<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1995
REGISTRATION NO. 33-60421
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NEXTEL COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4812 13-3414376
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
201 ROUTE 17 NORTH
RUTHERFORD, NEW JERSEY 07070
(201) 438-1400
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
THOMAS J. SIDMAN, ESQ.
VICE PRESIDENT
AND GENERAL COUNSEL
NEXTEL COMMUNICATIONS, INC.
201 ROUTE 17 NORTH
RUTHERFORD, NEW JERSEY 07070
(201) 438-1400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
<TABLE>
<S> <C>
KATHLEEN R. MCLAURIN, ESQ. ROBERT W. MURRAY JR., ESQ.
JONES, DAY, REAVIS & POGUE BAKER & BOTTS, L.L.P.
2300 TRAMMELL CROW CENTER 885 THIRD AVENUE, SUITE 1900
2001 ROSS AVENUE NEW YORK, NEW YORK
DALLAS, TEXAS 75201 (212) 705-5000
(214) 220-3939
</TABLE>
---------------------
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
NEXTEL COMMUNICATIONS, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
CAPTION IN PROXY
FORM S-4 ITEM NUMBER AND HEADING STATEMENT/PROSPECTUS
-------------------------------- ---------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Cross-Reference Sheet; Outside Front Cover Page
of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus..................... Inside Front Cover Page of Proxy
Statement/Prospectus; "AVAILABLE INFORMATION";
"INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE"; "TABLE OF CONTENTS"
3. Risk Factors, Ratio of Earnings to Fixed
Charges, and Other Information.......... "SUMMARY"; "RISK FACTORS"; "NEXTEL
COMMUNICATIONS, INC. AND SUBSIDIARIES SELECTED
FINANCIAL DATA"; "NEXTEL COMMUNICATIONS, INC.
AND SUBSIDIARIES PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS"; "AMERICAN
MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
SELECTED FINANCIAL DATA"
4. Terms of the Transaction................ Outside Front Cover Page of Proxy
Statement/Prospectus; "SUMMARY"; "THE MERGER";
"THE MERGER AGREEMENT"; "COMPARISON OF RIGHTS
OF HOLDERS OF SHARES OF EACH OF NEXTEL COMMON
STOCK AND AMS COMMON STOCK"
5. Pro Forma Financial Information......... "NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS"
6. Material Contacts with the Company Being
Acquired................................ "SUMMARY"; "THE MERGER -- Background of the
Merger"; "-- Interests of Certain Persons in
the Merger"; "THE MERGER AGREEMENT"
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to Be Underwriters...................... Not Applicable
8. Interests of Named Experts and
Counsel................................. "LEGAL MATTERS"; "EXPERTS"
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not Applicable
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
CAPTION IN PROXY
FORM S-4 ITEM NUMBER AND HEADING STATEMENT/PROSPECTUS
-------------------------------- --------------------
<S> <C> <C>
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants............................. "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE"; "SUMMARY"; "NEXTEL COMMUNICATIONS,
INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA";
"NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS"; "NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS MANAGEMENT'S
DISCUSSION AND ANALYSIS"; "THE MERGER --
Compliance with Indentures."
11. Incorporation of Certain Information by
Reference............................... "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE"
12. Information with Respect to S-2 or S-3
Registrants............................. Not Applicable
13. Incorporation of Certain Information by
Reference............................... Not Applicable
14. Information With Respect to Registrants
Other Than S-3 or S-2 Registrants....... Not Applicable
C. INFORMATION ABOUT THE COMPANY BEING
ACQUIRED
15. Information with Respect to S-3
Companies............................... Not Applicable
16. Information with Respect to S-2 or S-3
Companies............................... Not Applicable
17. Information with Respect to Companies
Other Than S-2 or S-3 Companies......... "BUSINESS OF AMS"; "AMS COMMON STOCK HISTORICAL
TRADING AND DIVIDEND INFORMATION"; "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF AMS"; "CERTAIN INFORMATION
REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS
OF AMS"; "AMERICAN MOBILE SYSTEMS INCORPORATED
AND SUBSIDIARY SELECTED FINANCIAL DATA";
"AMERICAN MOBILE SYSTEMS INCORPORATED AND
SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS"; FINANCIAL STATEMENTS
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
CAPTION IN PROXY
FORM S-4 ITEM NUMBER AND HEADING STATEMENT/PROSPECTUS
-------------------------------- --------------------
<S> <C> <C>
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited...... Outside Front Cover Page of Proxy Statement/
Prospectus; "INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE"; "SUMMARY"; "THE
SPECIAL MEETING"; "THE MERGER"; "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF AMS"; "CERTAIN INFORMATION
REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS
OF AMS"
19. Information if Proxies, Consents or
Authorizations are not to be Solicited,
or in an Exchange Offer................. Not Applicable
</TABLE>
iii
<PAGE> 5
AMERICAN MOBILE SYSTEMS INCORPORATED
20920-C WARNER CENTER LANE
WOODLAND HILLS, CALIFORNIA 91367
(818) 593-3000
June 27, 1995
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of
American Mobile Systems Incorporated ("AMS") to be held on July 28, 1995, at the
Warner Center Hilton, 6360 Canoga Avenue, Woodland Hills, California 91367,
commencing at 10:00 a.m., local time. A notice of the special meeting, a proxy
card and a proxy statement/prospectus containing important information about the
matters to be acted upon at the special meeting are enclosed. All holders of
record of the Common Stock, par value $.01 per share (the "AMS Common Stock"),
of AMS as of the close of business on June 23, 1995 (the "Record Date"), are
entitled to notice of and to vote at the special meeting.
At the special meeting you will be asked to consider and vote upon a
proposal (the "Merger Proposal") relating to the proposed merger (the "Merger")
of AMS with Mobile Communications of Florida, Inc. ("MCF"), a wholly owned
subsidiary of NEXTEL Communications, Inc. ("Nextel"), summarized in the
accompanying notice of special meeting and further described in the accompanying
proxy statement/ prospectus. Pursuant to an Agreement and Plan of Merger, dated
as of April 25, 1995 (as amended, the "Merger Agreement"), by and among AMS,
Nextel and MCF, each issued and outstanding share of AMS Common Stock (except
for those shares held by Nextel or by AMS in its treasury) will be converted
into the right to receive (subject to certain possible adjustments) 0.62 of a
share of Nextel's Class A Common Stock, par value $.001 per share ("Nextel
Common Stock"). Following the Merger, AMS will be a wholly owned subsidiary of
Nextel.
The exchange ratio of 0.62 of a share of Nextel Common Stock for each share
of AMS Common Stock assumes that no additional shares of AMS Common Stock will
be issued prior to the Merger (other than upon exercise of currently outstanding
stock options). Although it is not anticipated that the exchange ratio will
change, if for any reason the exchange ratio is adjusted downward to less than
0.62 of a share of Nextel Common Stock for each share of AMS Common Stock,
proxies seeking approval of the Merger Agreement will be resolicited.
In connection with the Merger Agreement, Tele-Communications, Inc. ("TCI"),
the largest single stockholder of AMS, and Nextel have entered into a voting
agreement (the "Voting Agreement") pursuant to which TCI has agreed, among other
things, to vote (or grant a proxy to Nextel to vote) its shares of AMS Common
Stock in favor of the Merger. In addition, pursuant to the Merger Agreement
Nextel has agreed to vote its shares of AMS Common Stock in favor of the Merger.
As of the Record Date, TCI and Nextel together beneficially owned approximately
46% of the outstanding shares of AMS Common Stock. In addition, as of the Record
Date officers and directors of AMS owned 13,941 shares (or less than one
percent) of the then outstanding shares of AMS Common Stock, and such officers
and directors have indicated that they will vote such shares in favor of the
Merger Proposal.
If the Merger Proposal is not approved at the special meeting, the Merger
Agreement will be terminated and the transactions contemplated thereby will be
abandoned.
At the special meeting you will also be asked to consider and vote upon a
proposal (the "Election of Directors Proposal") to reelect to the AMS Board of
Directors Gary S. Howard and William L. Wedum (who will together constitute the
entire Board of Directors), each to serve until the consummation of the Merger,
or in the event the Merger is not consummated, until their respective successors
are duly elected and qualified or such persons resign or are removed. I have,
for personal reasons, determined not to seek reelection to the AMS Board of
Directors. If Messrs. Howard and Wedum are reelected to the AMS Board of
Directors and the Merger Proposal is approved and the transactions contemplated
by the Merger Agreement are consummated, Messrs. Howard and Wedum will resign
from the AMS Board.
As you may have read in the financial press, Nextel has agreed to a number
of pending transactions that, if consummated, would significantly expand the
specialized mobile radio channels and other assets of Nextel
<PAGE> 6
Stockholders of American Mobile Systems Incorporated
June 27, 1995
and provide additional funds for the build out of its Digital Mobile network.
The transactions include the acquisition by Nextel of specialized mobile radio
systems and related assets from Motorola, Inc. ("Motorola") and a substantial
investment by affiliates of Craig McCaw ("McCaw") in Nextel. These and other
pending transactions are described in the accompanying proxy
statement/prospectus. In each of these transactions, Nextel would issue either
shares of Nextel Common Stock and/or securities that are convertible into or
exercisable for such shares. If the Merger and the transactions with Motorola
and McCaw are consummated, and assuming that the maximum number of shares of
Nextel Common Stock (including those issuable upon conversion or exercise of
convertible securities) are issued in those transactions, immediately following
the consummation of those transactions former AMS stockholders (other than
Nextel) would hold shares of Nextel Common Stock representing approximately 1.5%
of the voting power of the outstanding shares of Nextel Common Stock (determined
on a fully diluted basis). In addition, if the Merger and all of Nextel's
pending transactions (including those with Motorola and McCaw) described in the
accompanying proxy statement/prospectus are consummated (and making the same
assumptions as those above), immediately following the consummation of those
transactions former AMS stockholders (other than Nextel) would hold shares of
Nextel Common Stock representing approximately 1.3% of the outstanding shares of
Nextel Common Stock (determined on a fully diluted basis).
The ability of Nextel to effect the Merger is limited by its obligations
under certain indentures (the "Indentures") pursuant to which Nextel (and, under
certain circumstances, certain entities to be acquired by Nextel in currently
pending transactions) have issued notes which are publicly held. As of the date
hereof, Nextel could not consummate the Merger in compliance with certain
applicable provisions of the Indentures. Nextel has advised AMS that it is
attempting to secure the necessary consents and/or waivers under the relevant
Indentures to consummate the Merger. For a more detailed discussion of relevant
provisions of the Indentures and the status of Nextel's efforts to secure the
necessary consents and/or waivers, as well as information concerning Nextel's
compliance with such provisions, see "THE MERGER -- Compliance with Indentures"
in the accompanying proxy statement/prospectus. The Merger is conditioned upon
Nextel obtaining all necessary consents and/or waivers under the Indentures.
AMS and Nextel previously entered into a Stock Purchase Agreement,
originally dated as of August 25, 1993 (as amended, the "Stock Purchase
Agreement"), pursuant to which Nextel had agreed to purchase a majority equity
interest in AMS. Upon the signing of the Merger Agreement, the Stock Purchase
Agreement was terminated and superseded. However, the Stock Purchase Agreement
will automatically return to full force and effect (and will no longer be deemed
terminated and superseded as a result of the signing of the Merger Agreement) if
the Merger Agreement is terminated under the following circumstances, among
others: (i) if the initial $300 million portion of the previously announced
investment in equity securities of Nextel of up to $1.1 billion by McCaw is not
consummated by September 15, 1995; or (ii) if Nextel is unable to obtain the
necessary consents and/or waivers relating to the Merger under the Indentures by
September 15, 1995. For additional information regarding the Stock Purchase
Agreement and the circumstances under which the Merger Agreement may be
terminated and the Stock Purchase Agreement reinstated, see "THE
MERGER -- Background of the Merger" and "THE MERGER AGREEMENT -- Termination" in
the accompanying proxy statement/prospectus. Stockholders will not vote on the
Stock Purchase Agreement at the special meeting, and the failure of the Merger
Agreement to receive the requisite favorable vote of AMS stockholders will not
result in a reinstatement of the Stock Purchase Agreement. However, if the Stock
Purchase Agreement is returned to full force and effect in accordance with the
provisions of the Merger Agreement it would still remain subject to approval by
the holders of a majority of the outstanding shares of AMS Common Stock. Such
approval would be sought at a special meeting of AMS stockholders that would be
convened for that purpose, and in connection therewith proxy materials
describing the material terms of the Stock Purchase Agreement and related
matters would be circulated.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Merger Agreement and has unanimously determined that the
Merger is fair to, and in the best interest of, AMS and the holders of AMS
Common Stock (other than Nextel). In addition, the Board of Directors has
retained Salomon Brothers Inc ("Salomon Brothers"), which rendered its oral
opinion to the Board of Directors on April 25, 1995 to the effect that, as of
such date, the consideration to be paid by Nextel in the Merger was fair, from a
financial point of view, to the public holders of the AMS Common Stock. Salomon
Brothers has
Page 2
<PAGE> 7
Stockholders of American Mobile Systems Incorporated
June 27, 1995
confirmed such opinion by delivering to the Board of Directors its written
opinion, dated the date hereof. A copy of Salomon Brothers' written opinion,
which sets forth the matters considered and the scope of the review undertaken
in connection therewith, is attached as Appendix B to the accompanying proxy
statement/prospectus.
On April 25, 1995, the last full trading day prior to the public
announcement of the execution of the Merger Agreement, the closing sales prices
on the Nasdaq National Market of the Nextel Common Stock and AMS Common Stock
were $15 5/8 and $4 3/4 respectively. On June 26, 1995, the last full trading
day prior to the date of the accompanying proxy statement/prospectus, the
closing sales prices on the Nasdaq National Market of the Nextel Common Stock
and the AMS Common Stock were $14 1/2 and $8 3/8 respectively.
The accompanying proxy statement/prospectus contains important information
concerning the Merger Agreement and related matters. I urge you to read it and
the copy of the Merger Agreement, which is included in the proxy
statement/prospectus as Appendix A, as well as all other Appendices to the proxy
statement/ prospectus, carefully.
Holders of AMS Common Stock are not entitled to dissenter's rights or
similar rights of appraisal under Delaware law in connection with the actions to
be considered at the special meeting.
YOUR BOARD OF DIRECTORS, BASED UPON, AMONG OTHER THINGS, THE OPINION
RENDERED BY SALOMON BROTHERS AS TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW,
OF THE CONSIDERATION TO BE RECEIVED BY THE PUBLIC HOLDERS OF THE AMS COMMON
STOCK IN THE MERGER, UNANIMOUSLY RECOMMENDS THAT HOLDERS OF AMS COMMON STOCK
VOTE IN FAVOR OF THE MERGER PROPOSAL. YOUR BOARD OF DIRECTORS ALSO UNANIMOUSLY
RECOMMENDS THAT HOLDERS OF AMS COMMON STOCK VOTE IN FAVOR OF THE ELECTION OF
DIRECTORS PROPOSAL.
Whether or not you are personally able to attend the special meeting, you
should complete, sign and date the enclosed proxy card and return it in the
enclosed prepaid envelope as soon as possible. This action will not limit your
right to vote in person if you wish to attend the special meeting and vote
personally.
If you have any questions prior to the special meeting or need further
assistance, please call AMS' corporate secretary, Alice L. Cheung, at (818)
593-3000.
Sincerely yours,
Richard G. Somers
Chairman of the Board of Directors,
President and Chief Executive Officer
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR
AMS COMMON STOCK AT THIS TIME
Page 3
<PAGE> 8
AMERICAN MOBILE SYSTEMS INCORPORATED
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 28, 1995
NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of
the holders of the Common Stock, par value $.01 per share ("AMS Common Stock"),
of American Mobile Systems Incorporated, a Delaware corporation ("AMS"), will be
held on July 28, 1995, at the Warner Center Hilton, 6360 Canoga Avenue, Woodland
Hills, California 91367, commencing at 10:00 a.m., local time, for the following
purposes:
1. To consider and vote upon a proposal (the "Merger Proposal") to
approve and adopt the Agreement and Plan of Merger, dated as of April 25,
1995 (as amended, the "Merger Agreement"), by and among AMS, NEXTEL
Communications, Inc. ("Nextel") and Mobile Communications of Florida, Inc.,
a wholly owned subsidiary of Nextel ("MCF"). Pursuant to the Merger
Agreement, among other things, (i) MCF will merge (the "Merger") with and
into AMS, with the result that AMS will become a wholly owned subsidiary of
Nextel, and (ii) each outstanding share of AMS Common Stock (other than
shares of AMS Common Stock held by Nextel or by AMS in its treasury) will
be converted into the right to receive (subject to certain possible
adjustments) 0.62 of a share of Nextel Class A Common Stock, par value
$.001 per share.
