, such new Debt does
not mature prior to the Stated Maturity or have a mandatory redemption date
prior to the mandatory redemption date of the Debt being redeemed,
repurchased, defeased or otherwise acquired or retired for value or have an
Average Life shorter than the remaining Average Life of the Debt being
redeemed, repurchased, defeased or otherwise acquired or retired for value.
"PERMITTED HOLDER" means each of:
(1) Nextel Communications, Inc., and any entity or entities controlled by,
directly or indirectly, Nextel Communications, Inc.
(2) Craig O. McCaw and any entity or entities:
(A) controlled, directly or indirectly, by Craig O. McCaw or the estate
of Craig O. McCaw and
(B) a majority of the equity interests of which are owned, directly or
indirectly, by Craig O. McCaw and his family, his brothers and estates of,
or trusts for the primary benefit of, the foregoing persons,
(3) Motorola, Inc.,
(4) DLJMB, and any of their respective Affiliates and the respective
successors (by merger, consolidation, transfer or otherwise) to all or
substantially all of the respective businesses and assets of any of the
foregoing, and
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(5) any "person" or "group" (as such terms are used in Section 13(d) and
14(d) of the Exchange Act) controlled by one or more persons identified in
clauses (1) through (4) of this definition.
"PERMITTED INVESTMENT" means any Investment in Marketable Securities or a
Permitted Joint Venture.
"PERMITTED JOINT VENTURE" means any joint venture entered into by Nextel
Partners or any of its Restricted Subsidiaries with a third party:
- for the purpose of financing the acquisition or lease of
telecommunications towers for use in the Nextel Partners' markets;
provided that the aggregate value of all assets contributed by Nextel
Partners or any of its Restricted Subsidiaries to any joint venture
pursuant to this clause shall not exceed $15.0 million (as determined in
good faith by Nextel Partners' Board of Directors) or
- in which Nextel Partners or any of its Restricted Subsidiaries: is
responsible for the managerial control of such joint venture and owns at
least 40% of the outstanding Capital Stock of such joint venture; provided
that such joint venture, together with all other Permitted Joint Ventures
described in this clause, does not cover or service more than 10.0% of the
POPs (computed by including only a percentage of the total POPs equal to
Nextel Partners' percentage ownership in that joint venture) covered by
Nextel Partners at the date of determination (as determined in good faith
by the board of directors).
"PERMITTED LIENS" means:
(1) Liens securing Debt or other monetary obligations under a Credit
Facility to the extent the principal amount of such obligations was permitted by
the terms of the indenture to be Incurred;
(2) Liens in favor of Nextel Partners or a Wholly Owned Restricted
Subsidiary;
(3) Liens on property of a Person existing at the time such Person is merged
with or into or consolidated with Nextel Partners or any Subsidiary of Nextel
Partners; provided that such Liens were in existence prior to the contemplation
of such merger or consolidation and do not extend to any assets other than those
of the Person merged into or consolidated with Nextel Partners;
(4) Liens on property existing at the time of acquisition thereof by Nextel
Partners or any Subsidiary of Nextel Partners, provided that such Liens were in
existence prior to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature incurred
in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (3) of the definition of "Permitted Debt";
(7) Liens existing on the date of the indenture;
(8) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, PROVIDED that any
reserve or other appropriate provision as will be required to be in conformity
with generally accepted accounting principles shall have been made therefor;
(9) Liens (including zoning restrictions, servitudes, easements and
rights-of-way) incurred in the ordinary course of business of Nextel Partners or
any Subsidiary that:
(a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the ordinary
course of business) and
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(b) do not in the aggregate materially detract from the value of the
property or materially impair the use thereof in the operation of business
by Nextel Partners or such Subsidiary;
(10) Liens of a lessor under a lease (other than a capitalized lease);
(11) Liens not otherwise permitted by the foregoing clauses (1) through
(7) securing Debt in an aggregate amount not to exceed 5% of Nextel Partners'
consolidated tangible assets; and
(12) Liens to secure Debt incurred to refinance, in whole or in part, Debt
secured by any Lien referred to in the foregoing clauses (1), (3), (4), (5) or
this clause (12) so long as such Lien does not extend to any other property
(other than improvements and accessions to the original property) and the
principal amount of Debt so secured is not increased except as otherwise
permitted by the indenture.
"PERMITTED TRANSACTION" means:
- any transaction pursuant to written agreements existing on the Closing
Date and described in or incorporated by reference into this offering
memorandum,
- any transaction or transactions with any vendor or vendors (other than
Motorola) of property or materials used in the telecommunications business
(including related activities and services) of Nextel Partners or any
Restricted Subsidiary, provided such transactions are in the ordinary
course of business and such vendor does not beneficially own more than 10%
of the voting power of the Voting Stock of Nextel Partners,
- any amendment, modification or other change to the purchase agreement
between Nextel Partners and Motorola, dated as of January 29, 1999 and as
amended on September 9, 1999, or any other similar agreement with Motorola
that has been approved by a majority of the Disinterested Directors of
Nextel Partners,
- agreements and transactions contemplated by the joint venture agreement
entered into by and among Nextel Partners and Nextel and their respective
Subsidiaries as of January 29, 1999, as amended,
- any License Exchange, and
- any issuance of equity by Nextel Partners (other than Redeemable Stock).
"PERSON" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"POP" means the population equivalents as estimated by Nextel Partners by
extrapolation from the 1990 or 2000 U.S. Census and other publicly available
information.
"PREFERRED CAPITAL STOCK," as applied to the Capital Stock of any Person,
means Capital Stock of such Person of any class or classes (however designated)
that ranks prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"PREFERRED STOCK" means Nextel Partners' Series B redeemable preferred
stock.
"REDEEMABLE STOCK" of any Person means any Capital Stock of such Person that
by its terms or otherwise is:
(1) required to be redeemed prior to the Stated Maturity of the notes,
(2) redeemable at the option of the holder thereof at any time prior to the
Stated Maturity of the notes, or
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(3) convertible into or exchangeable for Capital Stock referred to in
clause (1) or (2) above or Debt having a scheduled maturity prior to the Stated
Maturity of the notes; PROVIDED that any Capital Stock that would not constitute
Redeemable Stock but for provisions thereof giving holders thereof the right to
require such Person to repurchase or redeem such Capital Stock upon the
occurrence of a "change of control" occurring prior to the Stated Maturity of
the notes shall not constitute Redeemable Stock if the "change of control"
provisions applicable to such Capital Stock are no more favorable to the holders
of such Capital Stock than the provisions contained in the "Change of Control"
covenant described herein and such Capital Stock specifically provides that such
Person will not repurchase or redeem any such stock pursuant to such provision
prior to Nextel Partners' repurchase of such notes as are required to be
repurchased pursuant to the covenant described under the caption "Change of
Control."
"REQUIRED CONSENT" means except as otherwise expressly provided in the
indenture with respect to matters requiring the consent of each holder of notes
affected thereby, the consent of holders of not less than a majority in
aggregate principal amount at Stated Maturity of the notes.
"RESTRICTED SUBSIDIARY" means any Subsidiary of Nextel Partners, whether
existing on the Closing Date or created subsequent thereto, designated from time
to time by the Board of Directors as (or otherwise deemed to be) a "Restricted
Subsidiary" in accordance with the covenant described under the caption
"Restricted Subsidiaries."
"S&P" means Standard & Poor's Ratings Services or, if Standard & Poor's
Ratings Services shall cease rating debt securities having a maturity at
original issuance of at least one year and such ratings business shall have been
transferred to a successor Person, such successor Person; PROVIDED, HOWEVER,
that if Standard & Poor's Ratings Services ceases rating debt securities having
a maturity at original issuance of at least one year and its ratings business
with respect thereto will not have been transferred to any successor Person,
then "S&P" will mean any other nationally recognized rating agency (other than
Moody's) that rates debt securities having a maturity at original issuance of at
least one year and that will have been designated by Nextel Partners by a
written notice given to the trustee.
"SPECIALIZED MOBILE RADIO" or "SMR" means a mobile radio communications
system that is operated as described in this offering memorandum:
"STATED MATURITY," when used with respect to any Debt security or any
installment of interest thereon, means the date specified in such Debt security
as the fixed date on which the principal of such Debt security or such
installment of interest is due and payable.
"SUBSIDIARY" of any Person means:
- a corporation more than 50% of the outstanding Voting Stock of which is
owned, directly or indirectly, by such Person or by one or more other
Subsidiaries of such Person or by such Person and one or more Subsidiaries
thereof or
- any other Person (other than a corporation) in which such Person, or one
or more other Subsidiaries of such Person or such Person and one or more
other Subsidiaries thereof, directly or indirectly, has at least a
majority ownership and power to direct the policies, management and
affairs thereof.
"TOTAL COMMON EQUITY" of any Person means, as of any day of determination
(and as modified for purposes of the definition of "Change of Control"), the
product of:
(1) the aggregate number of outstanding primary shares of Common Stock of
such Person on such day (which will not include any options or warrants on, or
securities convertible or exchangeable into, shares of Common Stock of such
Person) and
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(2) the average Closing Price of such Common Stock over the 20 consecutive
Trading Days immediately preceding such day.
If no such Closing Price exists with respect to shares of any such class,
the value of such shares for purposes of clause (2) of the preceding sentence
shall be determined by Nextel Partners' Board of Directors in good faith and
evidenced by a Board Resolution.
"TOTAL INVESTED CAPITAL" means at any time of determination, the sum of,
without duplication:
- the total amount of equity contributed to Nextel Partners as of
January 29, 1999 (being $183.2 million), plus
- the aggregate net cash proceeds received by Nextel Partners from capital
contributions or the issuance or sale of Capital Stock (other than
Redeemable Stock but including Capital Stock issued upon the conversion of
convertible Debt or from the exercise of options, warrants or rights to
purchase Capital Stock (other than Redeemable Stock)), including cash
payments under the Committed Capital Contribution, subsequent to
January 29, 1999, other than to a Restricted Subsidiary, PLUS
- the aggregate net cash proceeds received by Nextel Partners or any
Restricted Subsidiary from the sale, disposition or repayment of any
Investment made after January 29, 1999 and constituting a Restricted
Payment in an amount equal to the lesser of: the return of capital with
respect to such Investment and the initial amount of such Investment, in
either case, less the cost of the disposition of such Investment, PLUS
- an amount equal to the Consolidated net Investment (as of the date of
determination) Nextel Partners and/or any of its Restricted Subsidiaries
has made in any Subsidiary that has been designated as an Unrestricted
Subsidiary after January 29, 1999 upon its redesignation as a Restricted
Subsidiary in accordance with the covenant described above under the
caption "Restricted Subsidiaries," PLUS
- Consolidated Debt,
MINUS
- the aggregate amount of all Restricted Payments declared or made on or
after January 29, 1999.
"TRADING DAY" with respect to a securities exchange or automated quotation
system means a day on which such exchange or system is open for a full day of
trading.
"TRUSTEE" means the trustee under the indenture.
"U.S. GOVERNMENT OBLIGATION" means:
- any security which is: a direct obligation of the United States of America
for the payment of which the full faith and credit of the United States of
America is pledged or an obligation of a Person controlled or supervised
by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith
and credit obligation of the United States of America, which, in either
case, is not callable or redeemable at the option of the issuer thereof,
and
- any depository receipt issued by a bank (as defined in the Securities Act)
as custodian with respect to any U.S. Government Obligation and held by
such bank for the account of the holder of such depository receipt, or
with respect to any specific payment of principal of or interest on any
U.S. Government Obligation which is so specified and held, PROVIDEDthat
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt
from any amount received by the
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custodian in respect of the U.S. Government Obligation or the specific
payment of principal or interest evidenced by such depository receipt.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary that is not a Restricted
Subsidiary and includes any Restricted Subsidiary that becomes an Unrestricted
Subsidiary in accordance with the covenant described above under the caption
"Restricted Subsidiaries."
"VENDOR FINANCING DEBT" means any Debt owed to:
- a vendor or supplier of any property or materials used by Nextel Partners
or its Restricted Subsidiaries in their telecommunications business,
- any Affiliate of such a vendor or supplier,
- any assignee of such a vendor, supplier or Affiliate of such a vendor or
supplier, or
- a bank or other financial institution that has financed or refinanced the
purchase of such property or materials from such a vendor, supplier,
Affiliate of such a vendor or supplier or assignee of such a vendor or
supplier; provided that the aggregate amount of such Debt does not exceed
the sum of: the purchase price of such property or materials (including
transportation, installation, warranty and testing charges, as well as
applicable taxes paid, in respect of such property or materials), the cost
of design, development, site acquisition and construction, any interest or
other financing costs accruing or otherwise payable in respect of the
foregoing, and the cost of any services provided by such vendor, supplier
or Affiliate of such vendor or supplier.
"VOTING STOCK" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of Nextel Partners means a Restricted
Subsidiary all of the outstanding Capital Stock of which (other than directors'
qualifying shares) is at the time owned by Nextel Partners or by one or more
Wholly Owned Restricted Subsidiaries or by Nextel Partners and one or more
Wholly Owned Restricted Subsidiaries.