2. To consider and vote upon a proposal (the "Election of Directors
Proposal") to reelect Gary S. Howard and William L. Wedum to the Board of
Directors of AMS (the "AMS Board"), each to serve until the consummation of
the Merger or, in the event the Merger is not consummated, until his
successor is duly elected and qualified or he resigns or is removed.
3. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
The Merger Agreement (including the related annexes but excluding exhibits
and schedules) is attached as Appendix A to the accompanying proxy
statement/prospectus and a summary of the material terms and provisions thereof
is set forth under the caption "THE MERGER AGREEMENT" in the proxy statement/
prospectus.
Information regarding Messrs. Howard and Wedum, the nominees of AMS for
reelection to the AMS Board, is set forth in the accompanying proxy
statement/prospectus under the caption "CERTAIN INFORMATION REGARDING THE
DIRECTORS AND OFFICERS OF AMS." If Messrs. Howard and Wedum are reelected to the
AMS Board and the Merger Proposal is approved and the transactions contemplated
by the Merger Agreement are consummated, Messrs. Howard and Wedum will resign
from the AMS Board.
Holders of record of AMS Common Stock as of the close of business on June
23, 1995 are entitled to notice of and to vote at the Special Meeting and any
adjournments or postponements thereof.
Approval of the Merger Proposal requires the affirmative vote of the
holders of a majority of the issued and outstanding shares of AMS Common Stock
entitled to vote thereon. The two directors to be elected at the Special Meeting
will be elected by a plurality of the total votes cast at the Special Meeting.
Holders of AMS Common Stock are not entitled to dissenter's rights or similar
rights of appraisal under Delaware law in connection with the actions to be
taken at the Special Meeting.
Stockholders entitled to vote at the Special Meeting are encouraged to
carefully review the accompanying proxy statement/prospectus (including the
Appendices thereto) in considering the Merger Proposal and the Election of
Directors Proposal and to complete, sign, date and return the enclosed proxy
card in the enclosed postage pre-paid envelope. This action will not limit the
right of a stockholder to vote in person if he or she wishes to attend the
Special Meeting and vote personally. The cooperation of all stockholders in
promptly returning the enclosed proxy card will be appreciated as it will reduce
AMS' expense in connection with this
<PAGE> 9
solicitation and enable its management and employees to continue their normal
duties for your benefit with minimal interruption for additional solicitation.
By Order of the Board of Directors,
Alice L. Cheung
Secretary
Woodland Hills, California
June 27, 1995
PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY,
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING.
2
<PAGE> 10
PROXY STATEMENT OF
AMERICAN MOBILE SYSTEMS INCORPORATED
FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD JULY 28, 1995
------------------------
PROSPECTUS OF
NEXTEL COMMUNICATIONS, INC.
UP TO 4,201,000 SHARES OF CLASS A COMMON STOCK
------------------------
This Proxy Statement/Prospectus is being furnished to the holders of record
of the Common Stock, par value $.01
per share ("AMS Common Stock"), of American Mobile Systems Incorporated, a
Delaware corporation ("AMS"), as of the close of business on June 23, 1995 (the
"Record Date"), in connection with the solicitation of proxies by AMS' Board of
Directors (the "AMS Board") for use at the special meeting of stockholders
scheduled to be held on July 28, 1995 at the Warner Center Hilton, 6360 Canoga
Avenue, Woodland Hills, California 91367, commencing at 10:00 a.m., local time,
and at any and all postponements or adjournments thereof (the "Special
Meeting"). At the Special Meeting, holders of AMS Common Stock will consider and
vote upon two proposals, which are set forth in the accompanying Notice of
Special Meeting of Stockholders and described in detail in this Proxy
Statement/Prospectus. The first proposal (the "Merger Proposal") is to approve
and adopt the Agreement and Plan of Merger, dated as of April 25, 1995 (as
amended, the "Merger Agreement"), by and among NEXTEL Communications, Inc., a
Delaware corporation ("Nextel"), Mobile Communications of Florida, Inc., a
Delaware corporation and a wholly owned subsidiary of Nextel ("MCF"), and AMS.
The Merger Agreement provides for the merger of MCF with and into AMS (the
"Merger"), pursuant to which AMS will be the surviving corporation (the
"Surviving Corporation") and each outstanding share of AMS Common Stock (other
than any shares held by AMS in its treasury and shares held by Nextel or MCF or
issuable to Nextel upon exercise of the Option (as defined below) (collectively,
the "Excluded Shares")) will be converted into the right to receive (subject to
certain possible adjustments) 0.62 of a share of Class A Common Stock, par value
$.001 per share, of Nextel ("Nextel Common Stock"). The second proposal (the
"Election of Directors Proposal") is to reelect two directors to the AMS Board:
Gary S. Howard and William L. Wedum. If the Merger Agreement is approved at the
Special Meeting and the Merger is thereafter consummated, Messrs. Howard and
Wedum will resign from the AMS Board and be replaced by designees of Nextel. THE
AMS BOARD RECOMMENDS A VOTE FOR BOTH THE MERGER PROPOSAL AND THE ELECTION OF
DIRECTORS PROPOSAL. See "THE MERGER", "THE MERGER AGREEMENT" and "ELECTION OF
DIRECTORS OF AMS."
This Proxy Statement/Prospectus also constitutes the prospectus of Nextel
with respect to shares of Nextel Common Stock to be issued (i) in connection
with the Merger in exchange for outstanding shares of AMS Common Stock and (ii)
upon the exercise of any employee stock options to acquire shares of AMS Common
Stock not exercised prior to the Effective Time of the Merger (defined below).
Following the Merger, each such employee stock option to acquire shares of AMS
Common Stock remaining outstanding will represent the right to purchase that
number of shares of Nextel Common Stock that the holder would have been entitled
to receive had such holder exercised such option immediately prior to the Merger
and will be modified and adjusted in connection with the Merger to permit it to
become exercisable to acquire Nextel Common Stock. Shares of Nextel Common Stock
are currently traded on the Nasdaq National Market ("Nasdaq NM"). On April 25,
1995, the last full trading day prior to the public announcement of the
execution of the Merger Agreement, the closing sales prices on the Nasdaq NM of
the Nextel Common Stock and the AMS Common Stock were $15 5/8 and $4 3/4,
respectively. On June 26, 1995, the last full trading day prior to the date of
this Proxy Statement/Prospectus, the closing sales prices on the Nasdaq NM of
the Nextel Common Stock and the AMS Common Stock were $14 1/2 and $8 3/8,
respectively. (Continued on next page)
SEE "RISK FACTORS", BEGINNING ON PAGE 30, FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT HOLDERS OF THE AMS COMMON STOCK SHOULD CONSIDER IN CONNECTION WITH
THE MATTERS THEY ARE BEING ASKED TO VOTE UPON, INCLUDING THEIR PROSPECTIVE
INVESTMENT IN SHARES OF NEXTEL COMMON STOCK.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Proxy Statement/Prospectus and accompanying form of proxy are first
being mailed to holders of shares of AMS Common Stock on or about June 28, 1995.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS
JUNE 27, 1995.
<PAGE> 11
(Continued from cover page)
Pursuant to the applicable terms of the Delaware General Corporation Law
(the "DGCL"), the Merger Proposal must be approved by the holders of a majority
of the issued and outstanding shares of AMS Common Stock entitled to vote
thereon. The two directors to be reelected pursuant to the Election of Directors
Proposal will be elected by a plurality of the total votes cast at the Special
Meeting. Each share of AMS Common Stock entitles the holder to cast one vote on
the Merger Proposal and on the election of each nominee to the AMS Board. See
"THE SPECIAL MEETING -- Votes Required for Approval; Quorum."
In connection with the Merger Agreement, Tele-Communications, Inc. ("TCI"),
the largest single stockholder of AMS, and Nextel have entered into a voting
agreement (the "Voting Agreement") pursuant to which TCI has agreed, among other
things, to vote (or grant a proxy to Nextel to vote) its shares of AMS Common
Stock in favor of the Merger. In addition, pursuant to the Merger Agreement
Nextel has agreed to vote its shares of AMS Common Stock in favor of the Merger.
As of the Record Date, TCI and Nextel together beneficially owned approximately
46% of the outstanding shares of AMS Common Stock. In addition, as of the Record
Date officers and directors of AMS owned 13,941 shares (or less than one
percent) of the then outstanding shares of AMS Common Stock, and such officers
and directors have indicated that they will vote such shares in favor of the
Merger Proposal. See "THE MERGER -- Stockholder Voting Agreement."
A copy of the Merger Agreement (with the indicated attachments thereto), is
included as Appendix A to this Proxy Statement/Prospectus. Holders of shares of
AMS Common Stock are urged to read this Proxy Statement/Prospectus, including
Appendix A, in its entirety.
<PAGE> 12
AVAILABLE INFORMATION
Nextel is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (collectively, the "Exchange Act") and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information filed with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
Regional Offices at 7 World Trade Center, 13th Floor, New York, New York 10048,
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials also may be obtained by mail from the Public
Reference Section of the Commission, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
Nextel has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), which includes the
Proxy Statement of AMS with respect to the Merger Proposal and the Election of
Directors Proposal and the Prospectus of Nextel with respect to the offering of
the Nextel Common Stock. This Proxy Statement/Prospectus does not contain all
the information set forth in the Registration Statement, certain portions of
which are omitted in accordance with the rules and regulations of the Commission
and to which reference is hereby made. Statements made in this Proxy
Statement/Prospectus as to the contents of any contract, agreement or other
document referred to herein are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. Copies of the Registration
Statement together with exhibits may be inspected at the office of the
Commission in Washington, D.C. without charge and copies thereof may be obtained
therefrom upon payment of a prescribed fee.
Certain financial information relating to OneComm Corporation, a Delaware
corporation ("OneComm"), and Dial Page, Inc., a Delaware corporation ("Dial
Page") (including financial information relating to Transit Communications
Corporation ("Transit") which was acquired by Dial Page), which has been
obtained from certain periodic reports filed by OneComm and Dial Page with the
Commission pursuant to the applicable requirements of the Exchange Act, is
included herein by Nextel to comply with certain accounting rules and financial
information requirements promulgated by the Commission. Although Nextel has
entered into definitive agreements contemplating the merger of each of OneComm
and Dial Page with and into Nextel, as a result of which Nextel will upon such
respective mergers be deemed to be the successor by operation of law to OneComm
and Dial Page, Nextel does not presently control OneComm or Dial Page.
Accordingly, Nextel does not have the ability to verify the accuracy,
completeness or correctness of such financial information relating to OneComm or
Dial Page and can offer no assurances concerning any of such information, other
than that it has been accurately reproduced from the relevant reports filed with
the Commission under the Exchange Act by OneComm or Dial Page.
All financial information contained in this Proxy Statement/Prospectus
concerning the Motorola SMR Business (as defined herein) has been obtained from
Motorola, Inc., a Delaware corporation ("Motorola"), and is included herein by
Nextel to comply with certain accounting rules and financial information
requirements promulgated by the Commission. Although Nextel contemplates that it
will in the future acquire the Motorola SMR Business upon consummation of the
Motorola Transaction (as defined herein), Nextel does not presently control such
business operations. Accordingly, Nextel does not have the ability to verify the
accuracy, completeness or correctness of such financial information concerning
the Motorola SMR Business and can offer no assurances concerning any of such
information, other than that it has been accurately reproduced from financial
information made available to Nextel by Motorola.
Subject to the foregoing, all information contained in this Proxy
Statement/Prospectus concerning AMS has been supplied by AMS and all other
information has been supplied by Nextel. References to AMS and Nextel in this
Proxy Statement/Prospectus mean the respective corporations and their respective
consolidated subsidiaries, except as the context may otherwise indicate.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY NEXTEL, AMS OR ANY OTHER PERSON. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY,
IN ANY JURISDICTION TO OR FROM ANY PERSON TO
3
<PAGE> 13
WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS
PROXY STATEMENT/PROSPECTUS OR THE AFFAIRS OF NEXTEL OR AMS SINCE THE DATE HEREOF
OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL
OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL
REQUEST DIRECTED TO NEXTEL COMMUNICATIONS, INC., 201 ROUTE 17 NORTH, RUTHERFORD,
NJ 07070, ATTENTION: ELIZABETH G. LONG, SECRETARY, TELEPHONE: (201) 438-1400. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH REQUESTS SHOULD BE
MADE BY JULY 21, 1995.
The information in the following documents filed by Nextel with the
Commission (File No. 0-19656) pursuant to the Exchange Act is incorporated by
reference in this Proxy Statement/Prospectus: (i) Transition Report on Form 10-K
for the transition period from April 1, 1994 to December 31, 1994 filed with the
Commission on March 27, 1995, as amended by Form 10-K/A filed with the
Commission on May 1, 1995 and as further amended by Form 10-K/A2, filed with the
Commission on May 31, 1995; (ii) Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995 filed with the Commission on May 15, 1995; (iii) Current
Reports on Form 8-K for events, (a) dated January 10, 1995 and filed with the
Commission on January 10, 1995; (b) dated January 31, 1995 and filed with the
Commission on February 1, 1995; (c) dated February 12, 1995 and filed with the
Commission on February 14, 1995; (d) dated February 17, 1995 and filed with the
Commission on March 2, 1995; (e) dated April 3, 1995 and filed with the
Commission on April 11, 1995; (f) dated April 4, 1995 and filed with the
Commission on April 11, 1995; (g) dated April 25, 1995 and filed with the
Commission on May 2, 1995; (h) dated May 12, 1995 and filed with the Commission
on May 22, 1995; and (i) dated June 7, 1995 and filed with the Commission on
June 8, 1995; and (iv) the Registration Statement on Form S-1 of Nextel, as
amended, dated as of January 27, 1992 (No. 33-43415), with respect to the
information contained under the heading "Description of Capital Stock" which was
incorporated by reference into the Registration Statement on Form 8-A of Nextel,
dated as of January 16, 1992.
All documents filed by Nextel pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act on or after the date of this Proxy
Statement/Prospectus and prior to the date of the Special Meeting, shall be
deemed to be incorporated by reference into this Proxy Statement/Prospectus and
to be part hereof from the date of filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement/Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or was deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement/Prospectus.
The information relating to Nextel contained in this Proxy
Statement/Prospectus should be read together with the information in the
documents incorporated by reference.