EVENTS OF DEFAULT
The following will be Events of Default under the indenture:
(1) failure to pay principal of (or premium, if any, on) any notes when due;
(2) failure to pay any interest on any notes when due, continued for
30 days;
(3) default in the payment of principal and interest on notes required to be
purchased pursuant to an Offer to Purchase as described under "Covenants--Change
of Control" when due and payable, or failure to make an Offer to Purchase as
required thereunder;
(4) failure to perform or comply with the provisions described under
"Covenants--Merger, Sales of Assets, Etc.";
(5) failure to perform any other covenant or agreement of Nextel Partners
under the indenture or the notes continued for 60 days after written notice to
Nextel Partners by the trustee or holders of at least 25% in aggregate principal
amount of the outstanding notes;
(6) failure to pay when due the principal of, or acceleration of, any Debt
of Nextel Partners or any Restricted Subsidiary having an outstanding principal
amount of at least $25 million, individually or in the aggregate;
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(7) the rendering of a final judgment or judgments (not subject to appeal)
for the payment of money against Nextel Partners or any Restricted Subsidiary in
an aggregate amount in excess of $25 million which remains undischarged or
unstayed for a period of 60 days after the date on which the right to appeal all
such judgments has expired; and
(8) certain events of bankruptcy, insolvency or reorganization affecting
Nextel Partners or any Restricted Subsidiary. (Section 5.01)
Subject to the provisions of the indenture relating to the duties of the
trustee in case an Event of Default occurs and is continuing, the trustee will
be under no obligation to exercise any of its rights or powers under the
indenture at the request or direction of any of the holders, unless such holders
shall have offered to the trustee reasonable indemnity. (Section 6.03) Subject
to such provisions for the indemnification of the trustee, the holders of a
majority in aggregate principal amount of the outstanding notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the trustee or exercising any trust or power conferred on
the trustee. The trustee may refuse, however, to follow any direction that the
trustee, in its sole discretion, determines may be unduly prejudicial to the
rights of another holder or that may subject the trustee to any liability or
expense if the trustee determines, in its sole discretion, that it lacks
indemnification against such loss or expense. (Section 5.12)
If an Event of Default (other than an Event of Default described in
clause (8) above) occurs and is continuing, either the trustee or the holders of
at least 25% in aggregate principal amount of the then outstanding notes may
accelerate the maturity of all notes; PROVIDED, HOWEVER, that after such
acceleration, but before a judgment or decree based on acceleration, the holders
of a majority in aggregate principal amount at maturity of outstanding notes
may, under certain circumstances, rescind and annul such acceleration if all
Events of Default, other than the nonpayment of accelerated principal, have been
cured or waived as provided in the indenture. If an Event of Default specified
in clause (8) above occurs, the outstanding notes will ipso facto become
immediately due and payable without any declaration or other act on the part of
the trustee or any holder. (Section 5.02) For information as to waiver of
defaults, see "Modification and Waiver."
No holder of any note will have any right to institute any proceeding with
respect to the indenture or for any remedy thereunder, unless such holder has
previously given to the trustee written notice of a continuing Event of Default
and unless also the holders of a majority in aggregate principal amount of the
outstanding notes have made written request, and offered reasonable indemnity,
to the trustee to institute such proceeding as trustee, and the trustee shall
not have received from the holders of a majority in aggregate principal amount
of the outstanding notes a direction inconsistent with such request and shall
have failed to institute such proceeding within 60 days. (Section 5.07) However,
such limitations do not apply to a suit instituted by a holder of a note for
enforcement of payment of the principal of and premium, if any, or interest on
such note on or after the respective due dates expressed in such note.
(Section 5.08)
The indenture provides that if a Default occurs and is continuing, generally
the trustee must, within 90 days after the occurrence of such Default, give to
the holders notice of such Default. The trustee may withhold from holders of the
notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal of, premium, if any or
interest) if it determines that withholding notice is in their interest;
PROVIDED, HOWEVER, that in the case of any default of a character specified in
clause (5) above, no such notice to holders shall be given until at least
30 days after the occurrence thereof. (Section 6.02)
Nextel Partners will be required to furnish to the trustee annually a
statement as to the performance by Nextel Partners of certain of its obligations
under the indenture and Nextel Partners is required upon becoming aware of any
Default or Event of Default to deliver to the trustee a statement specifying
such Default or Event of Default. (Section 10.17)
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SATISFACTION AND DISCHARGE OF THE INDENTURE
The indenture will cease to be of further effect as to all outstanding notes
except as to:
(1) rights of registration of transfer and exchange and Nextel Partners'
right of optional redemption,
(2) substitution of apparently mutilated, defaced, destroyed, lost or stolen
notes,
(3) rights of holders to receive payment of principal of and premium, if
any, and interest on the notes,
(4) rights, obligations and immunities of the trustee under the indenture,
and
(5) rights of the holders of the notes as beneficiaries of the indenture
with respect to any property deposited with the trustee payable to all or any of
them), if:
(a) Nextel Partners will have paid or caused to be paid the principal of
and premium, if any, and interest on the notes as and when the same will
have become due and payable or
(b) all outstanding notes (except lost, stolen or destroyed notes which
have been replaced or paid) have been delivered to the trustee for
cancellation. (Section 4.01)
DEFEASANCE
The indenture will provide that, at the option of Nextel Partners:
(1) if applicable, Nextel Partners will be discharged from any and all
obligations in respect of the outstanding notes or
(2) if applicable, Nextel Partners may omit to comply with certain
restrictive covenants, and that such omission shall not be deemed to be an Event
of Default under the indenture and the notes, in either case (1) or (2) upon
irrevocable deposit with the trustee, in trust, of money and/or U.S. government
obligations which will provide money in an amount sufficient in the opinion of a
nationally recognized firm of independent certified public accountants to pay
the principal of each installment of interest, if any, on the outstanding notes.
With respect to clause (2), the obligations under the indenture other than with
respect to such covenants and the Events of Default other than the Events of
Default relating to such covenants above shall remain in full force and effect.
Such trust may only be established if, among other things:
(a) with respect to clause (1), Nextel Partners has received from, or
there has been published by, the Internal Revenue Service a ruling or there
has been a change in law, which in the opinion of counsel provides that
holders of the notes will not recognize gain or loss for Federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to Federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such deposit, defeasance and
discharge were not to occur; or, with respect to clause (2), Nextel Partners
has delivered to the trustee an opinion of counsel to the effect that the
holders of the notes will not recognize gain or loss for Federal income tax
purposes as a result of such deposit and defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such deposit and defeasance were not to
occur;
(b) no Default or Event of Default will have occurred or be continuing;
(c) the deposit shall not cause the trustee or the trust so created to
be subject to the Investment Company Act of 1940, as amended; and
(d) certain other customary conditions precedent are satisfied.
(Section 12.04)
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MODIFICATION AND WAIVER
Modifications and amendments of the indenture may be made by Nextel Partners
and the trustee with the consent of the holders of a majority in aggregate
principal amount of the outstanding notes; PROVIDED, HOWEVER, that no such
modification or amendment may, without the consent of the holder of each
outstanding note affected thereby:
- change the due date of the principal of, or any installment of interest
on, any note;
- reduce the principal amount of, or the premium or interest on, any note;
- change the place or currency of payment of principal of, or premium or
interest on, any note;
- impair the right to institute suit for the enforcement of any payment on
or with respect to any note;
- waive a default in the payment of, or the premium or interest on, any
note;
- reduce the above stated percentage of outstanding notes necessary to
modify or amend the indenture;
- reduce the percentage of aggregate principal amount of outstanding notes
necessary for waiver of compliance with certain provisions of the
indenture or for waiver of certain defaults; or
- following the mailing of any Offer to Purchase and until the Expiration
Date of that Offer to Purchase, modify any Offer to Purchase for the notes
required under the "Limitation on Asset Dispositions" and the "Change of
Control" covenants contained in the indenture in a manner materially
adverse to the holders of the notes. (Section 9.02)
Notwithstanding the foregoing, without the consent of any holder of notes,
Nextel Partners and the trustee may amend or supplement the indenture or the
notes:
- to cure any ambiguity, defect or inconsistency,
- to provide for uncertificated notes in addition to or in place of
certificated notes,
- to provide for the assumption of Nextel Partners' obligations to holders
of notes in the case of a merger or consolidation,
- to make any change that would provide any additional rights or benefits to
holders of notes or that does not adversely affect the legal rights under
the indenture of any such holder, or
- to comply with requirements of the SEC in order to maintain the
qualification of the indenture under the Trust Indenture Act.
(Section 9.01)
The holders of a majority in aggregate principal amount of the outstanding
notes, on behalf of all holders of notes, may waive compliance by Nextel
Partners with certain restrictive provisions of the indenture. (Section 10.18)
Subject to certain rights of the trustee, as provided in the indenture, the
holders of a majority in aggregate principal amount of the outstanding notes, on
behalf of all holders of notes, may waive any past default under the indenture,
except a default in the payment of principal, premium or interest or a default
arising from failure to purchase any note tendered pursuant to an Offer to
Purchase. (Section 5.13)
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Nextel
Partners, as such, will have any liability for any obligations of Nextel
Partners under the notes or the indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each holder of notes by
accepting a note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the commission that such waiver is against public policy.
GOVERNING LAW
The indenture and the notes will be governed by the laws of the State of New
York.
THE TRUSTEE
The indenture provides that, except during the continuance of an Event of
Default, the trustee will perform only such duties as are specifically set forth
in the indenture. During the existence of an Event of Default, the trustee will
exercise such rights and powers vested in it under the indenture and use the
same degree of care and skill in its exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs.
(Section 6.01)
The indenture and provisions of the Trust Indenture Act, incorporated by
reference in the indenture, contain limitations on the rights of the trustee,
should it become a creditor of Nextel Partners, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of any
such claim as security or otherwise. The trustee is permitted to engage in other
transactions with Nextel Partners or any Affiliate, PROVIDED, HOWEVER, that if
it acquires any conflicting interest (as defined in the indenture or in the
Trust Indenture Act), it must eliminate such conflict or resign. (Sections 6.08
and 6.13)
BOOK-ENTRY; DELIVERY AND FORM
The new notes initially will be in the form of one or more registered global
notes without interest coupons (collectively, the "Global Notes"). Upon
issuance, the Global Notes will be deposited with the Trustee, as custodian for
The Depository Trust Company ("DTC"), in New York, New York, and registered in
the name of DTC or its nominee for credit to the accounts of DTC's Direct and
Indirect Participants (as defined below).
Beneficial interests in all Global Notes and all Certificated Notes (as
defined below), if any, will be subject to certain restrictions on transfer and
will bear a restrictive legend as described under "Notice to Investors." In
addition, transfer of beneficial interests in any Global Notes will be subject
to the applicable rules and procedures of DTC and its Direct or Indirect
Participants (including, if applicable, those of the Euroclear System
("Euroclear") and Clearstream Banking ("Clearstream")), which may change from
time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be exchanged
for notes in certificated form in certain limited circumstances. See
"--Transfers of Interests in Global Notes for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The notes may
be presented for registration of transfer and exchange at the offices of the
Registrar.
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DEPOSITARY PROCEDURES
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through electronic
book-entry changes in accounts of Participants. The Direct Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations, including
Euroclear and Clearstream. Access to DTC's system is also available to other
entities that clear through or maintain a direct or indirect, custodial
relationship with a Direct Participant (collectively, the "Indirect
Participants").
DTC has advised the Company that, pursuant to DTC's procedures, (i) upon
deposit of the Global Notes, DTC will credit the accounts of the Direct
Participants designated by the Initial Purchaser with portions of the principal
amount of the Global Notes that have been allocated to them by the Initial
Purchaser, and (ii) DTC will maintain records of the ownership interests of such
Direct Participants in the Global Notes and the transfer of ownership interests
by and between Direct Participants. DTC will not maintain records of the
ownership interests of, or the transfer of ownership interests by and between,
Indirect Participants or other owners of beneficial interests in the Global
Notes. Direct Participants and Indirect Participants must maintain their own
records of the ownership interests of, and the transfer of ownership interests
by and between, Indirect Participants and other owners of beneficial interests
in the Global Notes.
Investors in the Global Notes may hold their interests therein directly
through DTC if they are Direct Participants in DTC or indirectly through
organizations that are Direct Participants in DTC.
The laws of some states in the United States require that certain persons
take physical delivery in definitive, certificated form, of securities that they
own. This may limit or curtail the ability to transfer beneficial interests in a
Global Note to such persons. Because DTC can act only on behalf of Direct
Participants, which in turn act on behalf of Indirect Participants and others,
the ability of a person having a beneficial interest in a Global Note to pledge
such interest to persons or entities that are not Direct Participants in DTC, or
to otherwise take actions in respect of such interests, may be affected by the
lack of physical certificates evidencing such interests. For certain other
restrictions on the transferability of the notes see "--Transfers of Interests
in Global Notes for Certificated Notes."
Except as described in "--Transfers of Interests in Global Notes for
Certificated Notes," owners of beneficial interests in the Global Notes will not
have Notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
holders thereof under the indenture for any purpose.
Under the terms of the indenture, the Company and the Trustee will treat the
persons in whose names the notes are registered (including notes represented by
Global Notes) as the owners thereof for the purpose of receiving payments and
for any and all other purposes whatsoever. Payments in respect of the principal,
premium, Liquidated Damages, if any, and interest on Global Notes registered in
the name of DTC or its nominee will be payable by the Trustee to DTC or its
nominee as the registered holder under the indenture. Consequently, neither the
Company, the Trustee nor any agent of the Company or the Trustee has or will
have any responsibility or liability for (i) any aspect of DTC's records or any
Direct Participant's or Indirect Participant's records relating to or payments
made on account of beneficial ownership interests in the Global Notes or for
maintaining, supervising or reviewing any of DTC's records or any Direct
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in any Global Note or (ii) any other matter relating to the
actions and practices of DTC or any of its Direct Participants or Indirect
Participants.
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DTC has advised the Company that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the
notes is to credit the accounts of the relevant Direct Participants with such
payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the notes will be governed by standing instructions and
customary practices between them and will not be the responsibility of DTC, the
Trustee or the Company. Neither the Company nor the Trustee will be liable for
any delay by DTC or its Direct Participants or Indirect Participants in
identifying the beneficial owners of the notes, and the Company and the Trustee
may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee as the registered owner of the notes for all purposes.
The Global Notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants (other than Indirect Participants
who hold an interest in the notes through Euroclear or Clearstream) who hold an
interest through a Direct Participant will be effected in accordance with the
procedures of such Direct Participant but generally will settle in immediately
available funds. Transfers between and among Indirect Participants who hold
interests in the notes through Euroclear and Clearstream will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the notes
described herein, cross-market transfers between Direct Participants in DTC, on
the one hand, and Indirect Participants who hold interests in the notes through
Euroclear or Clearstream, on the other hand, will be effected by Euroclear's or
Clearstream's respective Nominee through DTC in accordance with DTC's rules on
behalf of Euroclear or Clearstream; however, delivery of instructions relating
to crossmarket transactions must be made directly to Euroclear or Clearstream,
as the case may be, by the counterparty in accordance with the rules and
procedures of Euroclear or Clearstream and within their established deadlines
(Brussels time for Euroclear and UK time for Clearstream). Indirect Participants
who hold interest in the notes through Euroclear and Clearstream may not deliver
instructions directly to Euroclear's or Clearstream's Nominee. Euroclear or
Clearstream will, if the transaction meets its settlement requirements, deliver
instructions to its respective Nominee to deliver or receive interests on
Euroclear's or Clearstream's behalf in the relevant Global Note in DTC, and make
or receive payment in accordance with normal procedures for same-day fund
settlement applicable to DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the notes through Euroclear or Clearstream
purchasing an interest in a Global Note from a Direct Participant in DTC will be
credited, and any such crediting will be reported to Euroclear or Clearstream
during the European business day immediately following the settlement date of
DTC in New York. Although recorded in DTC's accounting records as of DTC's
settlement date in New York, Euroclear and Clearstream customers will not have
access to the cash amount credited to their accounts as a result of a sale of an
interest in a Global Note to a DTC Participant until the European business day
for Euroclear or Clearstream immediately following DTC's settlement date.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of notes only at the direction of one or more Direct
Participants to whose account interests in the Global Notes are credited and
only in respect of such portion of the aggregate principal amount of the notes
to which such Direct Participant or Direct Participants has or have given
direction. However, if there is an Event of Default under the notes, DTC
reserves the right to exchange Global Notes (without the direction of one or
more of its Direct Participants) for legended notes in
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certificated form, and to distribute such certificated forms of notes to its
Direct Participants. See "--Transfers of Interests in Global Notes for
Certificated Notes."
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the Global Notes among Direct
Participants, including Euroclear and Clearstream, they are under no obligation
to perform or to continue to perform such procedures, and such procedures may be
discontinued at any time. None of the Company, the Initial Purchaser or the
Trustee shall have any responsibility for the performance by DTC, Euroclear or
Clearstream or their respective Direct and Indirect Participants of their
respective obligations under the rules and procedures governing any of their
operations.
The information in this section concerning DTC, Euroclear and Clearstream
and their book-entry systems has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
An entire Global Note may be exchanged for definitive notes in registered,
certificated form without interest coupons ("Certificated Notes") if (i) DTC
(x) notifies the Company that it is unwilling or unable to continue as
depositary for the Global Notes and the Company thereupon fails to appoint a
successor depositary within 90 days or (y) has ceased to be a clearing agency
registered under the Exchange Act, (ii) the Company, at its option, notifies the
Trustee in writing that it elects to cause the issuance of Certificated Notes or
(iii) there shall have occurred and be continuing a Default or an Event of
Default with respect to the notes. In any such case, the Company will notify the
Trustee in writing that, upon surrender by the Direct and Indirect Participants
of their interest in such Global Note, Certificated Notes will be issued to each
person that such Direct and Indirect Participants and the DTC identify as being
the beneficial owner of the related notes.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by such
Direct Participant (for itself or on behalf of an Indirect Participant), to the
Trustee in accordance with customary DTC procedures. Certificated Notes
delivered in exchange for any beneficial interest in any Global Note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's
customary procedures).
In all cases described herein, such Certificated Notes will bear the
restrictive legend referred to in "Notice to Investors," unless the Company
determines otherwise in compliance with applicable law.
Neither the Company nor the Trustee will be liable for any delay by the
holder of any Global Note or DTC in identifying the beneficial owners of notes,
and the Company and the Trustee may conclusively rely on, and will be protected
in relying on, instructions from the holder of the Global Note or DTC for all
purposes.
TRANSFERS OF CERTIFICATED NOTES FOR INTERESTS IN GLOBAL NOTES
Certificated Notes may only be transferred if the transferor first delivers
to the Trustee a written certificate (and, in certain circumstances, an opinion
of counsel) confirming that, in connection with such transfer, it has complied
with the restrictions on transfer described under "Notice to Investors."
SAME DAY SETTLEMENT AND PAYMENT
The indenture will require that payments in respect of the notes represented
by the Global Notes (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
same day funds to the accounts specified by the holder of
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interests in such Global Note. With respect to Certificated Notes, the Company
will make all payments of principal, premium, if any, interest and Liquidated
Damages, if any, by wire transfer of immediately available same day funds to the
accounts specified by the holders thereof or, if no such account is specified,
by mailing a check to each such holder's registered address. The Company expects
that secondary trading in the Certificated Notes will also be settled in
immediately available funds.
DESCRIPTION OF OTHER 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 senior discount 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 the senior discount notes were exchanged by us for registered notes
having the same financial terms and covenants as the senior discount notes
issued in January 1999. The senior discount notes 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 senior discount notes prior to
February 1, 2004. On April 18, 2000, we redeemed 35% of the aggregate accreted
value of those notes at a price equal to 114% of the aggregate accreted value
with a portion of the proceeds from our recent initial public equity offering in
accordance with the terms thereof. As of September 30, 2000, the accreted value
of the outstanding senior discount notes was approximately $331.3 million.
The senior discount 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 senior discount 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 senior discount 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 AMOUNT
YEAR AT MATURITY OF THE NOTES)
---- -----------------------------------
<S> <C>
2004......................................... 107.000%
2005......................................... 104.667%
2006......................................... 102.333%
2007 and thereafter.......................... 100.000%
</TABLE>
In the indenture relating to the senior discount 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 senior
discount notes;
- designate unrestricted subsidiaries;
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- 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
relating to the senior discount notes, each holder of senior discount notes will
have the right to require us to repurchase all or part of such holder's senior
discount 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 senior discount notes, plus accrued and unpaid
interest and any liquidated damages to any purchase date after February 1, 2004.
Events of default under the indenture relating to the senior discount notes
include but are not limited to:
- the failure to pay principal of or premium, if any, on, any senior
discount note when due;
- the failure to pay any interest on any senior discount note when due, such
failure continuing for 30 days;
- the default in the payment of principal and interest on senior discount
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 senior
discount notes may be accelerated. If a bankruptcy, insolvency or reorganization
occurs, the outstanding senior discount notes will automatically become
immediately due and payable.
11% SENIOR NOTES
In March 2000, we sold $200 million aggregate principal amount at maturity
11% senior notes due March 15, 2010. The senior notes generated aggregate net
proceeds to us of approximately $194.5 million. In September 2000, these senior
notes were exchanged by us for registered notes having the same financial terms
and covenants as the senior notes issued in March 2000.
The senior notes:
- are subject to the provisions of an indenture;
- are senior unsecured obligations of ours;
- will mature on March 15, 2010; and
- bear interest at the rate of 11% per annum, which interest is to be paid
semi-annually on March 15 and September 15 of each year, commencing
September 15, 2000.
We may redeem the senior notes, in whole or in part, at any time on or after
March 15, 2005. If we choose this optional redemption, we are required to redeem
the senior notes at the redemption prices set forth below, plus an amount in
cash equal to all accrued and unpaid interest and
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liquidated damages, if any, to the redemption date, if redeemed during the
twelve-month period beginning on March 15 of each of the years set forth below.
<TABLE>
<CAPTION>
REDEMPTION PRICE (EXPRESSED AS
PERCENTAGES OF THE PRINCIPAL AMOUNT
YEAR AT MATURITY OF THE NOTES)
---- -------------------------------------
<S> <C>
2005................................. 105.5000%
2006................................. 103.6667%
2007................................. 101.8333%
2008 and thereafter.................. 100.0000%
</TABLE>
Prior to March 15, 2003, we may redeem up to 35% of the senior notes at a
redemption price of 111.0% of the face value of the senior 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 March 15, 2003;
- at least 65% of the aggregate face value of the senior 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 senior 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 senior
notes;
- 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
relating to the senior notes, each holder of senior notes will have the right to
require us to repurchase all or part of such holder's senior notes at a price
equal to 101% of the aggregate principal amount of the senior notes repurchased,
plus accrued and unpaid interest and any liquidated damages on the senior notes
repurchased to the date of purchase.
Events of default under the indenture relating to the senior notes include
but are not limited to:
- the failure to pay principal of or premium, if any, on, any senior note
when due;
- the failure to pay any interest on any senior note when due, such failure
continuing for 30 days;
- the default in the payment of principal and interest on senior notes
required to be purchased; and
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- 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 senior
notes may be accelerated. If a bankruptcy, insolvency or reorganization occurs,
the outstanding senior 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 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.
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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
- minimum service revenues, subscriber units and covered population
equivalents.
As of June 30, 2000, 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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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
SCOPE OF DISCUSSION
The following general discussion summarizes the material United States
federal income tax considerations of exchanging the old notes for the new notes
and certain United States federal income and estate tax consequences of holding
the new notes that apply to "United States Holders" and "Non-United States
Holders" who acquire new notes by exchanging old notes acquired at their
original issue price for cash and who hold the new notes as "capital assets,"
generally, for investment, under Section 1221 of the Internal Revenue Code of
1986, as amended (the "Code"). This discussion reflects the tax opinion of Davis
Wright Tremaine LLP delivered to us in connection with the exchange offer, to
the effect that the exchange will not be a taxable event for federal income tax
purposes and that the following is an accurate and fair general discussion of
the laws to which the discussion refers.
This summary does not consider state, local or foreign tax laws. In
addition, it does not include all of the rules which may affect the United
States tax treatment of your investment in the notes. For example, special rules
not discussed here may apply to you if you are:
- a broker-dealer, a dealer in securities or a financial institution;
- an S corporation;
- a bank;
- a thrift;
- an insurance company;
- a tax-exempt organization;
- subject to the alternative minimum tax provisions of the Code;
- holding the notes as part of a hedge, straddle or other risk reduction or
constructive sale transaction;
- a person with a "functional currency" other than the U.S. dollar; or
- a United States expatriate.
This discussion only represents a general description of certain United States
federal income tax consequences that may apply to you based on current United
States federal tax law. We have not and will not seek any rulings from the
Internal Revenue Service (the "IRS") regarding the matters discussed below. This
discussion may not accurately describe the federal income tax consequences which
are applicable to you because the law may change, possibly retroactively,
because the law applicable to your particular circumstances may not be
described, or because the IRS or any court may disagree with this discussion.
THIS SUMMARY MAY NOT COVER YOUR PARTICULAR CIRCUMSTANCES BECAUSE IT DOES NOT
CONSIDER FOREIGN, STATE OR LOCAL TAX RULES, DOES NOT CONSIDER CERTAIN FEDERAL
TAX RULES, AND DOES NOT DESCRIBE FUTURE CHANGES IN FEDERAL TAX RULES. PLEASE
CONSULT YOUR TAX ADVISOR RATHER THAN RELYING ON THIS GENERAL DESCRIPTION.