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<PAGE> 14
TABLE OF CONTENTS
<TABLE>
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AVAILABLE INFORMATION................................................................. 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..................................... 4
TABLE OF CONTENTS..................................................................... 5
SUMMARY............................................................................... 8
A. INTRODUCTION..................................................................... 8
B. THE PARTIES TO THE MERGER........................................................ 9
C. THE SPECIAL MEETING.............................................................. 19
D. THE MERGER....................................................................... 20
E. ELECTION OF DIRECTORS OF AMS..................................................... 27
F. COMPARATIVE PER SHARE DATA....................................................... 28
G. HISTORICAL TRADING INFORMATION OF NEXTEL AND AMS
COMMON STOCK.................................................................... 29
RISK FACTORS.......................................................................... 30
History of and Future Expectations of Losses and Negative Cash Flow................. 30
Uncertainty of Pending Transactions................................................. 31
Risks of Implementation of Digital Mobile Networks.................................. 31
Implementation of Digital Mobile Networks Subject to Risks of
Developing Technology............................................................ 33
Nextel to Require Financing......................................................... 35
Risks of a Holding Company Structure................................................ 40
Success of Digital Mobile Networks Is Dependent on the Ability of
Nextel to Compete................................................................ 41
Reliance on One Principal Supplier in Implementation of Digital
Mobile Networks.................................................................. 43
Nextel's Prospects Are Dependent on Key Personnel................................... 44
Nextel's Prospects Are Dependent on Governmental Regulation......................... 44
Nextel's Assets Primarily Consist of Intangible FCC Licenses........................ 47
Nextel Susceptible to Control by Significant Stockholders........................... 47
Potential Dilution from Pending Transactions........................................ 49
Shares Eligible for Future Sale..................................................... 50
Dividend Policy Limits Expectation of Future Dividends.............................. 50
Potential Conflict of Interest Relationship With Motorola May Affect
Prospects of Nextel.............................................................. 51
Concerns About Mobile Communications Health Risk May Affect
Prospects of Nextel.............................................................. 52
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA............................................................. 53
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS................................................................ 56
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS MANAGEMENT'S
DISCUSSION AND ANALYSIS............................................................. 68
Results of Operations............................................................... 68
Liquidity and Capital Resources..................................................... 69
THE SPECIAL MEETING................................................................... 71
Time and Place; Purpose............................................................. 71
Votes Required for Approval; Quorum................................................. 71
</TABLE>
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Proxies and Effects of Abstentions.................................................. 71
Representative from Accounting Firm................................................. 72
THE MERGER............................................................................ 72
Background of the Merger............................................................ 72
Reasons of Nextel for Engaging in the Merger........................................ 92
Recommendation of the AMS Board; Reasons of AMS for Engaging in the Merger.......... 93
Fairness Opinion.................................................................... 95
Compliance with Indentures.......................................................... 99
Anti-Dilutive Purchase Rights....................................................... 103
Stockholder Voting Agreement........................................................ 105
Interests of Certain Persons in the Merger.......................................... 105
No Dissenters' Right of Appraisal................................................... 105
Accounting Treatment................................................................ 106
Certain Federal Income Tax Consequences............................................. 106
THE MERGER AGREEMENT.................................................................. 107
General; Effective Time............................................................. 107
Consideration to be Received in the Merger.......................................... 107
Options and Warrants................................................................ 108
Exchange of Certificates............................................................ 108
Restrictions on Transferability..................................................... 109
Conditions to the Merger............................................................ 109
Regulatory Approvals................................................................ 110
Certain Covenants................................................................... 111
Indemnification of Directors and Officers of AMS.................................... 112
Termination......................................................................... 112
Expenses............................................................................ 113
COMPARISON OF RIGHTS OF HOLDERS OF SHARES OF EACH OF NEXTEL COMMON STOCK AND AMS
COMMON STOCK........................................................................ 114
Introduction........................................................................ 114
Authorized Capital.................................................................. 114
Board or Stockholder Approved Preferred Stock....................................... 115
Proposed Terms of Nextel New Preferred Stock........................................ 115
Voting Rights....................................................................... 116
Election of Board of Directors...................................................... 117
Special Meetings of Stockholders.................................................... 119
Stockholder Action by Written Consent............................................... 119
Amendment of Certificate of Incorporation and By-Laws............................... 119
Vote on Merger, Consolidation or Sale of Substantially All Assets................... 120
Delaware Anti-Takeover Statute...................................................... 120
Preemptive Rights................................................................... 121
Liability and Indemnification of Officers and Directors............................. 121
Payment of Dividends................................................................ 122
Distributions Upon Liquidation...................................................... 122
ELECTION OF DIRECTORS OF AMS.......................................................... 122
BUSINESS OF AMS....................................................................... 124
General............................................................................. 124
Recent Material Acquisitions and Divestitures....................................... 124
SMR Services........................................................................ 125
</TABLE>
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Community Repeater Service.......................................................... 127
Antenna Tower Operations............................................................ 127
Marketing........................................................................... 127
Equipment........................................................................... 127
Employees........................................................................... 128
Government Regulation............................................................... 128
Competition......................................................................... 131
ESMR Digital Mobile Network Application............................................. 132
Properties.......................................................................... 133
Legal Proceedings................................................................... 133
AMS COMMON STOCK HISTORICAL TRADING AND DIVIDEND
INFORMATION......................................................................... 135
Historical Trading Price of the AMS Common Stock.................................... 135
Dividend Information................................................................ 135
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF AMS................................................................... 136
Security Ownership of Certain Beneficial Owners..................................... 136
Security Ownership of Directors and Management...................................... 136
CERTAIN INFORMATION REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS OF AMS............. 138
Identification of Directors and Officers; Business Experience....................... 138
Attendance of Directors at Meetings................................................. 139
Executive Compensation.............................................................. 140
Compensation of Directors........................................................... 141
Employment Arrangements............................................................. 141
Committees of the AMS Board; Compensation Committee Interlocks and
Insider Participation............................................................ 142
Report of the AMS Board on Executive Compensation................................... 142
Performance Graph................................................................... 144
Certain Relationships and Related Transactions...................................... 144
Compliance with Section 16(a) of the Securities Exchange Act of 1934................ 146
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY SELECTED
FINANCIAL DATA...................................................................... 147
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................... 150
Results of Operations............................................................... 150
Liquidity and Capital Resources..................................................... 152
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................................. 153
STOCKHOLDER PROPOSALS................................................................. 154
LEGAL MATTERS......................................................................... 154
EXPERTS............................................................................... 154
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
APPENDICES:
MERGER AGREEMENT.................................................................... A-1
OPINION OF SALOMON BROTHERS INC..................................................... B-1
VOTING AGREEMENT.................................................................... C-1
</TABLE>
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SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial statements,
including the notes thereto, and pro forma financial information included or
incorporated by reference in this Proxy Statement/Prospectus, including the
Appendices hereto. Holders of shares of AMS Common Stock are urged to read this
Proxy Statement/Prospectus, including the Appendices hereto, in its entirety.
References to a fiscal year when used with respect to Nextel, if ending on or
prior to March 31, 1994, shall mean the fiscal year ending on March 31 of such
year and if ending subsequent to March 31, 1994, shall mean the fiscal year
ending on December 31 of such year, and when used with respect to AMS shall mean
the fiscal year ending on June 30 of such year. Nextel has changed its fiscal
year to a calendar year-end effective December 31, 1994, which has resulted in a
nine-month transition period from April 1, 1994 through December 31, 1994.
Nextel had been known as Fleet Call, Inc. prior to the approval of its
change of name at the July 22, 1993 special meeting of stockholders of Nextel.
Information contained herein gives effect to the merger of a subsidiary of
Nextel with Dispatch Communications, Inc. ("DisCom") on July 22, 1993 (the
"DisCom Merger"), the acquisition of approximately 1.5 million shares of Nextel
Common Stock on April 4, 1994 (the "NTT Share Purchase") by Nippon Telegraph and
Telephone Corporation (together with its subsidiary NTT America, Inc., "NTT"),
the merger of a subsidiary of Nextel with PowerFone Holdings, Inc. ("PowerFone")
on April 14, 1994 (the "PowerFone Merger"), the share exchange with Questar
Corporation ("Questar"), the sole stockholder of Questar Telecom, Inc. ("QTI")
and with the stockholders of Advanced MobilComm of Nevada, Inc., Advanced
MobilComm of Southern California, Inc. and Advanced MobilComm of Colorado, Inc.
(such three entities, collectively "AMI-West") on August 4, 1994 (the
"Questar/AMI Share Exchange"), and the acquisition by Nextel of a minority
equity interest in Clearnet Communications, Inc., formerly an Ontario
corporation and currently a Canadian corporation ("Clearnet") on October 19,
1994 (the "Clearnet Transaction"), but does not, unless otherwise specified,
include the acquisition of a minority interest in Corporacion Mobilcom S.A. de
C.V. ("Mobilcom") or Nextel's pending transactions with Digital Radio, L.L.C., a
limited liability company formed under the laws of the State of Washington (the
"McCaw Investor") and Craig O. McCaw ("McCaw"), Motorola, OneComm, Dial Page and
Comcast Corporation, a Pennsylvania corporation ("Comcast"). See "-- B. THE
PARTIES TO THE MERGER -- Nextel -- Pending Transactions"; "-- Recent
Developments" and "-- D. THE MERGER-- Anti-Dilutive Purchase Rights" below.
Unless otherwise specified, information contained herein with respect to Nextel
and AMS does not give effect to the Merger described herein.
A. INTRODUCTION
This Proxy Statement/Prospectus relates to proposals that the holders of
shares of AMS Common Stock will be asked to consider and vote upon at the
Special Meeting. At the Special Meeting, holders of record of AMS Common Stock,
as of the close of business on the Record Date, will consider and vote upon the
Merger Proposal and the Election of Directors Proposal.
The Merger Proposal calls for the approval and adoption of the Merger
Agreement. The Merger Agreement provides for the merger of MCF with and into
AMS, with AMS as the Surviving Corporation. In the Merger each outstanding share
of AMS Common Stock (other than the Excluded Shares) will be converted into the
right to receive (subject to certain possible adjustments) 0.62 of a share of
Nextel Common Stock, and AMS will become a wholly owned subsidiary of Nextel. A
maximum of 4,200,948 shares of Nextel Common Stock will become issuable in
connection with the Merger. See "-- D. THE MERGER -- Effects of the Merger."
The consummation of the Merger is conditioned upon the prior consummation
of Nextel's pending transactions with the McCaw Investor and McCaw, and it is
currently anticipated that the Merger will also occur subsequent to the
consummation of Nextel's pending transaction with Motorola. For a summary of
Nextel's pending transactions with the McCaw Investor and McCaw and with
Motorola and certain related conditions to the consummation of the Merger, see
"-- B. THE PARTIES TO THE MERGER -- Nextel -- Pending Transactions" and
"-- D. THE MERGER -- Conditions to the Merger."
8
<PAGE> 18
The McCaw Transaction (as defined herein) contemplates, among other things,
the creation of certain new classes of preferred stock of Nextel and the
issuance to the McCaw Investor of units including shares of such preferred stock
(which would be convertible into, in the aggregate, approximately 24,500,000
shares of Nextel Common Stock) and options exercisable by the McCaw Investor to
acquire an aggregate of 35,000,000 shares of Nextel Common Stock. The McCaw
Transaction also would involve the implementation of several related changes to
the authorized capital structure of Nextel set forth in its Certificate of
Incorporation and to the By-laws of Nextel (as amended, the "Nextel Charter" and
"Nextel By-laws", respectively) needed both to accommodate the contemplated
issuances of securities to the McCaw Investor described above and to implement
certain procedures and mechanisms relating to the corporate governance of Nextel
pursuant to which the McCaw Investor, or other persons or entities controlled by
McCaw, would be able to exert significant influence over a number of areas that
are believed to be central to Nextel's future operating plans and strategic
direction.
The Motorola Transaction (as defined herein) contemplates, among other
things, the merger of Nextel with and into ESMR, Inc., a Delaware corporation
and currently a wholly owned subsidiary of Motorola, with ESMR, Inc., as the
surviving corporation of the merger with Nextel, renamed Nextel Communications,
Inc. (such surviving corporation sometimes referred to herein as "New Nextel")
and the conversion of each share of Nextel Common Stock outstanding at the time
of such merger (including up to 59,500,000 shares of Nextel Common Stock
effectively issued to Motorola in connection therewith) into one share of common
stock of New Nextel.
Unless otherwise specified or the context otherwise requires, references to
Nextel herein shall be deemed to constitute references to New Nextel, as
successor to Nextel, and references to Nextel Common Stock shall be deemed to
constitute references to the common stock of New Nextel, as appropriate, in each
case at all times following the consummation of the Motorola Transaction. The
common stock of New Nextel will have identical rights, powers, designations and
preferences, and limitations thereon, to the Nextel Common Stock. Additionally,
references to Nextel and such deemed references to New Nextel also shall assume
the implementation of the changes to Nextel's authorized capital structure,
board composition and related corporate governance procedures contemplated to be
effected in connection with the McCaw Transaction, in each case at all times
following the completion of the McCaw Transaction.
The Election of Directors Proposal calls for the reelection of two
directors, Gary S. Howard and William L. Wedum, for a term expiring upon the
consummation of the Merger or, if the Merger is not consummated, until their
successors are duly elected and qualified or such persons resign or are removed.
See "-- E. ELECTION OF DIRECTORS OF AMS."
B. THE PARTIES TO THE MERGER
NEXTEL
Business Description
Nextel's business consists almost exclusively of providing wireless
communications services to its customers utilizing Specialized Mobile Radio
("SMR") frequencies licensed to its subsidiaries by the Federal Communications
Commission ("FCC"). Nextel is the leading provider of SMR wireless
communications services in more than 25 states, including 44 of the top 50
metropolitan areas in the United States, providing service as of March 31, 1995
to approximately 318,000 analog SMR units and approximately 22,600 units
utilizing Nextel's Digital Mobile networks (as defined below). Nextel's
operating revenues primarily arise from two-way radio dispatch and mobile
telephone service provided on frequencies licensed to its subsidiaries by the
FCC and, to a lesser extent, from sales and maintenance of related equipment.
Nextel's business plans and efforts are to a large extent directed toward
replacing the traditional analog SMR systems that it currently operates with
advanced mobile communications systems employing digital technology with a
multi-site configuration designed to permit frequency re-use ("Digital Mobile
networks"). Nextel is implementing its Digital Mobile networks utilizing digital
technology developed by Motorola (now referred to as the "Integrated Dispatch
Enhanced Network" or "iDEN" and previously known as the "Motorola Integrated
9
<PAGE> 19
Radio System" or "MIRS"). As of March 31, 1995, Nextel's Digital Mobile networks
were operating throughout most of California and in the greater metropolitan
areas of New York City and Chicago. In addition, as of such date, Nextel had
Digital Mobile networks under construction in several other market areas,
including Las Vegas, Reno, Detroit, the mid-Atlantic and New England, and in the
design and implementation stages in Ohio, western New York State, Pennsylvania,
Texas and Florida.
The address and telephone number of the principal executive offices of
Nextel are 201 Route 17 North, Rutherford, New Jersey 07070, (201) 438-1400.
Pending Transactions
In addition to the Merger, Nextel has announced a number of significant
pending transactions in connection with the proposed expansion of its service
areas and development of its Digital Mobile networks throughout the United
States and elsewhere in North America. A brief summary of each of such
transactions is set forth below.
The statements describing Nextel's pending transactions set forth below are
summaries of the relevant provisions of certain of the definitive agreements
with respect to each such transaction and do not purport to be complete. Each of
such definitive agreements described below has been previously filed with the
Commission by Nextel.
McCaw Transaction. Nextel, the McCaw Investor and McCaw have entered into
a Securities Purchase Agreement dated as of April 4, 1995 (the "McCaw Securities
Purchase Agreement") which contemplates one completed and a number of potential
equity investments by the McCaw Investor in several types of Nextel securities
and certain related agreements and transactions (collectively, the "McCaw
Transaction"). In the McCaw Securities Purchase Agreement and in certain other
related agreements and documents, Nextel, the McCaw Investor and McCaw have
established the terms and conditions on which, among other matters, (i) the
McCaw Investor purchased on April 5, 1995, 1,220,000 shares of Nextel Common
Stock (the "McCaw Initial Shares") for an aggregate purchase price of
$14,945,000; and (ii) at a subsequent closing, the McCaw Investor would purchase
from Nextel, for an aggregate purchase price of $300,000,000, an aggregate of
8,163,265 units (the "McCaw Units") consisting of a total of (a) 8,163,265
shares of a newly created Class A Preferred Stock (as defined herein, see
"COMPARISON OF RIGHTS OF HOLDERS OF SHARES OF EACH OF NEXTEL COMMON STOCK AND
AMS COMMON STOCK -- Proposed Terms of Nextel New Preferred Stock" for a more
complete discussion of the terms and preferences of such class of preferred
stock); (b) 82 shares of a newly created Class B Preferred Stock (as defined
herein, see "COMPARISON OF RIGHTS OF HOLDERS OF SHARES OF EACH OF NEXTEL COMMON
STOCK AND AMS COMMON STOCK -- Proposed Terms of Nextel New Preferred Stock" for
a more complete discussion of the terms and preferences of such class of
preferred stock); and (c) three separate options (the "McCaw Options"),
exercisable for periods of two, four and six years, respectively, from the
closing of the purchase of the McCaw Units, to acquire an aggregate of up to
35,000,000 shares of Nextel Common Stock at exercise prices ranging from $15.50
to $21.50 per share. Such shares of Class A Preferred Stock and Class B
Preferred Stock will be convertible into an aggregate of approximately
24,500,000 shares of Nextel Common Stock. Additionally, in connection with such
potential equity investments, Nextel, the McCaw Investor and McCaw reached
agreement on a number of matters relating to the ownership, acquisition and
disposition of the Class A Preferred Stock and the Class B Preferred Stock,
including without limitation, the granting of registration and anti-dilutive
rights to the McCaw Investor and certain affiliates, limitations on investments
by the McCaw Investor and its affiliates in excess of approximately 45% of the
voting securities of Nextel, and certain transfer restrictions applicable to the
shares of Nextel capital stock held by the McCaw Investor and certain
affiliates. Nextel currently is soliciting the requisite approval of its
stockholders in connection with the McCaw Transaction and has distributed a
proxy statement/prospectus dated June 7, 1995 in connection therewith. Nextel
currently anticipates that such stockholder vote will be taken at a
stockholders' meeting for that purpose, which meeting is presently scheduled to
be held on July 7, 1995. Finally, in connection with the execution of the McCaw
Securities Purchase Agreement, the McCaw Investor and Motorola reached agreement
on the terms of a purchase by the McCaw Investor of 4,000,000 shares of Nextel
Common Stock from Motorola (which purchase is subject to the closing of the
McCaw
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Transaction and to the closing of the Motorola Transaction) and, subject to
certain conditions, the grant by Motorola to McCaw of options to purchase up to
an additional 9,000,000 shares of Nextel Common Stock held by Motorola. See
"-- Motorola Transaction."
Nextel, the McCaw Investor and McCaw also reached agreement on matters
relating to the governance of Nextel associated with such potential investments
including, without limitation, the immediate designation by the McCaw Investor
of one director, Mr. Scot Jarvis, to the Nextel Board of Directors (the "Nextel
Board") upon the execution of the McCaw Securities Purchase Agreement and, upon
closing of the McCaw Transaction, the designation and election of additional
representatives of the McCaw Investor representing, together with such initial
designee, 25% of the Nextel Board (which is currently anticipated by Nextel to
result in a total of four such designees) and the creation of a five-member
Operations Committee of the Nextel Board, of which three members will be
selected from the McCaw Investor's representatives on the Nextel Board. The
Operations Committee will have the authority to formulate key aspects of
Nextel's business strategy, including decisions relating to the technology used
by Nextel, acquisitions, operating and capital budgets, marketing and strategic
plans, approval of financing plans and endorsement of nominees to the Nextel
Board and committees thereof as well as nomination and oversight of certain
executive officers. The Nextel Board, by a majority vote, may override actions
taken or proposed by the Operations Committee although doing so would give rise
to a $25,000,000 liquidated damages payment to the McCaw Investor, the
commencement of accrual of a 12% dividend payable on the stated value of all
outstanding shares of Class A Preferred Stock (initially an aggregate of
approximately $300,000,000) and the immediate vesting of the options (the
"Incentive Options") granted pursuant to the McCaw Incentive Option Agreement
(as defined below). However, the Nextel Board, by a defined super-majority vote,
retains the power to override actions taken or proposed by the Operations
Committee without triggering the obligation to make a liquidated damages
payment, the commencement of dividend accruals with respect to the Class A
Preferred Stock or to accelerate the vesting of the Incentive Options. In
addition, the Nextel Board also may act to terminate the Operations Committee,
although such action by the Nextel Board would, in each case in certain
circumstances, result in the obligation to make such a liquidated damages
payment, the commencement of such dividend accrual and the accelerated vesting
of the Incentive Options. The definitive transaction documents also delineate a
number of circumstances, chiefly involving or resulting from certain events with
respect to the McCaw Investor or McCaw, in which the Operations Committee could
be terminated but such liquidated damages payment, dividend accrual and vesting
of Incentive Options would not be required. The shares of Class A Preferred
Stock are redeemable at Nextel's option, and the shares of Class B Preferred
Stock are mandatorily convertible, in the event of a change of control of Nextel
(as defined in the terms of such preferred stock). Further, the McCaw Investor
has agreed that, subject to certain limited exceptions (including an investment
by McCaw of not more than 3% of the outstanding common stock of AT&T Corp.
("AT&T")), until the later of (i) five years after the purchase of the McCaw
Units or (ii) one year after the termination of the Operations Committee,
neither it nor its controlled affiliates will participate in other two-way
terrestrial-based mobile wireless communications systems unless such
opportunities first have been presented to and rejected by Nextel in accordance
with the provisions of the McCaw Securities Purchase Agreement.
Pursuant to an amendment, dated as of April 4, 1995, to the Motorola
Agreement (as defined herein) (the "Motorola Agreement Amendment") entered into
by Nextel and Motorola in connection with the McCaw Securities Purchase
Agreement, Motorola has agreed to support the decisions and recommendations of
the Operations Committee and to vote the shares of Nextel Common Stock held by
it accordingly, subject to (i) the right of any Motorola-designated members of
the Nextel Board to vote in a manner consistent with their fiduciary duties, and
(ii) the right of Motorola to vote its shares as it determines necessary with
respect to issues that conflict with Motorola's corporate ethics or that present
conflicts of interest, or in order to protect the value or marketability of the
shares of Nextel Common Stock held by it.
Concurrently with the execution of the McCaw Securities Purchase Agreement,
Nextel entered into a Management Support Agreement (the "Support Agreement")
with Eagle River, Inc. ("Eagle River"), an affiliate of the McCaw Investor which
also is controlled by McCaw, pursuant to which Eagle River will provide
management and consulting services to Nextel, the Nextel Board and the
Operations Committee from
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time to time as requested. In consideration of the services to be provided to
Nextel under the Support Agreement, Nextel entered into an Incentive Option
Agreement (the "McCaw Incentive Option Agreement") concurrent with the execution
of the McCaw Securities Purchase Agreement granting to Eagle River the Incentive
Options which consist of options to purchase an aggregate of 1,000,000 shares of
Nextel Common Stock at an exercise price of $12.25 per share, with such
Incentive Options vesting over a five-year period from the date thereof.
If the Nextel stockholders fail to approve the transactions contemplated by
the McCaw Securities Purchase Agreement, or if the Nextel Board withdraws its
recommendation that stockholders give such approval, and within a year of either
such event, Nextel announces an alternative private equity financing transaction
at a price higher than the price proposed to be paid by the McCaw Investor, then
Nextel shall pay to the McCaw Investor a fee of 2% of the cash consideration
received by Nextel in such alternative transaction, up to a maximum of
$25,000,000, such payment to be made over a period of up to two years following
the closing of such alternative private equity financing, and also shall permit
the McCaw Investor to purchase at any time within 30 days of the first payment
of the fee described above for cash, at a price of $12.25 per share, 2,500,000
shares of Nextel Common Stock.
Consummation of the transactions contemplated by the McCaw Securities
Purchase Agreement is subject to consummation of the proposed merger of Nextel
with and into ESMR, Inc. pursuant to the pending transactions with Motorola
described below.
Motorola Transaction. On August 4, 1994, Nextel executed a definitive
agreement to effect a tax-free transaction with Motorola (as amended, the
"Motorola Agreement"), whereby Nextel or an affiliate would effectively acquire
all of Motorola's 800 MHz SMR licenses including (i) 800 MHz licenses and
related assets owned or managed by Motorola throughout specified Nextel market
areas (the "Motorola Nextel Territories"), (ii) 800 MHz licenses and related
assets owned or managed by Motorola throughout specified OneComm market areas
(the "Motorola OneComm Territories"), and (iii) 800 MHz licenses and related
assets owned or managed by Motorola throughout specified Dial Page market areas
(the "Motorola Dial Page Territories," and collectively with the Motorola Nextel
Territories and the Motorola OneComm Territories, the "Motorola SMR Business"),
all in exchange for up to 59,500,000 shares of Nextel Common Stock (the
"Motorola Transaction"). Other features of such pending transaction include the
grant of certain anti-dilution rights with respect to the Nextel Common Stock.
Also, in connection with the Motorola Transaction, Nextel entered into an
agreement for the purchase of Motorola infrastructure equipment for certain of
Nextel's Digital Mobile networks, and Motorola committed to provide up to an
additional $260,000,000 in new vendor financing for certain existing Nextel
subsidiaries and following consummation of the Motorola Transaction and the
proposed merger of OneComm with and into Nextel, $165,000,000 in new vendor
financing for a to-be-acquired OneComm subsidiary. The transaction agreements
also include certain provisions concerning Nextel's choice of technology
deployment, the licensing of additional equipment manufacturers, and the
selection of strategic equity investors. The Motorola Agreement also
contemplated the transactions involving Motorola Canada Limited ("Motorola
Canada") and Clearnet, including the purchase by Nextel of a portion of Motorola
Canada's equity interest in Clearnet in exchange for 2,500,000 shares of Nextel
Common Stock. All of such transactions involving Clearnet and Motorola Canada
were consummated effective as of October 19, 1994, with the result that Nextel
acquired and now owns an approximate 27.3% equity interest (representing
approximately a 1.6% voting interest) in Clearnet, and Motorola, through
Motorola Canada, holds 2,500,000 shares of Nextel Common Stock. The balance of
the transactions involving Motorola are still pending and are subject to a
number of conditions. In addition, Nextel's acquisition of the Motorola OneComm
Territories is subject to completion of the proposed merger of OneComm with and
into Nextel, or the waiver of such condition by Motorola. Nextel currently is
soliciting the requisite approval of its stockholders in connection with the
Motorola Transaction and has distributed a proxy statement/prospectus dated June
7, 1995 in connection therewith. Nextel currently anticipates that such
stockholder vote will be taken at a stockholders' meeting for that purpose,
which meeting is presently scheduled to be held on July 7, 1995.
In connection with the McCaw Securities Purchase Agreement, Nextel and
Motorola entered into the Motorola Agreement Amendment, pursuant to which
Motorola has agreed, among other matters, to waive its
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right under the Motorola Agreement to require either Nextel or the McCaw
Investor to purchase a portion of the shares of Nextel Common Stock acquired by
Motorola upon the consummation of the Motorola Transaction in connection with
the transactions contemplated by the McCaw Securities Purchase Agreement and to
suspend its anti-dilutive rights with regard to all currently proposed issuances
of Nextel equity securities prior to the closing of the McCaw Transaction,
subject to the reinstatement of such right in certain circumstances, and the
termination of such right upon closing of the McCaw Transaction. See "THE
MERGER -- Anti-Dilutive Purchase Rights." Additionally, under the terms of the
Motorola Agreement Amendment, Motorola has agreed to support the decisions and
recommendations of the Operations Committee (as described above under "-- McCaw
Transaction") and to vote the shares of Nextel Common Stock held by it
accordingly, subject to (i) the right of any Motorola-designated Nextel
directors to vote in a manner consistent with their fiduciary duties and (ii)
the right of Motorola to vote its shares as it determines necessary with respect
to issues that conflict with Motorola's corporate ethics or that present
conflicts of interest, or in order to protect the value or marketability of the
shares of Nextel Common Stock held by it. Motorola has also agreed to vote any
shares of Nextel Common Stock currently held by it in favor of the McCaw
Transaction. Assuming consummation of the McCaw Transaction, Motorola will be
entitled to nominate a total of two directors to the Nextel Board.
Additionally, in connection with the McCaw Transaction, Nextel submitted
certain purchase orders for Motorola-manufactured Digital Mobile network system
infrastructure equipment and confirmed its anticipated infrastructure equipment
purchase commitments for calendar year 1995 and Nextel and Motorola entered into
a second amendment to their existing equipment purchase agreements as amended
and proposed to be amended (the "Second Equipment Agreement Amendment") under
which, among other things (i) Motorola has agreed to use its best efforts to
develop significant improvements in audio quality for mobile telephone
interconnect service which will incorporate a higher-rate voice encoder and will
necessitate a reduction in the number of time slots per channel used for such
service ("Reconfigured iDEN"), (ii) Motorola has agreed to more favorable
infrastructure and subscriber unit pricing for Nextel, (iii) Motorola has agreed
to certain performance benchmarks both for existing iDEN and Reconfigured iDEN
in the areas of voice quality, delay and system access and reliability which, if
not met, will result in credits by Motorola against Nextel's invoiced costs with
respect to equipment shipments, (iv) Nextel has agreed to purchase and implement
Reconfigured iDEN when and as it is made available by Motorola, (v) Motorola
will negotiate to enter into licenses with at least one alternative manufacturer
of infrastructure equipment to permit the manufacture and sale of iDEN
compatible infrastructure equipment, (vi) Nextel has agreed, until August 4,
1999 and subject to certain conditions, to purchase from Motorola at least 50%
of the base radios it purchases in any calendar year, and (vii) Nextel has
agreed to certain limitations on changing the technology deployed on its SMR
channels, including an agreement not to effect such a change prior to October 1,
1997 without Motorola's consent.
Assuming the consummation of the McCaw Transaction, the Second Equipment
Agreement Amendment would limit Nextel's ability, prior to October 1, 1997
without Motorola's consent, to deploy a "Switch in Technology" which, under the
Second Equipment Agreement Amendment, is redefined to mean a decision by Nextel
before August 4, 1999 to install and use digital radio frequency technology as
an alternate to iDEN or Reconfigured iDEN on more than 25% of its SMR channels
in the 806-824 MHz band in one or more of its top 20 markets or the utilization
by Nextel of any of its SMR channels for voice interconnect on certain U.S.
cellular and/or personal communications services ("PCS") radio telephony
standards. After October 1, 1997, Nextel may not implement such a Switch in
Technology unless (i) Nextel determines that the iDEN or Reconfigured iDEN
equipment fails to meet certain performance specifications established in the
Second Equipment Agreement Amendment, which failure materially adversely affects
the commercial viability of the technology to provide reliable services as
intended by Motorola and Nextel, and Motorola does not cure such failure within
six months after receiving notice thereof, or (ii) Nextel or the McCaw Investor
offers to acquire the remainder of Motorola's shares of Nextel Common Stock at a
per share price of at least 110% of the average of the closing prices of the
Nextel Common Stock over the 30 trading days immediately preceding the public
announcement by Nextel of the decision to implement such a Switch in Technology.
In either case, if Motorola manufactures (or elects to manufacture) the
alternate technology Nextel elects to deploy, Nextel must purchase 50% of its
infrastructure requirements and 25% of its subscriber equipment requirements
from
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Motorola for three years, provided such equipment is competitive in price and
performance to the equipment utilizing or incorporating such alternate
technology then offered by other manufacturers. In addition, under certain
circumstances, if following such a Switch in Technology Nextel fails to maintain
in place the installed base of iDEN infrastructure equipment, the equipment
finance loans outstanding from Motorola to Nextel shall become due and payable,
pro rata, to the amount of iDEN infrastructure equipment removed or replaced.
Pursuant to the Second Equipment Agreement Amendment, Motorola's agreement
to develop Reconfigured iDEN is effective immediately, but will terminate if the
McCaw Transaction is not consummated. Other aspects of the Second Equipment
Agreement Amendment, such as the revised pricing terms and performance
benchmarks and the revised provisions regarding a Switch in Technology, will not
be effective unless and until the McCaw Transaction is consummated, except as
has been agreed by Nextel and Motorola with respect to pricing of certain
equipment orders in 1995.
On April 4, 1995, the McCaw Investor and Motorola entered into a Stock
Purchase Agreement (the "Motorola/McCaw Stock Purchase Agreement") pursuant to
which Motorola has agreed, following consummation of the Motorola Transaction
and simultaneously with the closing of the McCaw Transaction, to sell to the
McCaw Investor 4,000,000 shares of Nextel Common Stock at $12.25 per share and
to grant to the McCaw Investor certain options (the "McCaw Investor/Motorola
Options") to purchase up to an additional 9,000,000 shares of Nextel Common
Stock from Motorola over a six-year period. Motorola presently owns 2,500,000
shares of Nextel Common Stock. However, because the closing of the Motorola
Transaction is expected to occur prior to or substantially concurrently with the
closing of the McCaw Transaction, Motorola will own a sufficient number of
shares of Nextel Common Stock to satisfy its commitments to the McCaw Investor
under the Motorola Stock Purchase Agreement. The McCaw Investor/Motorola Options
will be exercisable for up to 2,000,000 shares of Nextel Common Stock at $15.50
per share during the 30-day period following the second anniversary of the
closing of the Motorola Transaction (the "Motorola First Tranche"), up to an
additional 2,000,000 shares at $18.50 per share during the 30-day period
following the fourth anniversary of the closing of the Motorola Transaction (the
"Motorola Second Tranche"), and up to 5,000,000 shares at $21.50 per share
during the 30-day period following the sixth anniversary of the closing of the
Motorola Transaction (the "Motorola Third Tranche"). In the event the Motorola
First Tranche is not fully exercised, the number of shares purchasable in the
Motorola Second Tranche will be reduced on a share-for-share basis. In the event
the Motorola Second Tranche is exercised for less than 5,000,000 shares, the
number of shares purchasable in the Motorola Third Tranche will be reduced to
the number of shares in the Motorola Second Tranche actually purchased. In
addition, subject to consummation of the McCaw Transaction and subject to
certain additional conditions, Motorola has agreed to grant to the McCaw
Investor a right of first offer or a right of first refusal to purchase shares
of Nextel Common Stock that will be owned by Motorola.
The closing of the transactions contemplated by the Motorola/McCaw Stock
Purchase Agreement is subject to consummation of the Motorola Transaction and
the purchase of the McCaw Units and receipt of all necessary governmental and
regulatory approvals, including required approvals under the Hart-Scott-Rodino
Antitrust Act of 1976, as amended (the "H-S-R Act").