EXCHANGE OF NOTES
The exchange of old notes for the new notes pursuant to the exchange offer
will not be treated as a taxable event for federal income tax purposes because
the new notes received will not differ materially from the old notes and because
the exchange will occur by operation of the terms of the
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<PAGE>
old notes. As a result, there will be no federal income tax consequences to
holders exchanging old notes for new notes pursuant to the exchange offer, such
that:
- no gain or loss will be realized by a holder upon receipt of a new note;
- the holding period of the new note will include the holding period of the
old note; and
- the adjusted tax basis of the new note will be the same as the adjusted
tax basis of the old note immediately before the exchange.
TAX CONSEQUENCES OF HOLDING NEW NOTES--UNITED STATES HOLDERS
If you are a "United States Holder," as defined below, this section applies
to you. Otherwise, the next section, "Non-United States Holders," applies to
you.
DEFINITION OF UNITED STATES HOLDER. You are a "United States Holder" if you
hold the new notes and you are:
- a citizen or resident of the United States, including an alien individual
who is a lawful permanent resident of the United States or meets the
"substantial presence" test under Section 7701(b) of the Code;
- a corporation or partnership created or organized in the United States
(including the District of Columbia) or under the law of the United States
or of any State, (except that the Secretary of the Treasury is authorized
to provide by regulation that certain partnerships created or organized
under United States law may be classified as foreign partnerships if such
classification is more appropriate);
- an estate, the income of which is subject to United States federal income
tax regardless of its source;
- a trust, if a United States court can exercise primary supervision over
the administration of the trust and one or more United States persons can
control all substantial decisions of the trust, or if the trust was in
existence on August 20, 1996 and has elected to continue to be treated as
a United States person; or
- otherwise subject to United States federal income tax on your worldwide
income on a net income basis.
TAXATION OF STATED INTEREST. Generally, you must include the interest on
the new notes in ordinary income:
- when it accrues, if you use the accrual method of accounting for United
States federal income tax purposes; or
- when you receive it, if you use the cash method of accounting for United
States federal income tax purposes.
We are not aware of any case in which the new notes will be subject to the
original issue discount rules for federal income tax purposes.
SALE OR OTHER TAXABLE DISPOSITION OF THE NOTES. You must recognize gain or
loss on the sale, exchange, redemption, retirement or other taxable disposition
of a note. The amount of your gain or loss equals the difference between the
amount you receive for the note (in cash or other property, valued at fair
market value), except to the extent amounts received are attributable to accrued
interest on the note, minus your adjusted tax basis in the note. Your initial
tax basis in a new note equals the price you paid for the old note exchanged
therefor, reduced by any principal payments on the old note.
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Your gain or loss will generally be a long-term capital gain or loss if you
have held the note for more than one year. Otherwise, it will be a short-term
capital gain or loss. Long term capital gains of a non-corporate holder are
subject to a maximum tax rate of 20%. There are limits on the deductibility of
capital losses. Payments attributable to accrued interest which you have not yet
included in income will be taxed as ordinary interest income.
BACKUP WITHHOLDING. You may be subject to a 31% backup withholding tax when
you receive interest payments on the note or proceeds upon the sale or other
disposition of a note. Certain holders (including, among others, corporations,
financial institutions and certain tax-exempt organizations) are generally not
subject to backup withholding. In addition, the 31% backup withholding tax will
not apply to you if you provide your social security or other taxpayer
identification number ("TIN") in the prescribed manner unless:
- the IRS notifies us or our paying agent that the TIN you provided is
incorrect;
- you fail to report interest and dividend payments that you receive on your
tax return and the IRS notifies us or our paying agent that withholding is
required; or
- you fail to certify under penalties of perjury that you are not subject to
backup withholding.
Backup withholding is not an additional tax. Rather, the tax liability of a
person 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 IRS.
United States Holders should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedures for
obtaining such exemption.
TAX CONSEQUENCES OF HOLDING NEW NOTES--NON-UNITED STATES HOLDERS
The following general discussion is limited to the United States federal
income and estate tax consequences relevant to a "Non-United States Holder." A
"Non-United States Holder" is any person other than a United States Holder.
INTEREST.
PORTFOLIO INTEREST EXEMPTION. You will generally not have to pay United
States federal income tax on interest paid on the new notes because of the
"portfolio interest exemption" if either:
- you represent that you are not a United States person for United States
federal income tax purposes and you provide your name and address to us or
our paying agent on a properly executed IRS Form W-8BEN (or a suitable
substitute form) signed under penalties of perjury; or
- a securities clearing organization, bank, or other financial institution
that holds customers' securities in the ordinary course of its business
holds the note on your behalf, certifies to us or our paying agent under
penalties of perjury that it has received IRS Form W-8BEN (or a suitable
substitute) from you or from another qualifying financial institution
intermediary, and provides a copy of the Form W-8BEN (or a suitable
substitute) to us or our paying agent.
You will not, however, qualify for the portfolio interest exemption
described above if:
- you own, actually or constructively, 10% or more of the total combined
voting power of all classes of our capital stock;
- you are a controlled foreign corporation with respect to which we are a
"related person" within the meaning of Section 864(d)(4) of the Code; or
- you are a bank receiving interest described in Section 881(c)(3)(A) of the
Code;
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WITHHOLDING TAX IF THE INTEREST IS NOT PORTFOLIO INTEREST. If you do not
claim, or do not qualify for, the benefit of the portfolio interest exemption,
you may be subject to a 30% withholding tax on the gross amount of interest
payments made on the new notes.
However, if the payments of interest on a note are effectively connected
with the conduct by you of a trade or business in the United States, such
payments will be subject to United States federal income tax on a net basis at
the rates applicable to United States persons generally (and, if paid to
corporate holders, may also be subject to a 30% branch profits tax). If payments
are subject to United States federal income tax on a net basis in accordance
with the rules described in the preceding sentence, such payments will not be
subject to United States withholding tax so long as you provide us or our paying
agent with a properly executed IRS Form 4224 (or for payments after
December 31, 2000, Form W-8ECI).
Non-United States Holders should consult any applicable income tax treaties,
which may provide for a lower rate of withholding tax, exemption from or
reduction of the branch profits tax rate, or other rules different from those
described above. Generally, in order to claim any treaty benefits you must
submit a properly executed IRS Form 1001 (or for payments after December 31,
2000, Form W-8BEN, which will require additional information, as discussed below
under the heading "NON-UNITED STATES HOLDERS--NEW WITHHOLDING REGULATIONS").
SALE OR OTHER DISPOSITION OF THE NOTES. You will generally not be subject
to United States federal income tax or withholding tax on gain recognized on a
sale, exchange, redemption, retirement, or other disposition of a note unless:
- such gain is effectively connected with the conduct by you of a trade or
business within the United States, in which case such gain will be subject
to United States federal income tax on a net basis at the rates applicable
to United States persons generally (and, if recognized by a corporate
holder, may be subject to a 30% branch profits tax); or
- you are an individual who was present in the United States for 183 days or
more in the taxable year of the disposition and certain other conditions
are satisfied, in which case you will generally be required to pay a
United States federal income tax of 30% (or a reduced treaty rate) on such
gain.
UNITED STATES FEDERAL ESTATE TAXES. If you qualify for the portfolio
interest exemption under the rules described above when you die, the notes will
not be included in your estate for United States federal estate tax purposes,
unless the income on the notes is effectively connected with the conduct by you
of a trade or business in the United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING.
PAYMENTS FROM UNITED STATES OFFICE. If you receive payments of interest or
principal directly from us or through the United States office of a custodian,
nominee, agent or broker, you may be subject to both backup withholding at a
rate of 31% and information reporting.
With respect to interest payments made on the note, however, backup
withholding and information reporting generally will not apply if you certify
that you are not a United States person in the manner described above under the
heading "NON-UNITED STATES HOLDERS--INTEREST."
Moreover, with respect to proceeds received on the sale, exchange,
redemption, or other disposition of a note, backup withholding or information
reporting generally will not apply if you properly provide a statement that you
are an "exempt foreign person" and other required information. If you are not
subject to United States federal income or withholding tax on the sale or other
disposition of a note, as described above under the heading "NON-UNITED STATES
HOLDERS--SALE OR OTHER DISPOSITION OF NOTES," you will generally qualify as an
"exempt foreign person."
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PAYMENTS FROM FOREIGN OFFICE. If payments of principal and interest are
made to you outside the United States by or through the foreign office of your
foreign custodian, nominee or other agent, or if you receive the proceeds of the
sale of a note through a foreign office of a "broker," as defined in the
pertinent United States Treasury Regulations, you will generally not be subject
to backup withholding or information reporting. You will, however, be subject to
backup withholding and information reporting if the foreign custodian, nominee,
agent or broker has actual knowledge or reason to know that you are a United
States person. You will also be subject to information reporting, but not backup
withholding, if the payment is made by a foreign office of a custodian, nominee,
agent or broker that is a United States person or a controlled foreign
corporation for United States federal income tax purposes, or that derives 50%
or more of its gross income from the conduct of a United States trade or
business for a specified three year period, unless the broker has in its records
documentary evidence that you are a Non-United States Holder and certain other
conditions are met.
REFUNDS. Any amounts withheld under the backup withholding rules may be
refunded or credited against the Non-United States Holder's United States
federal income tax liability, provided that the required information is
furnished to the IRS.
NEW WITHHOLDING REGULATIONS. New regulations relating to withholding tax on
income paid to foreign persons (the "New Withholding Regulations") will
generally be effective for payments made after December 31, 2000, subject to
certain transition rules. The New Withholding Regulations modify and, in
general, unify the way in which you establish your status as a non-United States
"beneficial owner" eligible for withholding exemptions (including the portfolio
interest exemption, a reduced treaty rate or an exemption from backup
withholding) and require the filing of new forms for this purpose, which you
will generally have to provide earlier than you would have had to provide
replacements for expiring forms you previously may have provided.
The New Withholding Regulations clarify withholding agents' reliance
standards. They also require additional certifications for claiming treaty
benefits. The New Withholding Regulations also provide somewhat different
procedures for foreign intermediaries and flow-through entities (such as foreign
partnerships) to claim the benefit of applicable exemptions on behalf of
non-United States beneficial owners for which or for whom they receive payments.
The New Withholding Regulations provide that certifications satisfying the
requirements of the New Withholding Regulations will be deemed to satisfy the
requirement of the Treasury Regulations now in effect. If you are a Non-United
States Holder claiming a benefit under an income tax treaty (and not relying on
the portfolio interest exemption), you should be aware that you may be required
to obtain a taxpayer identification number and to certify your eligibility under
the applicable treaty's limitations on benefits article in order to comply with
the New Withholding Regulations' certification requirements.
THE NEW WITHHOLDING REGULATIONS ARE COMPLEX AND THIS SUMMARY DOES NOT
COMPLETELY DESCRIBE THEM. PLEASE CONSULT YOUR TAX ADVISOR TO DETERMINE HOW THE
NEW WITHHOLDING REGULATIONS WILL AFFECT YOUR PARTICULAR CIRCUMSTANCES.
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PLAN OF DISTRIBUTION
Each holder desiring to participate in the exchange offer will be required
to represent, among other things, that:
- it is not an "affiliate" (as defined in Rule 405 of the Securities Act) of
ours,
- it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the new notes, and
- it is acquiring the new notes in the ordinary course of its business.
A holder unable to make the above representations is referred to as a
"restricted holder." A restricted holder will not be able to participate in the
exchange offer, and may only sell its old notes pursuant to a registration
statement containing the selling securityholder information required by
Item 507 of Regulation S-K of the Securities Act, or pursuant to an exemption
from the registration requirement of the Securities Act.
Each participating broker-dealer is required to acknowledge in the letter of
transmittal that it acquired the old notes as a result of market-making
activities or other trading activities and that it will deliver a prospectus in
connection with the resale of such new notes. Based upon interpretations by the
staff of the SEC, we believe that new notes issued through the exchange offer to
participating broker-dealers may be offered for resale, resold, and otherwise
transferred by a participating broker-dealer upon compliance with the prospectus
delivery requirements, but without compliance with the registration
requirements, of the Securities Act. We have agreed that for a period of
365 days following consummation of the exchange offer, it will make this
prospectus available to participating broker-dealers for use in connection with
any such resale. During such period of time, delivery of this prospectus, as it
may be amended or supplemented, will satisfy the prospectus delivery
requirements of a participating broker-dealer engaged in market-making or other
trading activities.