OneComm Transaction. On July 13, 1994, Nextel executed a definitive
agreement with OneComm (the "OneComm Merger Agreement") pursuant to which
OneComm would merge with and into Nextel, with Nextel continuing as the
surviving corporation, and the existing stockholders of OneComm would receive
shares of Nextel Common Stock (the "OneComm Transaction"). OneComm, together
with its operating subsidiaries, using SMR frequencies licensed to them by the
FCC, provides wireless communications services to its customers in five large
geographic regions in the United States: the Rocky Mountain area, the Pacific
Northwest area, the Midwest area, the North Central area and the Ohio Valley
area. OneComm has announced that it has commenced initial commercial operation
of Digital Mobile networks using iDEN digital technology in Denver and along the
front range of the Rocky Mountains in Colorado, and in the Pacific Northwest,
including Seattle and Portland and along the "Interstate 5" corridor connecting
these two cities, and in St. Louis, Kansas City, Topeka, Wichita, Tulsa and
Oklahoma City. In the OneComm Transaction, up to approximately 22,550,000
shares, or rights to acquire shares, of Nextel Common Stock would be issued in
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exchange for all of the shares, or rights to acquire shares, of common stock of
OneComm issued and outstanding at the time of the consummation of the OneComm
Transaction (subject to certain adjustments). Such rights to acquire common
stock of OneComm include options outstanding under OneComm's stock option plan,
which would be assumed by Nextel with such options, after certain modifications
and adjustments, being exercisable for Nextel Common Stock. Also pursuant to the
OneComm Merger Agreement, OneComm would be entitled to designate one individual
to be appointed to the Nextel Board upon consummation of the OneComm
Transaction. As a result of the OneComm Transaction, Nextel will succeed by
operation of law to all of the assets and liabilities of OneComm, including
OneComm's obligations with respect to its outstanding senior redeemable discount
notes and the indenture (the "OneComm Indenture") relating thereto. Nextel and
OneComm each currently are soliciting the requisite approval of its respective
stockholders in connection with the OneComm Transaction and together have
distributed a joint proxy statement/prospectus dated June 7, 1995 in connection
therewith. Nextel currently anticipates that such stockholder votes will be
taken at meetings of Nextel's and OneComm's stockholders for that purpose, which
meetings are presently scheduled to be held on July 7, 1995.
Dial Page Transaction. On February 17, 1995, Nextel and Dial Page executed
an Agreement of Merger and Plan of Reorganization (the "Dial Page Agreement"),
which contemplates a tax-free merger of Dial Page with and into Nextel (the
"Dial Page Transaction") and the sale of Dial Page's paging business. Dial
Page's assets include 800 MHz SMR and paging licenses owned or managed by Dial
Page. Dial Page operates SMR and paging systems in the southern United States.
Dial Page has announced that it is in the process of constructing a Digital
Mobile network in its markets. Upon consummation of the Dial Page Transaction,
Nextel currently estimates that it would issue up to approximately 26,400,000
shares (or rights to acquire shares) of Nextel Common Stock to Dial Page
stockholders in exchange for shares (or rights to acquire shares) of Dial Page
common stock representing an exchange ratio of 1.0704 shares of Nextel Common
Stock for each share of Dial Page common stock. Also as a result of the Dial
Page Transaction, Nextel will succeed by operation of law to all of the assets
and liabilities of Dial Page (subject to the sale of Dial Page's paging
business), including Dial Call's obligations with respect to the two classes of
outstanding senior redeemable discount notes issued by Dial Call Communications,
Inc., a wholly owned subsidiary of Dial Page ("Dial Call"), pursuant to the
indentures (the "Dial Call Indentures") relating thereto. The number of shares
of Nextel Common Stock issuable in the Dial Page Transaction and the exchange
ratio are subject to adjustment in certain circumstances, all as more fully
described in the Dial Page Agreement.
The aggregate number of shares of Nextel Common Stock issuable in the Dial
Page Transaction may be increased in certain circumstances by approximately
10,000,000 shares as a result of (i) certain issuances of options to Dial Page
employees, (ii) certain issuances of shares of Dial Page common stock by Dial
Page in order to finance its operations, (iii) the issuance of shares of Dial
Page common stock in connection with acquisitions of SMR assets in specified
areas, and (iv) the issuance of shares of Dial Page common stock, with the
approval of Nextel, in connection with obtaining any required consents from the
holders of notes issued pursuant to the Dial Call Indentures. The exchange ratio
is subject to adjustment in the event that new Dial Page securities are issued
in certain dilutive issuances.
The Dial Page Agreement is subject to termination in certain circumstances,
including by either party if the Dial Page Transaction is not consummated by
September 30, 1995 (subject to extension as provided therein). If the Dial Page
Agreement is terminated, except by reason of breach by Dial Page, Dial Page
would have a one-time right exercisable within one year after such termination
to sell to Nextel all of its granted and pending SMR channels in the core
markets of certain cities in Florida and Texas (provided that Dial Page
satisfied certain specified channel targets), which could be purchased at the
option of Nextel, for cash or Nextel Common Stock.
General. There are significant conditions remaining to be satisfied with
respect to each of the above described pending transactions, including, (i) in
the case of the McCaw Transaction, the Motorola Transaction, the OneComm
Transaction and the Dial Page Transaction, receipt of approvals from
governmental entities and other third parties, (ii) in the case of the OneComm
Transaction and the Dial Page Transaction, the approval by such companies'
stockholders, and (iii) in the case of the McCaw Transaction, the Motorola
Transaction, the One Comm Transaction and the Dial Page Transaction, approval by
Nextel's
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stockholders. In addition, as described in "THE MERGER -- Compliance with
Indentures," because the Debt incurrence requirements contained in Nextel's
indentures for its senior redeemable discount notes due 2003 and 2004,
respectively (collectively, the "Nextel Indentures", and collectively with the
OneComm Indenture and the Dial Call Indentures, the "Indentures") and, as
appropriate, in the OneComm Indentures and the Dial Call Indentures will apply
to each of the Merger, the Motorola Transaction, the OneComm Transaction and the
Dial Page Transaction, compliance with such requirements would need to be
demonstrated or consents and/or waivers of the holders of the relevant notes
outstanding thereunder would need to be obtained, such that consummation of such
transactions would be permitted under the applicable Indentures. As described in
"THE MERGER -- Compliance with Indentures," the obligations of the McCaw
Investor to complete the McCaw Transaction are conditioned upon Nextel's receipt
of consents and waivers, on terms reasonably satisfactory to the McCaw Investor,
from holders of notes issued pursuant to the Nextel Indentures necessary to
permit the closing of the Merger, the Motorola Transaction, the OneComm
Transaction and the Dial Page Transaction. For further information regarding
Nextel's efforts to obtain such consents and waivers see "-- D. THE
MERGER -- Compliance with Indentures."
There can be no assurance that any of such pending transactions will be
consummated or, if any of such pending transactions are consummated, that the
terms thereof will be as described above and as presently contemplated. There
also can be no assurance that any consent or waiver that may be required to be
obtained to close any one or more of such pending transactions will be obtained,
or that the costs and/or conditions associated with obtaining any such consent
or waiver will not have adverse effects on Nextel or Nextel's ability to
consummate any of such pending transactions. See "RISK FACTORS -- Uncertainty of
Pending Transactions" and "THE MERGER -- Compliance with Indentures."
Recent Developments
Investment in Mobilcom. On March 2, 1995, Nextel announced that it had
closed its share purchase and subscription agreement with Mobilcom, a Mexican
SMR operator, pursuant to which Nextel Investment Company, a wholly owned
subsidiary of Nextel ("NIC"), acquired a 16.5% minority interest in Mobilcom
(the "Mobilcom Transaction"). The Mobilcom Transaction reflects the
renegotiation of the terms associated with a previously contemplated transaction
involving Nextel, NIC, Mobilcom and certain stockholders of Mobilcom, which was
initially announced in October 1994. Pursuant to the Mobilcom Transaction, NIC
purchased newly issued shares comprising 16.5% of the shares of capital stock of
Mobilcom (calculated after issuance of such shares) for $10,000,000 plus the
conversion of an aggregate of $42,500,000 in principal amount of notes
representing funds advanced to Mobilcom in June and October 1994. In addition,
Nextel is committed to invest an additional $5,000,000 in January 1996 for an
additional 1.5% of the shares of capital stock of Mobilcom. As part of the
Mobilcom Transaction, Nextel also received two options to increase its ownership
of Mobilcom equity. The first option is an 18-month option to acquire an
additional 19.5% of Mobilcom for $76,800,000; the second option is a three-year
option to acquire an additional 10% of Mobilcom for $67,500,000.
Under the terms of the definitive agreements relating to the Mobilcom
Transaction, Mobilcom amended its by-laws such that Nextel (i) has the right, in
certain circumstances, to purchase shares of Mobilcom capital stock in amounts
necessary to maintain Nextel's percentage equity interest in Mobilcom, (ii) was
granted certain registration rights with respect to the shares issued and
proposed to be issued to Nextel, (iii) is entitled to designate certain persons
to serve as members of the Mobilcom Board of Directors, and (iv) is able to
designate a sufficient number of members of the Mobilcom Board of Directors
(provided that Nextel maintains its percentage interest in Mobilcom) to preclude
the Mobilcom Board of Directors from taking certain actions, including
consummation of certain acquisitions and dispositions and adoption and
modification of business plans without the consent of such Nextel-designated
directors. Such definitive agreements also place certain restrictions or
limitations on the ability of Nextel and Mobilcom's other stockholders to
acquire or dispose of their equity interests in Mobilcom. Also executed at the
closing of the Mobilcom Transaction were agreements relating to an
interoperability relationship between Nextel and Mobilcom and the sharing
between Nextel and Mobilcom of SMR channels along the United States-Mexican
border.
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Comcast Amendments. On September 14, 1992, Nextel, Comcast and Comcast
FCI, Inc., a wholly owned subsidiary of Comcast ("Comcast FCI"), entered into a
Stock Purchase Agreement (the "Comcast Stock Purchase Agreement") pursuant to
which Comcast agreed to make certain investments in Nextel and Comcast FCI
received certain anti-dilutive rights with respect to such investments (the
"Comcast Purchase Right"). On January 31, 1995, Nextel and Comcast entered into
an Amendment to Stock Purchase Agreement (the "Comcast January Amendment"),
which amended, among other provisions, those terms of the Comcast Stock Purchase
Agreement applicable to Comcast's potential $50,000,000 second tranche
investment in Nextel in 1995 (the "Comcast Transaction"). Under the terms of the
Comcast January Amendment, $15,000,000 of such potential investment to be made
in the Comcast Transaction will be made in the form of the sale by Comcast of
the 800 MHz SMR systems owned by its affiliates in the Philadelphia market in
exchange for the issuance of 462,963 shares of Nextel Common Stock (representing
an agreed per share stated value of Nextel Common Stock of $32.40) (the "Comcast
Philadelphia Transaction"). Nextel and Comcast are currently negotiating a
definitive agreement relating to the Comcast Philadelphia Transaction. Pursuant
to the Comcast January Amendment, the remaining $35,000,000 of the potential
investment to be made pursuant to the Comcast Stock Purchase Agreement
originally scheduled to occur on January 31, 1995 was deferred until June 30,
1995, and is subject to the satisfaction of the same conditions originally
contained in the Comcast Stock Purchase Agreement. The number of shares to be so
purchased will be determined by dividing $35,000,000 by ninety percent of the
average prevailing market price for shares of Nextel Common Stock determined
during a 30-trading day reference period preceding June 30, 1995. The Comcast
January Amendment also reflected certain agreements with respect to the
potential exercise by Comcast of the Comcast Purchase Right that since have been
further amended by the terms of the Comcast April Amendment described below.
However, as discussed herein under "THE MERGER -- Anti-Dilutive Purchase
Rights -- Comcast Purchase Right," assuming the Merger is consummated on or
prior to December 31, 1995, any exercise of the Comcast Purchase Right with
respect to the Merger would be governed by the terms of the Comcast Stock
Purchase Agreement as amended by the Comcast January Amendment.
On April 3, 1995, Nextel and Comcast entered into an Amendment to Stock
Purchase Agreement (the "Comcast April Amendment"), which further amended the
Comcast Stock Purchase Agreement to reflect the agreements reached by Nextel and
Comcast on the terms and conditions applicable to the potential exercise by
Comcast of the Comcast Purchase Right with respect to certain issuances of
equity securities by Nextel, including issuances of Nextel Common Stock and
rights to acquire Nextel Common Stock in certain of Nextel's pending
transactions, including the McCaw Transaction, the Motorola Transaction, the
OneComm Transaction and the Dial Page Transaction, but excluding the Merger.
Under the terms of the Comcast April Amendment, Comcast was required to
determine whether or not to elect to exercise the Comcast Purchase Right, at any
time on or before April 30, 1995, solely with respect to (i) transactions that
are subject to an agreement to which Nextel was a party on April 3, 1995 (other
than the transactions contemplated by the McCaw Securities Purchase Agreement)
and (ii) the issuance of the McCaw Initial Shares and the McCaw Units (but not
including shares of Nextel Common Stock issuable pursuant to the McCaw Options
included therein) contemplated by the McCaw Securities Purchase Agreement. The
Comcast April Amendment also established the procedure for determining the
purchase price for shares of Nextel Common Stock purchased pursuant to the
Comcast Purchase Right in accordance with the Comcast April Amendment and
addressed the damages that Nextel would be entitled to recover in the event that
the appropriate affiliate of Comcast fails to fulfill its obligation to
consummate in full the purchase of shares of Nextel Common Stock that would
occur upon the closing of any exercise of the Comcast Purchase Right effected in
accordance with the Comcast April Amendment.
In connection with the Comcast January Amendment and the Comcast April
Amendment, Nextel and Motorola entered into confirmatory letters dated January
31, 1995 and April 4, 1995, respectively, specifying the treatment and effects
of the Comcast January Amendment and the Comcast April Amendment and the actions
contemplated therein for purposes of the Motorola Agreement, including
Motorola's consent to the terms of the arrangement contemplated by the Comcast
January Amendment and the Comcast April Amendment.
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In accordance with the terms of the Comcast April Amendment, Comcast
exercised the Comcast Purchase Right on April 30, 1995, solely with respect to
future issuances of shares of Nextel Common Stock contemplated by the Dial Page
Transaction. Under the Comcast April Amendment (based on Nextel's current
estimate that up to approximately 26,400,000 shares of Nextel Common Stock will
be issued in the Dial Page Transaction), Comcast FCI will be entitled to acquire
approximately 9,250,000 shares of Nextel Common Stock for a purchase price of
$12.25 per share of Nextel Common Stock. The actual number of shares purchasable
pursuant to the Comcast Purchase Right may vary based upon a number of factors
set forth in the Comcast Stock Purchase Agreement and the Comcast April
Amendment. Conditions to the obligation of Comcast to close the purchase of
shares pursuant to the exercise of the Comcast Purchase Right with respect to
the Dial Page Transaction are set forth in the Comcast Stock Purchase Agreement,
except that Comcast has exercised its right to elect to include the closing of
the McCaw Transaction as an additional condition with respect to its purchase of
such shares of Nextel Common Stock.
By not exercising the Comcast Purchase Right on or prior to April 30, 1995
in respect of the issuances of Nextel securities contemplated to occur in
connection with the McCaw Transaction, the Motorola Transaction and the OneComm
Transaction, the Comcast Purchase Right with respect to such issuances has been
effectively waived, assuming such transactions are consummated on or prior to
December 31, 1995.
Comcast may, however, exercise the Comcast Purchase Right with respect to
issuances of Nextel Common Stock in connection with the Merger Agreement (which
was entered into subsequent to, and is not covered by the terms of, the Comcast
April Amendment) under the terms of the Comcast January Amendment at any time
prior to December 31, 1995, assuming the Merger is consummated during 1995. If
the Comcast Purchase Right is exercised with respect to the Merger, Comcast will
be entitled to purchase the appropriate number of shares of Nextel Common Stock
for a cash per share purchase price determined by reference to the average
closing price of one share of Nextel Common Stock on the Nasdaq NM during the
30-trading day period prior to the date of exercise of the Comcast Purchase
Right with respect to shares of Nextel Common Stock issued pursuant to the
Merger. The actual number of shares of Nextel Common Stock purchasable pursuant
to the exercise of the Comcast Purchase Right with respect to the Merger may
vary based upon a number of factors set forth in the Comcast Stock Purchase
Agreement and the Comcast January Amendment. See "THE MERGER -- Anti-Dilutive
Purchase Rights -- Comcast Purchase Right." Furthermore, there can be no
assurance concerning whether Comcast will exercise the Comcast Purchase Right
with respect to the Merger or any other transaction to which such rights may
attach.
Comcast has elected to exercise its right granted under the Comcast Stock
Purchase Agreement to require Nextel to file a registration statement under the
Securities Act for all 11,266,366 shares of Nextel Common Stock currently held
by Comcast or its affiliates. Nextel has filed such a registration statement
which contemplates that such secondary public offering of shares of Nextel
Common Stock will be effected on a "shelf" basis in accordance with Rule 415
promulgated under the Securities Act.
Nextel/Motorola Consent Decree. Nextel and Motorola have entered into a
proposed consent decree with the Antitrust Division of the United States
Department of Justice (the "Antitrust Division") that sets forth actions
required to be taken in connection with the consummation of the Motorola
Transaction and certain other pending transactions. The consent decree was filed
in the United States District Court for the District of Columbia and was subject
to a statutory notice and comment period that terminated on January 17, 1995. On
March 24, 1995, following consideration of the public comments that were
received, the Antitrust Division recommended that the consent decree be
approved. On April 20, 1995, the Antitrust Division submitted a formal motion
for the court to enter an order making the proposed consent decree effective.
The consent decree will be considered by the court following analysis of public
comments received by the Antitrust Division and will become effective if
approved by the court. The consent decree limits the number of channels
comprised of 900 MHz SMR licenses granted by the FCC ("900 MHz SMR Licenses")
that Nextel and Motorola may collectively hold in certain major metropolitan
areas in the United States. In addition, the consent decree would require Nextel
and Motorola to alter the terms of certain management agreements with third
parties pursuant to which Nextel or Motorola hold management rights to certain
900 MHz SMR channels in cities where the holding of 900 MHz SMR Licenses will be
limited. No assurances can be given as
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to court approval of the proposed consent decree or as to the timing of the
entry of a court order making it effective. The provisions of the proposed
consent decree should have no adverse affect on the Merger.
Termination of MCI Transaction. On February 27, 1994, Nextel, MCI
Communications Corporation ("MCI") and Comcast executed an agreement (the
"MCI/Comcast Letter Agreement"), providing for the negotiation by Nextel, MCI
and Comcast of definitive agreements to provide for, among other matters: (i)
the purchase by MCI of 22,000,000 shares of Nextel Common Stock at a purchase
price of $36 per share, for an aggregate purchase price of $792,000,000,
followed by purchases of an additional 5,000,000 shares of Nextel Common Stock
on each of the first, second and third anniversaries of the original purchase at
a purchase price of $37, $38, and $39 per share, respectively (subject to offset
in the event of certain purchases of shares of Nextel Common Stock by MCI from
Motorola); (ii) the waiver by Comcast of the Comcast Purchase Right arising
under the Comcast Stock Purchase Agreement in connection with Nextel's issuances
of Nextel Common Stock in certain identified previously announced transactions
and in connection with the purchase of Nextel Common Stock by MCI described
above; (iii) agreements among Nextel, MCI and Comcast relating to the ownership,
acquisition and disposition of Nextel Common Stock, and the governance of
Nextel; (iv) agreements with respect to the pursuit and acquisition of wireless
communications businesses as part of a strategic alliance among Nextel, Comcast
and MCI; (v) the appointment of MCI as the exclusive supplier to Nextel (except
as required by law) of long distance and back haul services; (vi) the
establishment of certain product and services marketing relationships between
MCI and Nextel; and (vii) the potential provision of services by Comcast to
Nextel.
On August 29, 1994, Nextel, Comcast and MCI announced that the MCI/Comcast
Letter Agreement had been terminated, but that the parties were continuing to
explore the possibility of a strategic alliance on different terms.
Representatives of Nextel, MCI, Motorola and Comcast participated in further
discussions following the August 29, 1994 announcement until MCI announced, on
September 1, 1994, that it had decided to terminate discussions regarding such a
new agreement.
AMS
AMS is a Delaware corporation incorporated in New Jersey in 1982 and
reincorporated in Delaware in 1987. AMS also does business under the names
"Autotel Communications Network" and "Star Communications Network." AMS provides
wireless communications services to its customers utilizing SMR frequencies
licensed to AMS and its managed licensees by the FCC. AMS's SMR business is
concentrated in major metropolitan areas of southeast Florida and on Florida's
Gulf Coast. AMS also sells and rents two-way mobile radio equipment and provides
installation, repair and maintenance services through its wholly owned
subsidiary, American Mobile Services Incorporated. See "BUSINESS OF AMS."
The address and telephone number of the principal executive offices of AMS
are 20920-C Warner Center Lane, Woodland Hills, California 91367, (818)
593-3000.
C. THE SPECIAL MEETING
DATE AND LOCATION
The Special Meeting will be held at 10:00 a.m., local time, on July 28,
1995 at the Warner Center Hilton, 6360 Canoga Avenue, Woodland Hills, California
91367.
PURPOSE OF THE SPECIAL MEETING
The purpose of the Special Meeting is to consider and vote upon the Merger
Proposal and the Election of Directors Proposal. The Merger Proposal seeks the
approval and adoption of the Merger Agreement. The Merger Agreement provides for
the merger of MCF, a wholly owned subsidiary of Nextel, with and into AMS,
pursuant to which AMS will be the Surviving Corporation and each outstanding
share of AMS Common Stock (other than the Excluded Shares) will be converted
into the right to receive 0.62 of a share of Nextel Common Stock, subject to
certain possible adjustments. See "THE MERGER" and "THE MERGER
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AGREEMENT." The Election of Directors Proposal seeks the election of two members
to the AMS Board, Gary S. Howard and William L. Wedum. Messrs. Howard and Wedum,
who are incumbent members of the AMS Board, would be elected for a term expiring
upon the consummation of the Merger or, if the Merger is not consummated, until
their respective successors are duly elected and qualified or such persons
resign or are removed. See "ELECTION OF DIRECTORS OF AMS." If Messrs. Howard and
Wedum are reelected to the AMS Board and the Merger Proposal is approved and the
transactions contemplated by the Merger Agreement are consummated, Messrs.
Howard and Wedum will resign from the AMS Board.
RECORD DATE; QUORUM; VOTE REQUIRED FOR APPROVAL
The Record Date for determination of stockholders entitled to notice of and
to vote at the Special Meeting has been fixed as of the close of business on
June 23, 1995. Only holders of record of AMS Common Stock as of the close of
business on the Record Date are entitled to receive notice of and to vote at the
Special Meeting. At the close of business on the Record Date, there were
7,243,006 shares of AMS Common Stock issued and outstanding (excluding treasury
shares), each of which has one vote with respect to each Proposal and any other
matter that may be properly presented for a vote at the Special Meeting.
The presence at the Special Meeting, either in person or by proxy, of the
holders of a majority of the issued and outstanding shares of AMS Common Stock
is necessary to constitute a quorum. The affirmative vote of a majority of the
outstanding shares of AMS Common Stock entitled to vote thereon is required to
approve the Merger Proposal. The two directors to be elected to the AMS Board at
the Special Meeting will be elected by a plurality of the total votes cast at
the Special Meeting. See "THE SPECIAL MEETING."
Holders of Nextel Common Stock (as such) will not vote upon the Merger and
such vote is not required by the provisions of the Nextel Charter, the DGCL or
the Merger Agreement.
STOCKHOLDER VOTING AGREEMENT
In connection with the Merger Agreement, TCI, the largest single
stockholder of AMS, and Nextel have entered into the Voting Agreement, a copy of
which is attached hereto as Appendix C, pursuant to which TCI has agreed, among
other things, (i) not to dispose of its AMS Common Stock prior to the Merger
except in certain limited circumstances and (ii) to vote (or grant a proxy to
Nextel to vote) its shares of AMS Common Stock in favor of the Merger. In
addition, pursuant to the Merger Agreement Nextel has agreed not to dispose of
its shares of AMS Common Stock prior to the Merger and to vote its shares of AMS
Common Stock in favor of the Merger. As of the Record Date, TCI and Nextel
together beneficially owned approximately 46% of the outstanding shares of AMS
Common Stock. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF AMS."
D. THE MERGER
EFFECTS OF THE MERGER
Assuming approval of the Merger Proposal and the satisfaction or, if
permissible, waiver of all other conditions to the consummation of the Merger,
at the Effective Time of the Merger, pursuant to the Merger Agreement (i) MCF, a
wholly owned subsidiary of Nextel, will be merged with and into AMS, and AMS
will be the Surviving Corporation; (ii) each outstanding share of AMS Common
Stock that is issued and outstanding as of the Effective Time of the Merger
(other than the Excluded Shares) will be converted into the right to receive
(subject to certain possible adjustments) 0.62 of a share of Nextel Common Stock
resulting in a maximum of 4,200,948 shares of Nextel Common Stock becoming
issuable in connection with the Merger; and (iii) all employee stock options of
AMS issued pursuant to the AMS Stock Option Plan (the "AMS Option Plan")
remaining outstanding at the time of the Merger, whether or not fully
exercisable at the Effective Time of the Merger (collectively, "AMS Options"),
will be modified and adjusted, as described in the Merger Agreement, to become
exercisable for shares of Nextel Common Stock. It is a condition to Nextel's
obligation to consummate the Merger that prior to the Effective Time of the
Merger all other unexercised options and warrants to purchase shares of AMS
Common Stock or any other securities of AMS,
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if any, will either have been exercised, expired by their terms or otherwise
been cancelled. See "THE MERGER AGREEMENT -- Options and Warrants."
The exchange ratio of 0.62 of a share of Nextel Common Stock for each share
of AMS Common Stock (the "Exchange Ratio") is based on the assumption that there
will be no more than 6,775,721 shares of AMS Common Stock outstanding on a fully
diluted basis (other than any Excluded Shares) at the Effective Time of the
Merger, resulting in a maximum of 4,200,948 shares of Nextel Common Stock
becoming issuable in connection with the Merger. To the extent the number of
such shares of AMS Common Stock exceeds such amount at the Effective Time of the
Merger, the Exchange Ratio will be adjusted proportionately downward to reflect
such excess. As of the Record Date, there were 6,775,721 shares of AMS Common
Stock outstanding on a fully diluted basis (other than any Excluded Shares). AMS
currently does not expect or intend to cause any issuances of shares or
otherwise take any action to increase the number of shares of AMS Common Stock
outstanding on a fully diluted basis between the date hereof and the Effective
Time of the Merger that would result in such an adjustment to the Exchange
Ratio. See "THE MERGER AGREEMENT -- Consideration to be Received in the Merger."
Although it is not anticipated that the Exchange Ratio will change, if for any
reason the Exchange Ratio is adjusted downward to less than 0.62 of a share of
Nextel Common Stock for each share of AMS Common Stock, proxies seeking approval
of the Merger Agreement will be resolicited from AMS stockholders.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective at the time of filing of a certificate of
merger relating thereto with the Secretary of State of the State of Delaware
(the "Effective Time of the Merger"). The Effective Time of the Merger will
occur following the AMS Special Meeting and the fulfillment or, if permissible,
waiver of all conditions to the consummation of the Merger. See "THE MERGER
AGREEMENT -- General; Effective Time."
EXCHANGE OF CERTIFICATES
Promptly after the Effective Time of the Merger, holders of record of
shares of AMS Common Stock as of the Effective Time of the Merger will be sent
instructions (and appropriate transmittal forms) on how to exchange the
certificates which formerly represented shares of AMS Common Stock ("AMS Stock
Certificates") for certificates representing the appropriate number of shares of
Nextel Common Stock ("Nextel Stock Certificates"). Until the AMS Stock
Certificates are exchanged for Nextel Stock Certificates in the manner described
in such instructions, the AMS Stock Certificates will represent only a right to
receive Nextel Stock Certificates representing the appropriate number of shares
of Nextel Common Stock. Dividends payable (whether in stock or cash) on Nextel
Common Stock, if any, following the Effective Time of the Merger will be paid
only following the exchange of AMS Stock Certificates for Nextel Stock
Certificates. See "THE MERGER AGREEMENT -- Exchange of Certificates."
CONDITIONS TO THE MERGER
The obligations of the parties to consummate the Merger are subject to the
satisfaction or, if permissible, waiver of certain customary closing conditions,
including (i) approval of the Merger Proposal by the requisite affirmative vote
of holders of the AMS Common Stock, (ii) the receipt of all necessary
governmental and third party approvals, (iii) the receipt by each of AMS and
Nextel of an opinion of its respective counsel to the effect that the Merger can
be consummated on a tax free basis, and (iv) that the shares of Nextel Common
Stock to be issued in connection with the Merger be approved for listing on the
Nasdaq NM. Nextel's obligation to consummate the Merger is also subject to (x)
the exercise, expiration or cancellation prior to the Effective Time of the
Merger of all unexercised options and warrants to purchase shares of AMS Common
Stock or any other securities of AMS (other than the AMS Options), if any, (y)
the inability of any holder of AMS Common Stock to assert any appraisal rights
in connection with the Merger and (z) subject to certain exceptions, the terms
of any Debt (as defined herein) of AMS permitting payment in full without
prepayment penalties or similar charges. See "-- Effects of the Merger,"
"-- Compliance with Indentures"
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and "-- No Dissenters' Rights of Appraisal." See also "THE MERGER
AGREEMENT -- Conditions to the Merger."
CONSUMMATION OF THE MCCAW TRANSACTION.
In addition to the conditions described above, the obligations of each of
Nextel and AMS to consummate the Merger are subject to the consummation of the
McCaw Transaction. In addition, in the event that the McCaw Transaction is not
consummated on or prior to September 15, 1995, AMS has the right to terminate
the Merger Agreement and to cause the Stock Purchase Agreement (as defined
below) to be reinstated to full force and effect. See "-- Background of the
Merger -- The Merger Agreement." As of the date hereof, Nextel has no reason to
believe that the McCaw Transaction will not be consummated on or before
September 15, 1995. However, consummation of the McCaw Transaction is subject to
the satisfaction of certain conditions that have not been satisfied as of the
date hereof, and no assurances can be given that Nextel will be able to
consummate the McCaw Transaction on or prior to September 15, 1995. See "THE
MERGER AGREEMENT -- Conditions to the Merger -- The McCaw Transaction."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated and the Merger abandoned upon the
occurrence of any of the following events, among others: (i) by AMS or Nextel,
if (a) the Merger is not consummated by September 30, 1995, or (b) Nextel is
unable to obtain the requisite consents under the Indentures to consummate the
Merger by September 15, 1995; (ii) by AMS, if the McCaw Transaction is not
consummated by September 15, 1995; and (iii) by Nextel, if the record date for
the Special Meeting is reset to a date that the AMS Stock is not designated as a
National Market security by the National Association of Securities Dealers, Inc.
(the "NASD"). See "THE MERGER AGREEMENT -- Termination."
BACKGROUND OF THE MERGER
Purchase of Initial Shares. As contemplated by the terms of a letter
agreement between AMS and Nextel, dated March 29, 1993, Nextel and AMS entered
into an Initial Stock Purchase Agreement, dated as of April 7, 1993 (the
"Initial Stock Purchase Agreement"), pursuant to which Nextel purchased 714,286
shares of AMS Common Stock (the "Initial Shares") for $5,000,000 in cash (or $7
per share). Under the Initial Stock Purchase Agreement, Nextel is entitled to
designate, at any time and from time to time, one member of the AMS Board.
Nextel has not exercised such right, and currently does not intend to cause the
appointment or election of any person as a member of the AMS Board prior to the
consummation of the Merger. See "THE MERGER -- Background of the Merger."
The Option Agreement. In connection with Nextel's purchase of the Initial
Shares, AMS granted Nextel an option (the "Option") pursuant to a Current Stock
Unit Purchase Option Agreement, dated as of April 7, 1993, as amended (the
"Option Agreement"), between Nextel and AMS to purchase 1,800,000 shares of AMS
Common Stock (subject to customary anti-dilution adjustments) at a purchase
price of $8.50 per share in cash. The number of shares of AMS Common Stock that
Nextel has a right to acquire pursuant to the Option is subject to increase
under certain circumstances to a maximum of 1,950,000 shares. Nextel's right to
exercise the Option expires on June 30, 1995 unless, as described below, the
Stock Purchase Agreement is reinstated after a termination of the Merger
Agreement. See "THE MERGER -- Background of the Merger." Any shares of AMS
Common Stock acquired by Nextel upon exercise of the Option prior to the
consummation of the Merger would be Excluded Shares under the Merger Agreement.