Based upon interpretations by the staff of the SEC, we believe that new
notes issued pursuant to the exchange offer may be offered for resale, resold
and otherwise transferred by their holder, other than a participating
broker-dealer, without compliance with the registration and prospectus delivery
requirements of the Securities Act.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by participating broker-dealers for their own
account pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the new notes or a combination of such methods
of resale, at market prices prevailing at the time of resale, at prices related
to such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
participating broker-dealer and/or the purchasers of any such new notes. Any
participating broker-dealer that resells new notes that were received by it for
its own account through the exchange offer and any broker or dealer that
participates in a distribution of such new notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of new notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The letter of transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a participating broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incidental to the exchange offer other
than commissions and concessions of any brokers or dealers and will indemnify
holders of the notes, including any broker-dealers, against certain liabilities,
including liabilities under the Securities Act, as set forth in the registration
rights agreement.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
We are 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 is
subject to and qualified in its entirety by provisions of our restated
certificate of incorporation, bylaws, and 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 September 30, 2000, there were 244,026,862 shares of Class A and
Class B common stock outstanding. As of September 30, 2000, there were
outstanding options to purchase a total of 5,023,702 shares of Class A common
stock. Our Class A common stock trades on the Nasdaq National Market under the
symbol "NXTP."
PREFERRED STOCK
GENERAL
Pursuant to our restated certificate of incorporation, our board of
directors has 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.
SERIES B PREFERRED STOCK
Our only preferred stock that remains 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.
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
Series B preferred stock may be limited by the provisions of the indentures
governing the 11% senior notes and the 14% senior discount notes, and our credit
facility.
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LEGAL MATTERS
Certain legal matters in connection with the notes offered hereby will be
passed upon for us by Summit Law Group PLLC. Certain other legal matters will be
passed upon for us by our special FCC counsel, Willkie Farr & Gallagher,
Washington, D.C., and by our special tax counsel, Davis Wright Tremaine LLP,
Seattle, Washington.
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 are subject to the informational requirements of the Securities Exchange
Act, and in accordance therewith we file reports, proxy and information
statements and other information at:
- the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, DC 20549, and
- the regional offices of the Commission located at:
- 500 West Madison Street, Room 1400, Chicago, Illinois 60606, and
- 7 World Trade Center, 13th Floor, New York, New York 10048
You also can obtain copies of these materials from the Public Reference
Section of the Commission at 450 Fifth Street, N.W. Washington, DC 20549 at
prescribed rates. You can obtain our electronic filings made through the
Electronic Data Gathering, Analysis and Retrieval System at the Commission's web
site, http://www.sec.gov.
In addition, you can inspect material filed by us at the offices of the
Nasdaq Stock Market, Reports Section, at 1735 K Street, Washington, D.C. 20006,
on which shares of our common stock are listed.
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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 June 30, 2000 (unaudited)....................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1998 and 1999 and for the three and six-month
periods ended June 30, 1999 and 2000 (unaudited).......... F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1998 and 1999 and for the
six-month period ended June 30, 2000 (unaudited).......... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1999 and for the six-month periods
ended June 30, 1999 and 2000 (unaudited).................. 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.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington,
February 4, 2000
(except with respect to certain
matters discussed in Note 11, as to
which the date is February 25, 2000)
F-2
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1998 1999 2000
-------------- -------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 16 $ 154,273 $ 347,104
Short-term investments.................................... -- 239,456 606,648
Accounts receivable, net of allowance $254, $1,193 and
$900, respectively...................................... 1,546 7,172 16,637
Due from Nextel WIP....................................... -- 1,183 4,152
Subscriber equipment inventory............................ 1,353 1,695 6,606
Other current assets...................................... 325 8,519 11,904
Restricted cash........................................... -- 175,000 --
-------- ---------- ----------
Total current assets........................................ 3,240 587,298 993,051
-------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost...................... 112,334 268,766 390,102
Less--accumulated depreciation............................ 4,386 16,543 27,958
-------- ---------- ----------
Property, plant and equipment, net...................... 107,948 252,223 362,144
-------- ---------- ----------
OTHER NON-CURRENT ASSETS:
FCC operating licenses, net of accumulated amortization of
$200, $718, and $1,640, respectively.................... 133,180 151,056 154,087
Debt issuance costs and other assets...................... 3,298 22,550 26,817
Receivable from officer................................... -- 2,200 2,200
-------- ---------- ----------
Total non-current assets.................................... 136,478 175,806 183,104
-------- ---------- ----------
TOTAL ASSETS................................................ $247,666 $1,015,327 $1,538,299
======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 1,043 $ 33,968 $ 37,332
Accrued expenses.......................................... 4,554 24,535 32,190
Due to Nextel WIP......................................... 3,398 -- --
-------- ---------- ----------
Total current liabilities................................... 8,995 58,503 69,522
-------- ---------- ----------
LONG-TERM OBLIGATIONS
Credit facility--term B and C............................. -- 325,000 325,000
14% Senior discount notes due 2009........................ -- 460,484 320,226
11% Senior notes due 2010................................. -- -- 200,000
Other long-term liabilities............................... -- 724 3,127
-------- ---------- ----------
Total long-term obligations................................. -- 786,208 848,353
-------- ---------- ----------
Total liabilities........................................... 8,995 844,711 917,875
-------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (see notes)
REDEEMABLE PREFERRED STOCK, Series B redeemable 2010, par
value $.001 per share, 12% cumulative annual dividend;
13,110,000 shares issued and outstanding.................. -- -- 25,904
-------- ---------- ----------
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 164,887,234 shares,
respectively, issued and outstanding, and paid-in
capital................................................. 1,604 145,420 863,905
Warrants outstanding...................................... -- 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) (270,184)
Subscriptions receivable from stockholders................ -- (83,048) (46,542)
Deferred compensation..................................... (1,141) (117,701) (79,710)
-------- ---------- ----------
Total stockholders' equity.................................. 238,671 170,616 594,520
-------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $247,666 $1,015,327 $1,538,299
======== ========== ==========
</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
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED FOR THE THREE MONTHS FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30, ENDED JUNE 30,
--------------------- ------------------------- -------------------------
1998 1999 1999 2000 1999 2000
-------- ---------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Service revenues (Received from Nextel
WIP $0, $8,536, $3,092, $4,984,
$3,100, and $8,830, respectively)..... $ 3,745 $ 28,136 $ 5,797 $ 25,716 $ 9,290 $ 40,699
Equipment revenues...................... 1,564 4,584 1,033 5,997 1,844 9,523
-------- ---------- ---------- ----------- ---------- -----------
Total revenues........................ 5,309 32,720 6,830 31,713 11,134 50,222
-------- ---------- ---------- ----------- ---------- -----------
OPERATING EXPENSES:
Cost of service revenues (Paid to Nextel
WIP $0, $4,922, $1,190, $3,152, $1,555
and $4,325, respectively)............. 6,108 18,807 3,964 17,225 7,070 28,433
Cost of equipment revenues.............. 2,935 10,742 3,080 11,360 4,798 17,818
Selling, general and administrative
(exclusive of stock based compensation
expense shown below) (Paid to Nextel
WIP $0, $2,831, $704, $831, $1,054 and
$1,564, respectively)................. 13,531 34,862 7,200 28,683 12,431 48,514
Stock based compensation................ 447 27,256 390 17,017 1,031 35,053
Depreciation and amortization........... 4,586 12,689 3,023 7,525 5,538 12,564
-------- ---------- ---------- ----------- ---------- -----------
Total operating expenses.............. 27,607 104,356 17,657 81,810 30,868 142,382
-------- ---------- ---------- ----------- ---------- -----------
LOSS FROM OPERATIONS...................... (22,298) (71,636) (10,827) (50,097) (19,734) (92,160)
Interest expense, net................... -- (65,362) (14,507) (21,982) (27,036) (43,596)
Interest income......................... -- 24,585 5,875 16,265 9,888 28,077
-------- ---------- ---------- ----------- ---------- -----------
LOSS BEFORE INCOME TAX PROVISION.......... (22,298) (112,413) (19,459) (55,814) (36,882) (107,679)
Income tax provision.................... -- -- -- -- -- --
-------- ---------- ---------- ----------- ---------- -----------
LOSS BEFORE EXTRAORDINARY ITEM............ (22,298) (112,413) (19,459) (55,814) (36,882) (107,679)
Extraordinary item--loss on early
retirement of debt, net of $0 income
tax................................... -- -- -- (23,485) -- (23,485)
-------- ---------- ---------- ----------- ---------- -----------
Net loss................................ (22,298) (112,413) (19,459) (79,299) (36,882) (131,164)
Mandatorily redeemable preferred stock
dividends............................. -- -- -- (763) -- (4,054)
-------- ---------- ---------- ----------- ---------- -----------
Loss attributable to common
stockholders.......................... $(22,298) $ (112,413) $ (19,459) $ (80,062) $ (36,882) $ (135,218)
======== ========== ========== =========== ========== ===========
LOSS PER SHARE:
Basic and diluted loss per share
Loss before extraordinary item
attributable to common stockholders... $ -- $ (38.18) $ (6.56) $ (0.24) $ (12.63) $ (0.66)
Extraordinary item...................... $ -- $ -- $ -- $ (0.10) $ -- $ (0.14)
-------- ---------- ---------- ----------- ---------- -----------
$ -- $ (38.18) $ (6.56) $ (0.34) $ (12.63) $ (0.80)
======== ========== ========== =========== ========== ===========
Weighted average shares outstanding..... -- 2,944,218 2,967,084 236,362,555 2,920,972 168,682,309
======== ========== ========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999 AND FOR THE
SIX-MONTH PERIOD ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
(SIX-MONTHS ENDED JUNE 30, 2000 ARE UNAUDITED)
<TABLE>
<CAPTION>
CLASS A COMMON CLASS B COMMON
STOCK AND PAID-IN STOCK AND PAID-IN
PREFERRED STOCK CAPITAL CAPITAL
----------------------- ----------------------- ---------------------- WARRANTS
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT OUTSTANDING
------------ -------- ----------- --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE
January 1, 1998.................... -- $ -- -- $ -- -- $ -- $ --
Equity contributions............... -- -- -- -- -- -- --
Issuance of common stock under
restricted stock purchase plan... -- -- 9,533,328 1,604 -- -- --
Vesting of deferred compensation... -- -- -- -- -- -- --
Net loss........................... -- -- -- -- -- -- --
------------ ---- ----------- -------- ---------- -------- -------
BALANCE
January 1, 1999.................... -- -- 9,533,328 1,604 -- -- --
Issuance of common stock........... 60,000 61 -- -- --
Issuance of Series A preferred
stock............................ 125,834,646 21 -- -- -- -- --
Issuance of warrants............... -- -- -- -- -- -- 3,847
Subscriptions receivable from
stockholders..................... -- -- -- -- -- -- --
Proceeds from stockholders......... -- -- -- -- -- -- --
Reclass of other paid-in capital to
Preferred Series B, C, and D..... -- -- -- -- -- -- --
Issuance of Series B preferred
stock............................ 13,110,000 2 -- -- -- -- --
Issuance of Series C preferred
stock............................ 64,672,626 11 -- -- -- -- --
Issuance of Series D preferred
stock............................ 13,110,000 2 -- -- -- -- --
Return of capital to Nextel........ -- -- -- -- -- -- --
Deferred compensation.............. -- -- -- 143,755 -- -- --
Vesting of deferred compensation... -- -- -- -- -- -- --
Net loss........................... -- -- -- -- -- -- --
Equity issuance costs.............. -- -- -- -- -- -- --
Motorola credit.................... -- -- -- -- -- -- --
------------ ---- ----------- -------- ---------- -------- -------
BALANCE
December 31, 1999.................. 216,727,272 36 9,593,328 145,420 -- -- 3,847
Initial public offering conversion
to common stock..................
Series A preferred stock........... (125,834,646) (21) 125,834,646 208,163 -- -- --
Series C preferred stock........... (64,672,626) (11) -- -- 64,672,626 110,742 --
Series D preferred stock........... (13,110,000) (2) -- -- 13,110,000 22,266 --
Series B preferred stock
reclassed........................ (13,110,000) (2) -- -- -- -- --
Series B redeemable preferred stock
dividend......................... -- -- -- -- -- -- --
Initial public offering stock
issued........................... -- -- 27,025,000 540,500 -- -- --
Net loss........................... -- -- -- -- -- -- --
Equity issuance costs.............. -- -- -- (31,091) -- (5,957) --
Deferred Compensation.............. -- -- -- (2,938) -- -- --
Vesting of deferred compensation... -- -- -- -- -- -- --
Subscription receivable from
stockholders..................... -- -- -- -- -- -- --
Warrants exercised by
stockholders..................... -- -- 2,434,260 3,851 -- -- (3,847)
------------ ---- ----------- -------- ---------- -------- -------
BALANCE
June 30, 2000 (unaudited).......... -- $ -- 164,887,234 $863,905 77,782,626 $127,051 $ --
============ ==== =========== ======== ========== ======== =======
<CAPTION>
OTHER
PAID-IN ACCUMULATED SUBSCRIPTIONS DEFERRED
CAPITAL DEFICIT RECEIVABLE COMPENSATION TOTALS
--------- ------------- -------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE
January 1, 1998.................... $ 8,255 $ (255) $ -- $ -- $ 8,000
Equity contributions............... 252,506 -- -- -- 252,506
Issuance of common stock under
restricted stock purchase plan... -- -- -- (1,588) 16
Vesting of deferred compensation... -- -- -- 447 447
Net loss........................... -- (22,298) -- -- (22,298)
--------- --------- --------- --------- ---------
BALANCE
January 1, 1999.................... 260,761 (22,553) -- (1,141) 238,671
Issuance of common stock........... -- -- -- (61) --
Issuance of Series A preferred
stock............................ 208,142 -- -- -- 208,163
Issuance of warrants............... -- -- -- -- 3,847
Subscriptions receivable from
stockholders..................... -- -- (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) -- -- -- (133,180)
Issuance of Series B preferred
stock............................ 21,848 -- -- -- 21,850
Issuance of Series C preferred
stock............................ 110,731 -- -- -- 110,742
Issuance of Series D preferred
stock............................ 22,264 -- -- -- 22,266
Return of capital to Nextel........ (130,900) -- -- -- (130,900)
Deferred compensation.............. -- -- -- (143,755) --
Vesting of deferred compensation... -- -- -- 27,256 27,256
Net loss........................... -- (112,413) -- -- (112,413)
Equity issuance costs.............. (2,638) -- -- -- (2,638)
Motorola credit.................... -- -- 22,010 -- 22,010
--------- --------- --------- --------- ---------
BALANCE
December 31, 1999.................. 357,028 (134,966) (83,048) (117,701) 170,616
Initial public offering conversion
to common stock..................