Stock Purchase Agreement. As contemplated in connection with the purchase
of the Initial Shares, Nextel agreed, pursuant to a Stock Purchase Agreement,
dated as of August 25, 1993, as amended (the "Stock Purchase Agreement"), to
purchase up to 10,200,000 shares, but not less than 6,342,159 shares, of a new
class of common stock of AMS, to be designated the Class B Common Stock, par
value $.01 per share (the "AMS Class B Common Stock"), for a stated purchase
price of $7 per share (or up to a maximum stated purchase price of $71,400,000)
(the "Stock Purchase Transaction"). The AMS Class B Common Stock would have been
identical to the AMS Common Stock, except that the AMS Class B Common Stock
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would not have been entitled to participate in the Contingent Purchase Process
(as defined below). At least $15 million of the stated purchase price was to
have been payable in cash and the remainder was to have been payable through the
transfer by Nextel to AMS of certain SMR systems located in the State of Florida
that MCF had acquired or was in the process of acquiring (the "Florida SMR
Systems"). Nextel was also obligated under the Stock Purchase Agreement, subject
to certain conditions, to offer to purchase at specified times in the future,
either for cash or by exchange of shares of Nextel Common Stock, all outstanding
shares of AMS Common Stock originally issued (or subject to outstanding warrants
or options) immediately prior to the initial closing (the "Initial Closing") of
the Stock Purchase Agreement (other than the Initial Shares and any other shares
of AMS Common Stock that were then owned by Nextel or that Nextel then had a
right to acquire) (the "Contingent Purchase Process"). Any shares of AMS Common
Stock originally issued after the Initial Closing (other than in connection with
transfers of shares of AMS Common Stock issued prior to the Initial Closing) and
all shares of AMS Class B Common Stock would not have been entitled to
participate in the Contingent Purchase Process. It was contemplated that only
shares of AMS Class B Common Stock would be issued after the Initial Closing
(other than in connection with the transfers of shares of AMS Common Stock
issued prior to the Initial Closing), in order to more easily distinguish which
shares of AMS common stock would be entitled to participate in the Contingent
Purchase Process. Nextel would have been required to perform its purchase
obligation under the Contingent Purchase Process if by June 30, 1999 it had not
completed construction of a Digital Mobile network covering certain of AMS'
markets in the State of Florida and, whether or not such Digital Mobile network
had been constructed by such date, Nextel also would have been required to
perform its purchase obligation under the Contingent Purchase Process on the
seventh anniversary of the Initial Closing. The Contingent Purchase Process was
to have been conducted by means of either a cash tender offer or an exchange
offer of shares of Nextel Common Stock, in either case at a price per share of
AMS Common Stock equivalent to the then market value of 7/22 of a share of
Nextel Common Stock. The 7/22 ratio was derived in negotiations between
representatives of Nextel and AMS based on the stated per share purchase price
of $7 payable by Nextel under the Initial Stock Purchase Agreement for shares of
AMS Common Stock as compared to the approximate per share trading price of the
Nextel Common Stock of $22 on March 24, 1993 (the date representatives of Nextel
and AMS initially negotiated the terms of the Contingent Purchase Process). See
"THE MERGER -- Background of the Merger."
The Merger Agreement. On April 25, 1995, Nextel and AMS entered into the
Merger Agreement, which supersedes and is in lieu of the Stock Purchase
Agreement. See "THE MERGER AGREEMENT." However, if the Merger Agreement is
terminated because, among other things: (i) the McCaw Transaction is not
consummated on or before September 15, 1995; (ii) Nextel is unable to obtain the
requisite consents under the Indentures to consummate the Merger on or before
September 15, 1995; or (iii) the record date for the Special Meeting is reset to
a date that the AMS Common Stock is not designated a National Market security by
the NASD then, upon such termination, the Stock Purchase Agreement shall be
returned automatically to full force and effect and again become a binding
agreement of both AMS and Nextel, subject to certain limited changes primarily
relating to the extension of the applicable termination date of the Stock
Purchase Agreement. Consummation of the Stock Purchase Transaction, however,
would be subject to approval of the Stock Purchase Agreement and various changes
(primarily related to the creation of the AMS Class B Common Stock) to the
Certificate of Incorporation of AMS (the "AMS Charter") by the AMS stockholders.
See "THE MERGER AGREEMENT -- Termination."
RECOMMENDATION OF AMS BOARD
The AMS Board has determined that the Merger is fair to, and in the best
interest of, AMS and its stockholders (other than Nextel) and recommends a vote
in favor of the Merger Proposal at the Special Meeting. For a more detailed
discussion of the background of the Merger Agreement, see "THE
MERGER -- Background of the Merger." For a discussion of certain matters
considered by the AMS Board in reaching its determination to enter into the
Merger Agreement, see "THE MERGER -- Recommendation of the AMS Board; Reasons of
AMS Board for Engaging in the Merger."
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FAIRNESS OPINION
AMS retained Salomon Brothers Inc ("Salomon Brothers") as its exclusive
financial advisor in connection with the Merger and the previously contemplated
Stock Purchase Transaction. Salomon Brothers rendered its oral opinion to the
AMS Board on April 25, 1995, to the effect that, as of such date, the
consideration to be paid by Nextel in the Merger was fair, from a financial
point of view, to the public holders of the AMS Common Stock. Salomon Brothers
has confirmed its opinion by delivering to the AMS Board its written opinion
dated the date of this Proxy Statement/Prospectus. Salomon Brothers' opinions
were directed only to the fairness of such consideration from a financial point
of view, and do not constitute a recommendation to any holder of shares of AMS
Common Stock as to how such stockholder should vote its shares at the Special
Meeting on the Merger Proposal or on any other matter. A copy of Salomon
Brothers' written opinion, dated the date hereof, which sets forth the
assumptions made, matters considered and limits of the review made by Salomon
Brothers, is attached hereto as Appendix B, and should be read carefully by
holders of AMS Common Stock in its entirety. See "THE MERGER -- Fairness
Opinion."
COMPLIANCE WITH INDENTURES
The consummation of the Merger is subject to compliance with the applicable
terms of the Indentures, including the OneComm Indenture and the Dial Call
Indentures, respectively, if the OneComm Transaction and the Dial Page
Transaction are consummated prior to the Effective Time of the Merger. As
described in greater detail in "THE MERGER -- Compliance with Indentures," all
of the Indentures include substantially identical provisions that would not
permit Nextel to consummate the Merger if, upon consummation of the Merger,
Nextel would be unable to incur at least $1.00 of additional Debt (as defined
herein), other than certain permitted Debt, under the restrictive covenant
regarding Debt incurrence in such Indentures. In order to incur Debt (other than
permitted Debt), the obligor, at the time of the incurrence, either (i) must be
generating operating cash flow at an annualized level that meets or exceeds a
specified ratio set by reference to the obligor's consolidated Debt or (ii) must
have a ratio of Debt to its Total Market Capitalization (as defined herein),
expressed as a percentage, of not greater than 30%. Historically, Nextel has not
generated, nor is it presently anticipated that at the time of the Merger Nextel
would be generating, operating cash flow at or above the required annualized
levels as set forth in (i) above. Accordingly, in order for the Merger to be
permitted under the terms of the Nextel Indentures, on a pro forma basis taking
into account such Merger, Nextel must have a Debt to Total Market Capitalization
ratio, expressed as a percentage, of not greater than 30%.
Based on the amount of Debt of Nextel and AMS projected to be outstanding
as of an assumed closing date for the Merger of July 31, 1995, and the number of
shares of Nextel Common Stock projected to be outstanding upon completion of the
Merger (and assuming that the Motorola Transaction, the McCaw Transaction and
the OneComm Transaction have been completed), an average closing price of Nextel
Common Stock of at least approximately $17.22 per share would be required to
permit the Merger to be completed in compliance with the Debt incurrence
requirements of the Indentures. Absent such compliance, the Merger could not
proceed under the terms of any of the Indentures unless the consent of the
holders of a majority (or, in the case of one of the Dial Call Indentures,
two-thirds) of the outstanding principal amount of the notes issued under each
of the relevant Indentures is obtained or Nextel takes other actions to satisfy
the requirements of such Indentures. It is a condition to the obligation of AMS
to consummate the Merger that the McCaw Transaction first be consummated. It is
also anticipated that the Motorola Transaction and the OneComm Transaction will
both be consummated prior to the consummation of the Merger. The issuance of
shares of Class A Preferred Stock in the McCaw Transaction and the issuance of
shares of Nextel Common Stock in the Motorola Transaction will have the effect
of decreasing the Debt to Total Market Capitalization ratio, which is required
to be met in order to comply with the Debt incurrence requirements of the
relevant Indentures unless Nextel obtains the requisite consents of noteholders
under such Indentures. See "THE MERGER -- Compliance with Indentures." No
assurances can be given that Nextel would be able to consummate the McCaw
Transaction, the Motorola Transaction or the OneComm Transaction or that, with
or without prior consummation of the McCaw Transaction or the Motorola
Transaction, Nextel will be able to comply with the requirements of the relevant
Indentures necessary to consummate the Merger or, if such
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requirements cannot be met, that the necessary consents of the holders of notes
issued pursuant to the relevant Indentures could be obtained. Nextel has engaged
Donaldson, Lufkin & Jenrette Securities Corporation to assist Nextel in
assessing and developing its options with respect to the requirements of the
Indentures and to assist in discussions with holders of notes issued pursuant to
such Indentures regarding such matters. Nextel has commenced discussions with
certain of such holders of notes issued pursuant to the Indentures with respect
to obtaining, among other things, the consents necessary to consummate the
Merger and the other pending transactions that may require the receipt of such
consents. Pursuant to those discussions, Nextel has been advised that holders of
a majority of the outstanding principal amount of the notes issued pursuant to
the Nextel Indentures and the OneComm Indenture and holders of a significant
outstanding principal amount of the notes issued pursuant to the Dial Call
Indentures support the consummation of Nextel's pending transactions, including
the Merger, and such holders have expressed their intentions to consent to the
waivers and amendments required to consummate the pending transactions,
including the Merger. Nextel currently estimates that the aggregate
consideration that will be paid to all holders in connection with such waivers
and amendments (assuming all such holders deliver valid waivers and consents to
amendments) would total approximately $27,192,000. As of the date hereof,
however, Nextel has not received such consents, and no assurances can be given
that any such consents can be obtained. See "THE MERGER -- Compliance with
Indentures."
ANTI-DILUTIVE PURCHASE RIGHTS
Pursuant to the terms of the Comcast Stock Purchase Agreement (as amended
by the Comcast January Amendment and the Comcast April Amendment), Comcast FCI
was granted the Comcast Purchase Right consisting of certain anti-dilutive
rights to purchase additional shares of Nextel Common Stock upon any public or
private issuance of such shares by Nextel (other than in certain exempt
issuances as specified in the Comcast Stock Purchase Agreement) including the
issuance of shares of Nextel Common Stock in connection with the Merger. Comcast
may exercise the Comcast Purchase Right with respect to issuances of shares of
Nextel Common Stock in connection with the Merger at any time prior to December
31, 1995, assuming the Merger is consummated during 1995. If the Comcast
Purchase Right is exercised with respect to the Merger, Comcast will be entitled
to purchase the appropriate number of shares of Nextel Common Stock for a cash
per share purchase price determined by reference to the average closing price of
one share of Nextel Common Stock on the Nasdaq NM during the 30-trading-day
period prior to the date of exercise of the Comcast Purchase Right with respect
to shares of Nextel Common Stock issued in connection with the Merger. The
actual number of shares purchasable pursuant to the exercise of the Comcast
Purchase Right with respect to the Merger may vary based upon a number of
factors set forth in the Comcast Stock Purchase Agreement and the Comcast
January Amendment. Comcast has waived the Comcast Purchase Right with respect to
the issuances of shares of Nextel Common Stock that occurred or are anticipated
to occur in the PowerFone Merger, the Questar/AMI Share Exchange, the NTT Share
Purchase, the McCaw Transaction, the Motorola Transaction, and the OneComm
Transaction but has exercised the Comcast Purchase Right with respect to the
anticipated issuance of shares of Nextel Common Stock in connection with the
Dial Page Transaction. See "-- B. THE PARTIES TO THE MERGER -- Nextel -- Recent
Developments -- Comcast Amendments." There can be no assurance concerning
whether Comcast will exercise the Comcast Purchase Right with respect to the
Merger or any other transaction to which such rights may attach. Provisions of
the Motorola Agreement, as amended by the Motorola Agreement Amendment entered
into in connection with the McCaw Transaction, and of the McCaw Securities
Purchase Agreement also grant to Motorola and the McCaw Investor, respectively,
similar anti-dilutive rights on substantially identical terms as those
applicable to the Comcast Purchase Right (the "Motorola Purchase Right" and "the
McCaw Purchase Right," respectively). Nextel has obtained a waiver of the
Motorola Purchase Right from Motorola with respect to the pending transactions
including the Merger, and upon consummation of the McCaw Transaction, Motorola's
anti-dilutive rights will terminate. Nextel has requested a waiver of the McCaw
Purchase Right with respect to the Merger, and the McCaw Investor has indicated
that it will provide such a waiver, although the waiver has not been obtained as
of the date of this Proxy Statement/Prospectus. See "THE MERGER -- Anti-Dilutive
Purchase Rights."
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<PAGE> 35
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Richard G. Somers, President and Chief Executive Officer of AMS and a
member of the AMS Board and Chairman thereof, holds options to purchase 75,000
shares of AMS Common Stock, which options, upon consummation of the Merger, will
become exercisable for shares of Nextel Common Stock for up to two years after
the consummation of the Merger. Additionally, salary payments to Mr. Somers
under his employment agreement with AMS will be accelerated upon the
consummation of the Merger. See "CERTAIN INFORMATION REGARDING THE DIRECTORS AND
EXECUTIVE OFFICERS OF AMS -- Employment Arrangements." Any of Mr. Somers' AMS
Options and all other vested and unvested AMS Options that remain outstanding
and unexercised as of the Effective Time of the Merger will be modified and
adjusted in accordance with the terms of the Merger Agreement to become
exercisable for shares of Nextel Common Stock. See "THE MERGER
AGREEMENT -- Options and Warrants." Also under the Merger Agreement, the
officers and directors of AMS are entitled to continue to be indemnified by the
Surviving Corporation after the Effective Time of the Merger with respect to
liabilities arising out of or pertaining to matters existing or occurring at or
prior to the Effective Time of the Merger. See "THE MERGER -- Interests of
Certain Persons in the Merger" and "THE MERGER AGREEMENT -- Indemnification of
Directors and Officers of AMS."
COMPARISON OF STOCKHOLDER RIGHTS
Although each of AMS and Nextel are corporations incorporated under
Delaware law, there are certain differences in the rights of holders of shares
of capital stock in each of the two entities pursuant to their respective
certificates of incorporation and by-laws. In addition, the McCaw Transaction
contemplates modifications to the Nextel Charter relating to the authorized
number and types of, and the terms of, Nextel's capital stock and related
modifications to the Nextel By-laws. Accordingly, holders of shares of AMS
Common Stock should consider the likely operation and purposes of such modified
provisions of the Nextel Charter and the Nextel By-laws following consummation
of the McCaw Transaction. See "COMPARISON OF RIGHTS OF HOLDERS OF SHARES OF EACH
OF NEXTEL COMMON STOCK AND AMS COMMON STOCK" for a summary of the material
differences between the rights of holders of shares of AMS Common Stock and
Nextel Common Stock, including those differences expected to arise upon the
assumed consummation of the McCaw Transaction.
NO DISSENTERS' RIGHT OF APPRAISAL
Under the DGCL, no appraisal rights are available for the shares of any
class of stock which, at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at a meeting of stockholders to act
upon a proposed agreement of merger, is designated as a National Market security
by the NASD. The AMS Common Stock was designated as a National Market security
by the NASD as of the Record Date. Accordingly, holders of shares of AMS Common
Stock (in their capacity as such) will not have rights as dissenting
stockholders under the DGCL by reason of the Merger, or by any vote or
abstention on the Merger Proposal, nor will they otherwise be entitled to
receive any cash payment in respect of such shares of AMS Common Stock by reason
of any of the foregoing. It is a condition to Nextel's obligations under the
Merger Agreement that no holder of shares of AMS Common Stock will be entitled
to assert any appraisal rights in connection with the Merger.
ACCOUNTING TREATMENT
It is expected that the Merger will be accounted for as a "purchase" under
generally accepted accounting principles. See "THE MERGER -- Accounting
Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO HOLDERS OF AMS COMMON
STOCK
It is intended that the Merger will constitute a tax-free reorganization
for federal income tax purposes and, accordingly, that no gain or loss will be
recognized by any holders of shares of AMS Common Stock on the conversion of
their shares of AMS Common Stock solely into shares of Nextel Common Stock by
reason
26
<PAGE> 36
of the Merger. Gain, if any, may be recognized by holders of shares of AMS
Common Stock by reason of the receipt by such holders of cash in lieu of
fractional shares of Nextel Common Stock. The obligation of AMS to consummate
the Merger is subject to the condition that it has received an opinion
substantially to such effect from its counsel, Baker & Botts, L.L.P. Such
opinion will be based in part on certain representations of the parties. See
"THE MERGER -- Certain Federal Income Tax Consequences."