Series A preferred stock........... (208,142) -- -- -- --
Series C preferred stock........... (110,731) -- -- -- --
Series D preferred stock........... (22,264) -- -- -- --
Series B preferred stock
reclassed........................ (21,848) -- -- -- (21,850)
Series B redeemable preferred stock
dividend......................... -- (4,054) -- -- (4,054)
Initial public offering stock
issued........................... -- -- -- -- 540,500
Net loss........................... -- (131,164) -- -- (131,164)
Equity issuance costs.............. 5,957 -- -- -- (31,091)
Deferred Compensation.............. -- -- -- 2,938 --
Vesting of deferred compensation... -- -- -- 35,053 35,053
Subscription receivable from
stockholders..................... -- -- 36,506 -- 36,506
Warrants exercised by
stockholders..................... -- -- -- -- 4
--------- --------- --------- --------- ---------
BALANCE
June 30, 2000 (unaudited).......... $ -- $(270,184) $ (46,542) $ (79,710) $ 594,520
========= ========= ========= ========= =========
</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
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED FOR THE SIX-MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------------- -------------------------
1998 1999 1999 2000
--------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (22,298) $(112,413) $ (36,882) $(131,164)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities..........................
Depreciation and amortization............................. 4,586 12,689 5,538 12,564
Amortization of debt issuance costs....................... -- 2,122 892 1,486
Interest accretion for senior discount notes.............. -- 44,496 24,035 21,977
Extraordinary loss on retirement of debt.................. -- -- -- 23,485
Stock based compensation.................................. 447 27,256 1,031 35,053
Allowance for doubtful accounts........................... 254 939 120 (293)
Gain on deferred sale--leaseback.......................... -- (27) -- (110)
Change in current assets and liabilities:
Accounts receivable..................................... (1,800) (6,565) (2,163) (9,172)
Subscriber equipment inventory.......................... (1,353) (342) 343 (4,911)
Other current assets.................................... (325) (8,194) (3,245) (3,501)
Accounts payable, accrued expenses and other
liabilities........................................... 2,300 56,419 11,476 11,258
Operating advances due from Nextel WIP.................. 3,398 (4,581) 11,467 (2,969)
--------- --------- --------- ---------
Net cash provided by (used in) operating activities....... (14,791) 11,799 12,612 (46,297)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan to officer........................................... -- (2,200) (2,200) --
Capital expenditures...................................... (104,334) (133,210) (19,388) (122,228)
Proceeds from sale of assets.............................. -- 2,246 -- 6,422
FCC licenses.............................................. -- (2,850) (4,184) (1,919)
Purchase of short-term investments -- (239,456) (19,996) (367,192)
--------- --------- --------- ---------
Net cash used in investing activities................... (104,334) (375,470) (45,768) (484,917)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.................................. 16 -- -- --
Equity contributions from Nextel WIP...................... 119,125 -- -- --
Proceeds from sale of common stock........................ -- -- -- 540,500
Proceeds from borrowings.................................. -- 731,376 581,376 200,000
Payment to redeem 14% senior discount notes............... -- -- -- (191,233)
Exercise warrants......................................... -- -- -- 4
Restricted cash transfer.................................. -- (175,000) (175,000) 175,000
Proceeds from equity contributions........................ -- 119,740 52,144 36,506
Return of capital to Nextel WIP........................... -- (130,900) (130,900) --
Equity costs.............................................. -- (2,638) (2,524) (31,091)
Debt issuance costs....................................... -- (24,650) (20,939) (5,641)
--------- --------- --------- ---------
Net cash provided by financing activities............... 119,141 517,928 304,157 724,045
--------- --------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 16 154,257 271,001 192,831
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. -- 16 16 154,273
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 16 $ 154,273 $ 271,017 $ 347,104
========= ========= ========= =========
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 $ 7,729 $ --
========= ========= ========= =========
Capitalized interest on accretion of senior discount
notes................................................... $ -- $ 9,612 $ -- $ 5,513
========= ========= ========= =========
Accretion of redeemable preferred stock dividends......... $ -- $ -- $ -- $ 4,054
========= ========= ========= =========
CASH PAID FOR INTEREST, NET OF CAPITALIZED AMOUNT........... $ -- $ 17,302 $ 4,758 $ 13,316
========= ========= ========= =========
</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, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
1. FORMATION, CAPITALIZATION AND BASIS OF PRESENTATION
FORMATION
Nextel Partners, Inc., which together with its subsidiaries is referred to
as "Partners" or the "Company," was formed as a shell corporation on July 8,
1998, solely to facilitate the Capitalization Transactions discussed below. From
July 8, 1998 to January 29, 1999, the activities of Partners were solely focused
on this objective. These activities were funded by Nextel Communications, Inc.
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 $.00167 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. The FCC granted approval to transfer ownership of the Initial
Capitalization Transaction licenses on January 21, 2000 from Nextel WIP to the
Company.
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 Reimbursement Agreement with Nextel WIP to acquire certain
assets, properties, rights and
F-7
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
1. FORMATION, CAPITALIZATION AND BASIS OF PRESENTATION (CONTINUED)
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. On March 20, 2000 the FCC granted
approval to transfer ownership of the Option Territory licenses from Nextel WIP
to the Company. Upon receipt of FCC approval, the Frequency Management Agreement
expired. 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 had used the credit from both
the Initial and Expansion Territory Capitalization Transactions in its entirety.
INITIAL PUBLIC OFFERING CAPITALIZATION TRANSACTIONS
In January 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"). On
January 27, 2000 the Company filed a registration statement with the SEC to sell
27,025,000 shares of Class A common stock which became effective February 22,
2000. With the consummation of the IPO on February 25, 2000 all the outstanding
shares of the Company's Series A preferred stock automatically converted into
125,834,646 shares of Class A common stock and all the outstanding Company's
Series C and D preferred stock automatically converted into 77,782,626 shares of
Class B common stock. In addition, the Series B redeemable preferred stock held
by Nextel WIP became subject to mandatory cash redemption 375 days after
February 1, 2009. The Series B preferred stock, plus accrued dividends, was
reclassified from stockholder's equity to the section of the balance sheet
between liabilities and stockholder's equity. Simultaneously, an adjustment was
made to the accumulated deficit representing the 12% dividend accrued from the
time of issuance to the closing date of the IPO.
F-8
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
1. FORMATION, CAPITALIZATION AND BASIS OF PRESENTATION (CONTINUED)
The following summarizes the dollar amount and number of shares issued as
part of the Initial, Expansion and Initial Public Offering Capitalization
Transactions described above.
<TABLE>
<CAPTION>
EQUITY
SHARES ISSUED CONTRIBUTIONS
------------- -------------
<S> <C> <C>
Common--Class A (Series A preferred stock converted)........ 125,834,646 $ 208,160,194
Common--Class A (IPO--public shareholders).................. 27,025,000 $ 540,500,000
Common--Class B (Series C preferred stock converted)........ 64,672,626 $ 110,740,170
Common--Class B (Series D preferred stock converted)........ 13,110,000 $ 22,266,000
Subscriptions Receivable.................................... -- $(157,203,019)
Warrants to purchase Class A common shares issued for a
purchase price of $.00167 per share....................... 2,434,260 $ 3,847,000
</TABLE>
Approximately $33 million of issuance costs were charged to equity as part
of the Capitalization Transactions.
WARRANTS EXERCISED
On May 2 and June 5, 2000, two of the Company's stockholders exercised their
warrants that totaled 1,245,822 and 1,188,438 shares, respectively, to purchase
the same number of Class A common shares for a purchase price of $.00167 per
share. As of June 30, 2000 all outstanding warrants had been exercised.
SUBSCRIPTIONS RECEIVABLE
During the three-month period ended June 30, 2000 three stockholders
contributed a total of approximately $36.5 million, representing a pre-funding
of their irrevocable equity commitment previously due on September and
December of 2000 and September 2001.
F-9
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
1. FORMATION, CAPITALIZATION AND BASIS OF PRESENTATION (CONTINUED)
The following chart reflects ownership by major shareholders as of June 30,
2000 after the Initial Public Offering Capitalization Transactions.
<TABLE>
<CAPTION>
MAJOR SHAREHOLDER CLASS OF STOCK VOTING % EQUITY %
----------------- ------------------------------------- -------- --------
<S> <C> <C> <C>
Nextel WIP Common--Class B (Preferred--
Series C converted) 26.65% 26.14%
Nextel WIP Common--Class B (Preferred--
Series D converted) 5.40% 5.30%
----- -----
Subtotal--Nextel WIP 32.05% 31.44%
===== =====
DLJ Merchant Banking Partners II, Common--Class A (Preferred--Series A
L.P. and affiliates ("DLJ Merchant converted and warrants to buy Class A
Banking") common stock) 11.76% 11.53%
===== =====
Public Shareholders Common--Class A 11.14% 10.92%
===== =====
Madison Dearborn Capital Common--Class A (Preferred--Series A
Partners II, L.P. converted and warrants to buy Class A
common stock) 11.22% 11.00%
===== =====
Eagle River Common--Class A 8.04% 7.88%
===== =====
The Huff Alternative Income Fund, LP Common--Class A (Preferred--Series A
converted) 5.87% 5.76%
===== =====
Motorola Common--Class A (Preferred--Series A
converted) 5.39% 5.29%
===== =====
Management Common--Class A 4.05% 3.97%
===== =====
</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
F-10
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
1. FORMATION, CAPITALIZATION AND BASIS OF PRESENTATION (CONTINUED)
reflected in the Company's accounts in a manner similar to the accounting for a
capital lease under Statement of Financial Accounting Standards ("SFAS") No. 13
"Accounting for Leases." The accompanying financial statements also include the
accounts of Partners prior to the Capitalization Transactions, as Nextel 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 and the Initial Public Offering Capital
Transactions consummated on February 25, 2000.
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. The Company's operations are primarily
conducted by OPCO, a wholly owned subsidiary of the Company. Substantially all
of the assets, liabilities, operating losses and cash flows of the Company are
within OPCO and its wholly owned subsidiaries.
The Company's 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"). The Company's 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, as required.
INTERIM FINANCIAL STATEMENT PRESENTATION
Our interim financial statements for the three- and six-month periods ended
June 30, 1999 and 2000 have been prepared without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes contained in our Form S-1
Registration Statement declared effective on February 22, 2000.
The financial information included herein reflects all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for the fair presentation of the results of the interim
periods. The results of operations for the three- and six-month periods ended
June 30, 2000 are not necessarily indicative of the results to be expected for
the full year.
F-11
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
2. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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.
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.
F-12
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
2. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The basic and diluted net loss per share is computed based on the weighted
average number of shares of common stock issued for the IPO plus the common
stock outstanding that was automatically converted from the preferred stock
outstanding upon completion of the Company's initial public offering. The
weighted average number of shares for the six months ended June 30, 2000 does
not represent a complete reporting period since the IPO was consummated on
February 25, 2000. In addition, net loss available to common stockholders
increased by the amount of the accrued dividend on the Series B redeemable
preferred stock. 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.
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. On January 21, 2000 the
restricted cash was made available to use since the FCC approved the transfer of
control of the Initial Capitalization Transaction FCC licenses to the Company
from 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
improvements are amortized over the shorter of the respective lives of the
leases or the useful lives of the improvements.
F-13
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
2. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $6.3 million and
$13.7 million for the years ended December 31, 1998 and 1999, 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. Amortization expense of approximately $200,000 and $518,000
was recorded for the years ended December 31, 1998 and 1999, 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 and 2000, the Company entered into an
interest rate swap agreement for $60 million and $50 million, respectively, to
partially hedge interest rate exposure with respect to its $325 million term
loans. 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 are
accrued as interest rates change and are 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-14
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
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 $1.5 million and
$3.0 million for the years ended December 31, 1998 and 1999, respectively.
DEBT ISSUANCE COSTS
In relation to the issuance of long-term debt discussed in Note 4, the
Company has incurred a total of $1.3 million, $24.6 million and $28.1 million in
deferred financing costs as of December 31, 1998 and 1999 and June 30, 2000,
respectively. As of June 30, 2000, in connection with the issuance of the 11%
Senior Notes (the "Senior Notes") discussed in Note 4, the Company incurred a
total of $5.6 million in deferred financing costs of which $400,000 relates to
amending the Amended and Restated Credit Agreement for the Term B and C loans
for these Senior Notes. 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 debt issuance costs were
amortized and 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.
F-15
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
2. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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
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.
In December of 1999, the SEC released Staff Accounting Bulletin Number 101,
"Revenue Recognition in Financial Statements." This bulletin will become
effective for the Company during the fourth quarter of 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.
In March 2000, FASB released FASB Interpretation No. 44, "ACCOUNTING FOR
CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION, an interpretation of APB
Opinion No. 25," which provides clarification of Opinion 25 for certain issues
such as the determination of an employee, the criteria for determining whether a
plan qualifies as a non-compensatory plan and the accounting consequences of
various modifications to the terms of a previously fixed stock option or award.
We believe that our practices are in conformity with this guidance, and
therefore Interpretation No. 44 will have no impact on the Company's financial
statements.
F-16
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
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, JUNE 30,
------------------------ ----------
1998 1999 2000
--------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
14% Senior Redeemable Discount Notes due 2009, net of
unamortized discount of $339.5 million at
December 31, 1999 and $199.8 million at June 30,
2000................................................. $ -- $460,484 $ 320,226
11% Senior Notes due 2010, interest payable
semiannually in cash and in arrears.................. -- -- 200,000
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").............. -- 175,000 175,000
Bank Credit Facility--Term C Loan, interest at
Company's option, calculated on Administrative
Agent's alternate base rate or reserve adjusted
LIBOR................................................ -- 150,000 150,000
-------- -------- ----------
Total Long-term Debt................................... $ -- $785,484 $ 845,226
======== ======== ==========
</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
was to 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. On April 18, 2000 the Company redeemed 35% of its Notes for
approximately $191 million, net a loss of approximately $23.5 million for early
retirement of debt. The redemption was made with some of the proceeds received
by the Company from its initial public offering. The remaining aggregate
accreted value of the Notes will increase at a rate of 14%, compounded
semi-annually to a final accreted value equal to a principal amount at
F-17
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
4. LONG-TERM DEBT (CONTINUED)
maturity of $520 million. Thereafter, the Notes bear interest at a rate of 14%
per annum payable semi-annually in arrears.
The Notes represent senior unsecured obligations of the Company, and rank
equally in right of payment to all existing and future senior unsecured
indebtedness of the Company and senior in right of payment to all existing and
future subordinated indebtedness of the Company. The Notes are effectively
subordinated to (i) all secured obligations of the Company, including borrowings
under the bank credit facility, to the extent of assets securing such
obligations and (ii) all indebtedness including borrowings under the bank credit
facility and trade payables of OPCO.
The indenture contains certain covenants that limit, among other things, the
ability of the Company to: (i) pay dividends, redeem capital stock or make
certain other restricted payments or investments, (ii) incur additional
indebtedness or issue preferred equity interests, (iii) merge, consolidate or
sell all or substantially all of its assets, (iv) create liens on assets, and
(v) enter into certain transactions with affiliates or related persons. As of
June 30, 2000, 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.
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
F-18
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
4. LONG-TERM DEBT (CONTINUED)
time the applicable margin will be initially 4.0% over LIBOR and 3.0% over the
base rate and thereafter will be determined on the basis of the ratio of total
debt to annualized EBITDA as adjusted and will range between 2.25% and 3.75%
over LIBOR and between 1.25% and 2.75% over the base rate. The 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 June 30, 2000, the Company was in
compliance with all of its required covenants.
F-19
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
4. LONG-TERM DEBT (CONTINUED)
11% SENIOR NOTES
On March 10, 2000, the Company issued $200.0 million in aggregate principal
amount 11% Senior Notes due 2010 (the "Senior Notes"). Interest will accrue at
the rate of 11% per annum, payable semiannually in cash in arrears on March 15
and September 15 of each year, commencing September 15, 2000.
The Senior 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 Senior Notes are
effectively subordinated to (i) all secured obligations of the Company,
including borrowings under the bank credit facility, to the extent of assets
securing such obligations and (ii) all indebtedness including borrowings under
the bank credit facility and trade payables of OPCO.
The indenture contains certain covenants that limit, among other things, the
ability of the Company to: (i) pay dividends, redeem capital stock or make
certain other restricted payments or investments, (ii) incur additional
indebtedness or issue preferred equity interests, (iii) merge, consolidate or
sell all or substantially all of its assets, (iv) create liens on assets, and
(v) enter into certain transactions with affiliates or related persons.
The Senior Notes are redeemable at the option of the Company, in whole or in
part, any time on or after March 15, 2005 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 March 15, 2003, the Company may
on one or more occasions redeem up to 35% of the aggregate principal amount at
maturity of the Senior Notes originally issued at a redemption price equal to
111% of the principal amount of the notes redeemed, 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 Senior Notes
originally issued remains outstanding immediately after the occurrence of such
redemption.
FUTURE MATURITIES OF LONG-TERM DEBT
Based on the debt issued on January 29, 1999, September 9, 1999, and
March 10, 2000, as discussed above, for the years subsequent to December 31,
1998, scheduled annual maturities of
F-20
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
4. LONG-TERM DEBT (CONTINUED)
long-term debt outstanding as of June 30, 2000, under existing long-term debt
agreements are as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $ --
2001........................................................ --
2002........................................................ --
2003........................................................ 1,688
2004........................................................ 3,250
Thereafter.................................................. 1,040,062
----------
1,045,000
----------
Less--unamortized discount.................................. (199,774)
----------
$ 845,226
==========
</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
F-21
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
5. INCOME TAXES (CONTINUED)
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 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 $3 million and $9.7 million for the
years ended December 31, 1998 and 1999, respectively.
F-22
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
The FCC granted approval to transfer ownership of the Initial Capitalization
Transaction licenses on January 21, 2000 from Nextel WIP to the Company.
Pursuant to this event the cash collateral account (restricted cash) established
by the Company to maintain a balance equal to the amounts outstanding under the
term B credit facility was made available.
On March 20, 2000 the FCC granted approval to transfer ownership of the
Option Territory licenses from Nextel WIP to the Company.
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 changed upon the filing of a Restated Certificate of
Incorporation immediately prior to consummation of the initial public offering
on February 25, 2000. Upon this filing the Company has the authority to issue
713,110,000 shares of capital stock, divided into four classes as follows:
(i) 500 million shares of Class A Common Stock, par value $.001 per share;
(ii) 100 million shares of Class B Convertible Common Stock, par value $.001 per
share; (iii) 13,110,000 shares of Series B Preferred Stock, par value $.001 per
share; and (iv) 100 million shares of other Preferred Stock.
The following is a summary description of the Company's capital stock.
F-23
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
7. CAPITAL STOCK AND STOCK RIGHTS (CONTINUED)
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;
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.
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 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.
F-24
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
7. CAPITAL STOCK AND STOCK RIGHTS (CONTINUED)
SERIES C PREFERRED STOCK AND SERIES D PREFERRED STOCK--Each share of
Series C and Series D Preferred Stock was converted into one share of Class B
Common Stock upon the consummation of the IPO on February 25, 2000.
COMMON STOCK RESERVED FOR ISSUANCE
As of the closing of the Capitalization Transactions and as of June 30,
2000, the Company had reserved Common Stock for future issuance as detailed
below.
<TABLE>
<CAPTION>
AS OF AS OF AS OF
JANUARY 29, DECEMBER 31, JUNE 30,
1999 1999 2000
----------- ------------ ----------
<S> <C> <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 4,738,052
Employee options available for grant......... 10,771,332 8,495,754 11,807,302
----------- ----------- ----------
Total........................................ 198,317,418 232,706,886 16,545,354
=========== =========== ==========
</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, 1998 and 1999, 2,679,282 and 4,689,906 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 accounted for the Plan using variable
accounting prior to the IPO, for the years ended December 31, 1998 and 1999 was
approximately $0.5 million and $27.3 million, respectively. At the time of the
IPO (January 27, 2000), all vesting provisions related to performance goals were
removed and these shares now vest solely based on the passage of time.
Accordingly, compensation expense is fixed and will be recognized over the
remaining vesting period of these restricted shares.
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
F-25
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
8. STOCK AND EMPLOYEE BENEFIT PLANS (CONTINUED)
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.
Prior to the IPO, grants under this plan were considered compensatory and were
accounted for on a basis similar to stock appreciation rights. At the IPO
(January 27, 2000), the intrinsic value of the outstanding options was recorded
and is being amortized over the remaining vesting periods.
Subsequent to the IPO, there have been no stock option grants in which the
exercise price of the options has been less than the fair market value at the
time of the grants.
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.
F-26
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
8. STOCK AND EMPLOYEE BENEFIT PLANS (CONTINUED)
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 2% of each employee's salary. Such contributions were
approximately $50,000 and $175,000 for the years ended December 31, 1998 and
1999. At December 31, 1998 and 1999, the Company had no other pension or post
employment benefit plans.
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, 1998 and 1999 and the three and six months
ended June 30, 2000, the Company purchased approximately $47.5 million,
$40.7 million, $35.8 million and $61.3 million, respectively, of infrastructure
and other equipment, handsets, warranties and
F-27
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
services from Motorola. For the same periods ended June 30, 1999, the Company
purchased approximately $6.0 million and $7.7 million, respectively.
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 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.
F-28
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
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 the three month period ended
June 30, 1999 and 2000, the Company was charged approximately $101,000 and
$226,000, respectively, and $146,000 and $432,000 for the six month period ended
June 30, 1999 and 2000, respectively, 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, 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
F-29
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
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. Likewise, for the three month period ended June 30, 1999 and
2000, the Company earned approximately $3.1 and $5.0 million, respectively, and
and $3.1 million and $8.8 million, respectively, for the six-month period ended
June 30, 1999 and 2000. Conversely, the Company was charged approximately
$1.2 million for the year ended December 31, 1999 for the Company's customers
roaming on Nextel's system. Similarly, for the three months ended June 30, 1999
and 2000, the Company was charged approximately $341,000 and $1.1 million,
respectively, and $344,000 and $1.7 million for the six-month period ended
June 30, 1999 and 2000.
FREQUENCY MANAGEMENT AGREEMENT--The Frequency Management Agreement was
terminated upon FCC approval of the Initial licenses transfer on January 21,
2000 and approval of the Option Territory licenses on March 20, 2000.
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
may become subject to the Master Site Lease. OPCO pays Nextel WIP monthly 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. Likewise, for the three and six-month
periods ended June 30, 1999, the Company was charged approximately $142,000 and
$236,000, respectively, for these leases. Starting April 1, 2000 Nextel WIP and
the Company agreed to have the Company pay Spectrasite Holdings Inc. directly
for these leases with the agreement that Nextel WIP would offset any of the
lease payments that exceeded $1,200 per on the until January 29, 2002. The three
months ended June 30, 2000 the Company received credits from Nextel WIP for
approximately $57,600 and paid a
F-30
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
net amount of $121,000 for the six months ended June 30, 2000. Pursuant to the
Master Site Lease, as the network build-out progresses, additional sites may
become subject to the Master Site Lease arrangement whereby additional credits
will be received from Nextel WIP.
The Master Site Lease, and each site lease thereunder, has an initial term
of five years, renewable at OPEC'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. For the three months ended June 30, 1999 and 2000, the Company
was charged approximately $669,000 and $781,000, respectively, for the
transition services and $1.0 million and $1.5 million for the six-month period
ended June 30, 1999 and 2000, respectively. As of June 30, 2000 the transition
services still required related mostly to Nextel telemarketing and customer
care, fulfillment, activations and billing for the national accounts.
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. For the three-month
period ended June 30, 1999 and 2000, the Company was charged approximately
$641,000 and
F-31
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
$3.2 million, respectively, for these services and $865,000 and $4.3 million,
respectively for the six-month periods ended June 30, 1999 and 2000.
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 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 AT
BEGINNING OF COSTS AND END 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>
F-32
<PAGE>
NEXTEL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 1999 AND 2000
(AMOUNTS AND DISCLOSURES AS OF AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1999 AND 2000 ARE UNAUDITED)
11. SUBSEQUENT EVENTS
On July 17, 2000, the Company announced the exercise of its option to
acquire from a subsidiary of Nextel or Nextel WIP, frequencies in 12 additional
markets where more than 10.7 million people live and work. In exchange for
transferring licenses to operate in the expanded territory, Nextel will receive
the Company's Class B common stock. The transaction closed on September 27,
2000.
On July 27, 2000, the Company issued $200.0 million in aggregate principal
amount 11% Senior Notes due 2010 under an indenture pursuant to which the
Company may also issue up to an additional $200 million in aggregate principal
amounts at a later date. Interest will accrue at the rate of 11% per anum,
payable semiannually in cash in arrears on March 15 and September 15 of each
year, commencing on September 15, 2000. These funds will be used for capital
expenditures in connection with the build-out and expansion of the Nextel
digital network including the build-out of the territories for which the Company
has exercised its option; future acquisition of additional frequencies; and
introduction of new services, sales and marketing activities and working
capital.
F-33
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information or to make any
representation to you that is not contained in this prospectus. This prospectus
is not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any jurisdiction where the offer or sale is not
permitted. You should not under any circumstances assume that the information in
this prospectus is correct on any date after the date of this prospectus.
------------------------
$200,000,000
Offer to Exchange
11% Senior Notes
due 2010
that have been registered
under the
Securities Act of 1933
for outstanding
11% Senior Notes
due 2010
----------------
[LOGO]
----------------
----------------
P R O S P E C T U S
Dated , 2000
------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation. In its restated certificate of
incorporation, the Company 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 Company has also adopted indemnification provisions 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 attorney's fees) that such officer or director actually and
reasonably incurred.
The Company has entered into indemnification agreements with each of the
Company's officers and directors.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS:
<TABLE>
<C> <S>
3.1(8) Restated Certificate of Incorporation.
3.2* Bylaws.
4.1(13) Indenture, dated as of July 27, 2000, by and between Nextel
Partners, Inc. and The Bank of New York, as Trustee,
relating to the 11% Senior Notes due 2010.
4.2(14) Purchase Agreement for $200,000,000 11% Senior Notes due
2010, dated July 18, 2000 by and among Nextel
Partners, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation, Deutsche Bank Securities Inc. and CIBC World
Markets Corp.
4.3(15) Registration Rights Agreement, dated as of July 27, 2000, by
and among Nextel Partners, Inc., Donaldson, Lufkin &
Jenrette Securities Corporation, Deutsche Bank Securities
Inc. and CIBC World Markets Corp.
5.1 Opinion of Summit Law Group PLLC.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
8.1 Opinion of Davis Wright Tremaine LLP with respect to certain
tax matters.
10.1* Purchase Agreement, dated January 22, 1999, by and among the
Company, 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
the Company and the stockholders named therein.
10.2(a) Amendment No. 1 to Amended and Restated Shareholders'
Agreement dated effective as of February 22, 2000 by and
among the Company and the stockholders named therein.
10.3* Joint Venture Agreement, dated as of January 29, 1999, by
and among the Company, 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 (Registered Trademark) 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, among
the Company, 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, between
the Company and John Chapple.
10.15* Employment Agreement, dated as of January 29, 1999, between
the Company and John Thompson.
10.16* Stock Option Agreement, dated as of January 29, 1999,
between the Company and John Thompson.
10.17* Non-negotiable Promissory Note, dated January 29, 1999, by
John Thompson to the Company.
10.18* 1999 Nonqualified Stock Option Plan of the Company
10.19* Form of Restricted Stock Purchase Agreement, dated as of
November 20, 1998, between the Company and 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, between the Company
and John Chapple, John Thompson, David Thaler, David Aas,
Perry Satterlee and Mark Fanning.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.21* Employment Agreement, dated as of January 29, 1999, between
the Company and David Aas.
10.22* Employment Agreement, dated as of January 29, 1999, between
the Company and Perry Satterlee.
10.23* Employment Agreement, dated as of January 29, 1999, between
the Company and David Thaler.
10.24* Subscription and Contribution Agreement, dated as of
January 29, 1999, among the Company 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.
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.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
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.
10.50(9) Indenture, dated as of March 10, 2000, by and between Nextel
Partners, Inc. and The Bank of New York, as Trustee,
relating to the 11% Senior Notes due 2010.
10.51(10) Purchase Agreement for $200,000,000 11% Senior Notes due
2010, dated February 28, 2000 by and between Nextel
Partners, Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation.
10.52(11) Registration Rights Agreement, dated as of March 10, 2000,
by and among Nextel Partners, Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation.
10.53(12) Amendment No. 1 to Credit Agreement and Parent Guaranty and
Pledge Agreement, dated as of March 10, 2000, by and among
Nextel Partners, Inc., Nextel Partners Operating Corp., DLJ
Capital Funding, Inc., The Bank of New York, Bank of
Montreal and Donaldson, Lufkin & Jenrette Securities
Corporation.
10.54 Registration Rights Agreement dated effective as of February
22, 2000 by and among the Company and the stockholders named
therein.
21 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Davis Wright Tremaine LLP (included in their
opinion filed as Exhibit 8.1).
23.3 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-4).
25.1 Statement on Form T-1 of Eligibility of Trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Clients.
99.4 Form of Letter to Nominees.
</TABLE>
------------------------
+ Confidential portions omitted and filed separately with the Commission
pursuant to an application for confidential treatment pursuant to Rule 406
under the Securities Act of 1933, as amended.
* 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).
** Incorporated by reference to the Exhibit of the same number to Registration
Statement on Form S-1 declared effective February 22, 2000 (File
No. 333-95473).
II-4
<PAGE>
(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).
(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).
(8) Incorporated by reference to Exhibit 3.1.1 to Registration Statement on
Form S-1 declared effective February 22, 2000 (File No. 333-95473).
(9) Incorporated by reference to Exhibit 10.52 to Form 10-Q filed on May 10,
2000.
(10) Incorporated by reference to Exhibit 10.51 to Form 10-Q filed on May 10,
2000.
(11) Incorporated by reference to Exhibit 10.50 to Form 10-Q filed on May 10,
2000.
(12) Incorporated by reference to Exhibit 10.53 to Form 10-Q filed on May 10,
2000.
(13) Incorporated by reference to Exhibit 10.50 to Registration Statement on
Form S-4, declared effective on August 9, 2000 (File No. 333-39386).
(14) Incorporated by reference to Exhibit 10.51 to Registration Statement on
Form S-4, declared effective on August 9, 2000 (File No. 333-39386).
(15) Incorporated by reference to Exhibit 10.52 to Registration Statement on
Form S-4, declared effective on August 9, 2000 (File No. 333-39386).
(B) FINANCIAL STATEMENT SCHEDULES:
None.
ITEM 22. UNDERTAKINGS.
Insofar as indemnifications for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the option of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form,
II-5
<PAGE>
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
this Registration Statement through the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kirkland, State of
Washington, on the 23rd of October, 2000.
<TABLE>
<S> <C> <C>
NEXTEL PARTNERS, INC.
BY: /S/ JOHN CHAPPLE
-----------------------------------------
John Chapple, President and Chief
Executive Officer
</TABLE>
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints John Chapple and John Thompson, and each of them, with full power of
substitution and resubstitution and full power to act without the other, as his
true and lawful attorney-in-fact and agent to act in his name, place and stead
and to execute in the name and on behalf of each person, individually and in
each capacity stated below, and to file, any and all amendments to this
registration statement, including any and all post-effective amendments thereto
and any registration statement relating to the same offering as this
registration statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing, ratifying and confirming all that said attorneys-in-fact
and agents or any of them or their or his substitute or substitutes may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated below on the 23rd day of October, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ JOHN CHAPPLE
------------------------------------------- President, Chief Executive Officer and
John Chapple Director (Principal Executive Officer)
/s/ JOHN THOMPSON
------------------------------------------- Vice President, Chief Financial Officer
John Thompson (Principal Financial and Accounting Officer)
/s/ STEVEN DODGE
------------------------------------------- Director
Steven Dodge
/s/ TIMOTHY DONAHUE
------------------------------------------- Director
Timothy Donahue
/s/ ANDREW RUSH
------------------------------------------- Director
Andrew Rush
/s/ ANDREW E. SINWELL
------------------------------------------- Director
Andrew E. Sinwell
/s/ DENNIS WEIBLING
------------------------------------------- Director
Dennis Weibling
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
3.1(8) Restated Certificate of Incorporation.
3.2* Bylaws.
4.1(13) Indenture, dated as of July 27, 2000, by and between Nextel
Partners, Inc. and The Bank of New York, as Trustee,
relating to the 11% Senior Notes due 2010.
4.2(14) Purchase Agreement for $200,000,000 11% Senior Notes due
2010, dated July 18, 2000 by and among Nextel
Partners, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation, Deutsche Bank Securities Inc. and CIBC World
Markets Corp.
4.3(15) Registration Rights Agreement, dated as of July 27, 2000, by
and among Nextel Partners, Inc., Donaldson, Lufkin &
Jenrette Securities Corporation, Deutsche Bank Securities
Inc. and CIBC World Markets Corp.
5.1 Opinion of Summit Law Group PLLC.
8.1 Opinion of Davis Wright Tremaine LLP with respect to certain
tax matters.
10.1* Purchase Agreement, dated January 22, 1999, by and among the
Company, 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
the Company and the stockholders named therein.
10.2(a) Amendment No. 1 to Amended and Restated Shareholders'
Agreement dated effective as of February 22, 2000 by and
among the Company and the stockholders named therein.
10.3* Joint Venture Agreement, dated as of January 29, 1999, by
and among the Company, 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 (Registered Trademark) 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, among
the Company, 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, between
the Company and John Chapple.
10.15* Employment Agreement, dated as of January 29, 1999, between
the Company and John Thompson.
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10.16* Stock Option Agreement, dated as of January 29, 1999,
between the Company and John Thompson.
10.17* Non-negotiable Promissory Note, dated January 29, 1999, by
John Thompson to the Company.
10.18* 1999 Nonqualified Stock Option Plan of the Company
10.19* Form of Restricted Stock Purchase Agreement, dated as of
November 20, 1998, between the Company and 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, between the Company
and John Chapple, John Thompson, David Thaler, David Aas,
Perry Satterlee and Mark Fanning.
10.21* Employment Agreement, dated as of January 29, 1999, between
the Company and David Aas.
10.22* Employment Agreement, dated as of January 29, 1999, between
the Company and Perry Satterlee.
10.23* Employment Agreement, dated as of January 29, 1999, between
the Company and David Thaler.
10.24* Subscription and Contribution Agreement, dated as of
January 29, 1999, among the Company 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.
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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.
10.50(9) Indenture, dated as of March 10, 2000, by and between Nextel
Partners, Inc. and The Bank of New York, as Trustee,
relating to the 11% Senior Notes due 2010.
10.51(10) Purchase Agreement for $200,000,000 11% Senior Notes due
2010, dated February 28, 2000 by and between Nextel
Partners, Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation.
10.52(11) Registration Rights Agreement, dated as of March 10, 2000,
by and among Nextel Partners, Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation.
10.53(12) Amendment No. 1 to Credit Agreement and Parent Guaranty and
Pledge Agreement, dated as of March 10, 2000, by and among
Nextel Partners, Inc., Nextel Partners Operating Corp., DLJ
Capital Funding, Inc., The Bank of New York, Bank of
Montreal and Donaldson, Lufkin & Jenrette Securities
Corporation.
10.54 Registration Rights Agreement dated effective as of February
22, 2000 by and among the Company and the stockholders named
therein.
21 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Davis Wright Tremaine LLP (included in their
opinion filed as Exhibit 8.1).
23.3 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-4).
25.1 Statement on Form T-1 of Eligibility of Trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
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99.3 Form of Letter to Clients.
99.4 Form of Letter to Nominees.
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------------------------
+ Confidential portions omitted and filed separately with the Commission
pursuant to an application for confidential treatment pursuant to Rule 406
under the Securities Act of 1933, as amended.
* 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).
** Incorporated by reference to the Exhibit of the same number to Registration
Statement on Form S-1 declared effective February 22, 2000 (File
No. 333-95473).
(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).
(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).
(8) Incorporated by reference to Exhibit 3.1.1 to Registration Statement on
Form S-1 declared effective February 22, 2000 (File No. 333-95473).
(9) Incorporated by reference to Exhibit 10.52 to Form 10-Q filed on May 10,
2000.
(10) Incorporated by reference to Exhibit 10.51 to Form 10-Q filed on May 10,
2000.
(11) Incorporated by reference to Exhibit 10.50 to Form 10-Q filed on May 10,
2000.
(12) Incorporated by reference to Exhibit 10.53 to Form 10-Q filed on May 10,
2000.
(13) Incorporated by reference to Exhibit 10.50 to Registration Statement on
Form S-4, declared effective on August 9, 2000 (File No. 333-39386).
(14) Incorporated by reference to Exhibit 10.51 to Registration Statement on
Form S-4, declared effective on August 9, 2000 (File No. 333-39386).
(15) Incorporated by reference to Exhibit 10.52 to Registration Statement on
Form S-4, declared effective on August 9, 2000 (File No. 333-39386).