NO PRIVATE LETTER RULING IS BEING SOUGHT FROM THE INTERNAL REVENUE SERVICE
WITH RESPECT TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER, AND HOLDERS
OF SHARES OF AMS COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE SPECIFIC FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES TO THEM OF THE
MERGER. IN ADDITION, TAX-FREE TREATMENT IN THE MERGER MAY DEPEND IN PART ON THE
ACCURACY OF REPRESENTATIONS THAT MAY BE GIVEN BY AMS AND BY CERTAIN HOLDERS OF
SHARES OF AMS COMMON STOCK REGARDING THEIR INTENTIONS AS TO THE RESALE OF SHARES
OF NEXTEL COMMON STOCK RECEIVED IN THE MERGER. IF SUCH REPRESENTATIONS PROVE TO
BE INACCURATE, ALL HOLDERS OF SHARES OF AMS COMMON STOCK MAY BE SUBJECT TO
TAXATION ON THE DIFFERENCE BETWEEN THE FAIR MARKET VALUE OF THE SHARES OF NEXTEL
COMMON STOCK RECEIVED IN THE MERGER AND THE BASIS OF SUCH PERSONS IN THE SHARES
OF AMS COMMON STOCK HELD BY THEM. NEITHER NEXTEL NOR AMS IS ABLE TO PROVIDE
ASSURANCES THAT TAX-FREE TREATMENT WILL BE OBTAINED BY ANY HOLDERS OF SHARES OF
AMS COMMON STOCK. SEE "THE MERGER -- CERTAIN FEDERAL INCOME TAX CONSEQUENCES."
E. ELECTION OF DIRECTORS OF AMS
The stockholders are asked to elect two members to the AMS Board, Gary S.
Howard and William L. Wedum, each to serve for a term expiring upon the
consummation of the Merger or, if the Merger is not consummated, until their
successors are duly elected and qualified or such persons resign or are removed.
If the Merger Proposal is approved and the transactions contemplated by the
Merger Agreement are consummated, Messrs. Howard and Wedum will resign from the
AMS Board. See "ELECTION OF DIRECTORS OF AMS." Each of the foregoing nominees is
currently a member of the AMS Board. Mr. Richard G. Somers, who is currently the
Chairman of the Board, President and Chief Executive Officer of AMS, has
determined not to seek reelection to the AMS Board for personal reasons. In
accordance with the DGCL, a stockholder entitled to vote for the election of
directors can withhold authority to vote for all nominees for director or can
withhold authority to vote for certain nominees for director. See "ELECTION OF
DIRECTORS OF AMS" and "CERTAIN INFORMATION REGARDING THE DIRECTORS AND EXECUTIVE
OFFICERS OF AMS."
27
<PAGE> 37
F. COMPARATIVE PER SHARE DATA
The following table sets forth certain historical and pro forma financial
data for Nextel and certain historical financial data for AMS. The equivalent
pro forma data represents the corresponding pro forma per share data for Nextel
multiplied by 0.62, the anticipated Exchange Ratio in the Merger, and is
intended to represent such Nextel pro forma per share data on a per share of AMS
Common Stock equivalent basis. The pro forma data Consolidated (AMS) (as well as
the corresponding equivalent pro forma data) gives effect to the Merger, the
PowerFone Merger (on April 14, 1994), and the Questar/AMI Share Exchange (on
August 4, 1994), for the twelve months ended December 31, 1994 as well as the
Merger for the three months ended March 31, 1995. The pro forma data
Consolidated (AMS and Pending Transactions) (as well as the corresponding
equivalent pro forma data) gives effect to the transactions described above and
the pending transactions identified below. The pending transactions include the
McCaw Transaction, the Motorola Transaction, the OneComm Transaction, the Dial
Page Transaction, the exercise of the Comcast Purchase Right with respect to the
Dial Page Transaction and the Comcast Philadelphia Transaction each of which is
described elsewhere in this Proxy Statement/Prospectus. All such pro forma
information gives effect to the acquisitions included therein under the purchase
method of accounting. The pro forma book value per share data gives effect to
the transactions identified above, as applicable, as of March 31, 1995. All such
pro forma loss and dividend per share data gives effect to the Merger and the
completed transactions identified above, as applicable, as if they had occurred
at the beginning of the periods presented. The consummation of the pending
transactions is subject to a number of conditions and other contingencies. There
can be no assurance as to when, if at all, the conditions and other
contingencies with respect to any or all of the pending transactions will be
satisfied or met and/or such transactions consummated. See "RISK
FACTORS -- Uncertainty of Pending Transactions."
The pro forma comparative per share data does not purport to represent what
the financial position or results of operations of Nextel would actually have
been had the transactions identified above occurred at the beginning of the
relevant periods or to project Nextel's financial position or results of
operations for any future date or period. This data should be read in
conjunction with the unaudited Nextel Pro Forma Condensed Consolidated Financial
Statements and the separate financial statements and notes thereto of Nextel,
AMS, PowerFone, QTI, AMI-West, the Motorola SMR Business, OneComm, Dial Page and
Transit incorporated by reference or appearing elsewhere in this Proxy
Statement/Prospectus.
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1994 THREE MONTHS ENDED MARCH 31, 1995
--------------------------------------------- ---------------------------------------------
PRO FORMA PRO FORMA
------------------------------ ------------------------------
CONSOLIDATED CONSOLIDATED
(AMS AND (AMS AND
CONSOLIDATED PENDING CONSOLIDATED PENDING
HISTORICAL (AMS) TRANSACTIONS) HISTORICAL (AMS) TRANSACTIONS)
---------- ------------ ------------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Loss per share................. $(1.51) $(1.52) $ (1.26) $ (.50) $ (.50) $ (.45)
Dividend per share.............
Book Value per share........... $11.51 $11.68 $ 13.61
</TABLE>
AMERICAN MOBILE SYSTEMS INCORPORATED
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1994 MARCH 31, 1995
--------------------------- --------------------------------------
EQUIVALENT PRO FORMA(1) EQUIVALENT PRO FORMA(1)
--------------------------- --------------------------
HISTORICAL CONSOLIDATED CONSOLIDATED
------------- (AMS AND (AMS AND
YEAR ENDED CONSOLIDATED PENDING CONSOLIDATED PENDING
JUNE 30, 1994 (AMS) TRANSACTIONS) HISTORICAL (AMS) TRANSACTIONS)
------------- ------------ ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Loss per share............................ $(.27) $ (.94) $(.78) $ (.06) $ (.31) $ (.28)
Dividend per share........................
Book Value per share...................... $ .93 $ 7.24 $ 8.44
</TABLE>
- ---------------
(1) The equivalent pro forma per share data for AMS represents the corresponding
pro forma per share data of Nextel multiplied by the anticipated Exchange
Ratio of 0.62 of a share of Nextel Common Stock for each share of AMS Common
Stock so that the equivalent pro forma per share amounts correspond to the
applicable value per share of AMS Common Stock (assuming consummation of the
Merger).
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<PAGE> 38
G. HISTORICAL TRADING INFORMATION OF NEXTEL AND AMS COMMON STOCK
The Nextel Common Stock and the AMS Common Stock are both traded on the
Nasdaq NM under the symbols "CALL" and "AMSE," respectively. The following table
sets forth the high and low sales prices for the Nextel Common Stock and the AMS
Common Stock as reported by Nasdaq NM (except as noted in footnote (1)) for the
periods indicated. The information does not include retail mark-ups, mark-downs
or commissions.
<TABLE>
<CAPTION>
NEXTEL AMS
COMMON STOCK COMMON STOCK
----------------- --------------
HIGH LOW HIGH LOW
----- ----- ---- ---
<S> <C> <C> <C> <C>
Year Ended December 31, 1992:
CALENDAR QUARTER
Third.............................................. $ 12 $ 9 $ 4 1/8 $ 3 1/4
Fourth............................................. $ 18 3/4 $ 10 3/8 $ 4 $ 2 1/4
Year Ended December 31, 1993:
CALENDAR QUARTER
First.............................................. $ 28 1/8 $ 17 7/8 $ 7 1/4 $ 3
Second............................................. $ 28 1/4 $ 22 1/8 $ 8 $ 5 1/2
Third.............................................. $ 45 1/4 $ 26 3/4 $20 1/4 $ 6
Fourth............................................. $ 54 7/8 $ 31 3/4 $26 3/4 $13 1/4
Year Ended December 31, 1994:
CALENDAR QUARTER
First.............................................. $ 46 3/4 $ 35 1/4 $18 1/4 $12
Second............................................. $ 41 3/4 $ 29 1/2 $14 $ 9 1/2
Third.............................................. $ 31 3/8 $ 20 5/8 $14 $ 9 3/4
Fourth(1).......................................... $ 22 1/2 $ 13 1/4 $10 1/2 $ 4 1/4
Year Ended December 31, 1995:
CALENDAR QUARTER
First.............................................. $ 15 5/8 $ 9 3/8 $ 5 1/2 $ 2 3/4
Second (through June 26,1995)...................... $ 17 3/4 $ 13 $ 9 3/4 $ 3 3/4
</TABLE>
- ---------------
(1) For the period October 28, 1994 to November 29, 1994, during which period
AMS was deemed to be ineligible for quotation on the Nasdaq NM and was
traded on the Nasdaq SmallCap Market, the table reflects the high and low
sales prices for AMS Common Stock on the Nasdaq SmallCap Market, as
furnished by the Nasdaq SmallCap Market. Such information does not include
retail mark-ups, mark-downs or commissions.
The information presented in the table below sets forth the closing sales
prices as reported by Nasdaq NM for Nextel Common Stock and AMS Common Stock on
April 25, 1995, the last full trading day preceding the public announcement of
the signing of the Merger Agreement, and on June 26, 1995, the last full trading
day preceding the date of this Proxy Statement/Prospectus, together with the
equivalent value per share of AMS Common Stock of the consideration to be
received in the Merger, in each case calculated by multiplying the closing sales
prices of Nextel Common Stock on such dates by the Exchange Ratio of 0.62 of a
share of Nextel Common Stock for each share of AMS Common Stock.
<TABLE>
<CAPTION>
AMS
NEXTEL AMS EQUIVALENT
COMMON COMMON VALUE
STOCK STOCK PER SHARE
------- ------ ----------
<S> <C> <C> <C>
Closing Sales Price, April 25, 1995........................... $15.625 $4.75 $ 9.6875
Closing Sales Price, June 26, 1995............................ $ 14.50 $8.375 $ 8.99
</TABLE>
No assurance can be given as to the market price of Nextel Common Stock if
and when the Merger is consummated. AMS stockholders are urged to obtain current
market quotations.
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<PAGE> 39
RISK FACTORS
THE FOLLOWING RISK FACTORS MAY BE RELEVANT TO AN ASSESSMENT OF THE
TRANSACTIONS CONTEMPLATED BY THE MERGER PROPOSAL AND OF THE FUTURE FINANCIAL
RESOURCES AND BUSINESS PROSPECTS OF NEXTEL AND/OR THE VALUE OF NEXTEL COMMON
STOCK. THEREFORE, SUCH FACTORS SHOULD BE CONSIDERED BY HOLDERS OF AMS COMMON
STOCK IN EVALUATING WHETHER TO APPROVE THE MERGER PROPOSAL AND THEREBY BECOME
HOLDERS OF NEXTEL COMMON STOCK (ASSUMING THE OTHER CONDITIONS TO THE MERGER ARE
SATISFIED OR, IF PERMISSIBLE, WAIVED AND THE MERGER IS CONSUMMATED). THESE
FACTORS SHOULD BE CONSIDERED IN CONJUNCTION WITH THE OTHER INFORMATION INCLUDED
AND INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS.
HISTORY OF AND FUTURE EXPECTATIONS OF LOSSES AND NEGATIVE CASH FLOW
The activities of Nextel since its inception in 1987 have been concentrated
on the acquisition and operation of SMR businesses and the development of
Digital Mobile networks. Nextel has incurred net losses since its inception,
including net losses of $28,436,000, $9,615,000 and $56,904,000 during the
fiscal years ended March 31, 1992, 1993 and 1994, respectively, and $125,849,000
and $53,199,000 for the nine months ended December 31, 1994 and the three months
ended March 31, 1995, respectively. Nextel had an accumulated deficit totalling
$301,265,000 at March 31, 1995. The activities of AMS since its inception also
have focused on the acquisition, development and operation of SMR businesses.
AMS has incurred net losses since its inception, including net losses of
$13,913,000, $2,599,000 and $1,895,000 during the years ended June 30, 1992,
1993 and 1994, respectively and $1,082,000 for the nine months ended March 31,
1995. AMS had an accumulated deficit totalling $47,859,000, at March 31, 1995.
System infrastructure purchases under purchase agreements with Motorola
(which may be subsequently financed under Nextel's agreements with Motorola or
Northern Telecom, Inc. ("Northern Telecom")) and other vendors of equipment
related to the Digital Mobile networks, and inventory purchases made in
anticipation of commercial service in Nextel's and AMS' markets, will cause a
significant increase in liabilities during the start-up phase of the Digital
Mobile networks. Such Digital Mobile networks development and commercialization
preparatory expenses, which are capitalized by Nextel pending the initiation of
commercial service on the Digital Mobile networks being constructed in the
relevant markets, are charged to operations beginning in the quarter during
which such market commences commercial operations. In the Los Angeles market,
Nextel ended the capitalization of pre-operation expenses on January 1, 1994
upon commencement of limited commercial service in that market. Nextel's total
direct and indirect costs charged to operations relating to its Digital Mobile
networks were approximately $17,000,000 in the fiscal year ended March 31, 1994,
$72,500,000 for the nine months ended December 31, 1994, and $33,800,000 for the
three months ended March 31, 1995, which charges had a significant negative
impact upon earnings.
Nextel anticipates that its net losses will increase significantly during
the ongoing start-up phase of Digital Mobile networks and that it will generate
operating losses over the next several years. On a pro forma basis for the
twelve months ended December 31, 1994 and the three months ended March 31, 1995,
taking into account certain transactions that were consummated during that
period and assuming the consummation of the Merger and the other pending
transactions described herein, Nextel would have generated a net loss of
$315,201,000 and $113,431,000, respectively. See "NEXTEL COMMUNICATIONS, INC.
AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS." The
ability of Nextel to arrange sufficient equity and/or debt financing or to
generate sufficient revenue to cover its operating and capital needs is subject
to a number of risks and contingencies. Accordingly, there can be no assurance
as to whether or when the operations of Nextel will become profitable. See
"-- Nextel to Require Financing."
The development, implementation and operation of the Digital Mobile
networks will require significant funds. Due to expected operating losses and
capital requirements, Nextel expects that it will be required to raise a portion
of such funds externally. See "-- Nextel to Require Financing."
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<PAGE> 40
UNCERTAINTY OF PENDING TRANSACTIONS
In addition to the Merger Agreement, Nextel has entered into several other
agreements pursuant to which it proposes to make significant additional
acquisitions of SMR assets either directly or through acquisitions of equity
interests in businesses owning SMR assets.
All of the pending transactions, including the Merger, are subject to the
satisfaction of certain significant conditions, which may include receipt of
regulatory approvals, board of director and/or stockholder approvals, and
assurances of certain tax consequences.
There can be no assurance as to when, if at all, the conditions and other
contingencies with respect to any or all of the pending transactions will be
satisfied or met, or that Nextel or any of the other parties thereto will not
decide to abandon any of these transactions as to which significant conditions
may remain unfulfilled or where completion is otherwise subject to its approval.
It is therefore possible that only some, or even none, of the pending
transactions will be consummated, or that, if consummated, the terms thereof
will differ from those presently contemplated. See "SUMMARY -- B. THE PARTIES TO
THE MERGER -- Nextel -- Pending Transactions."
In addition, as described in "THE MERGER -- Compliance with Indentures,"
either compliance with certain debt incurrence requirements contained in the
Nextel Indentures (including if the OneComm Transaction has then occurred, the
OneComm Indenture) would need to be demonstrated in the context of (and giving
effect to consummation of) each of the Merger, the Motorola Transaction, the
OneComm Transaction and the Dial Page Transaction, or waivers of any
non-compliance with respect to such covenants would have to be obtained from the
relevant holders of a majority of the principal amount at stated maturity of the
outstanding notes issued under the relevant Indentures to permit the
consummation of such transactions. Additionally, in the context of the Dial Page
Transaction, substantially identical Debt incurrence covenants imposed by the
terms of the Dial Call Indentures would need to be complied with or waived by
the relevant holders of a majority of the principal amount at stated maturity of
the notes outstanding under one of such Dial Call Indentures and 66 2/3% of the
principal amount at stated maturity of the notes outstanding under the other of
such Dial Call Indentures as a condition to consummation of the Dial Page
Transaction. Finally, although the terms of the Nextel Indentures do not
prohibit consummation of the McCaw Transaction, the McCaw Securities Purchase
Agreement conditions the McCaw Investor's obligation to consummate the
transactions contemplated thereby on Nextel's receipt of necessary consents and
waivers under each of the Nextel Indentures to consummate the Merger, the
Motorola Transaction, the OneComm Transaction and the Dial Page Transaction.
In addition, because the obligations of each of Nextel and AMS to
consummate the Merger are subject to the consummation of the McCaw Transaction,
in the event that Nextel is unable to obtain the required consents under the
Nextel Indentures to consummate the Motorola Transaction, the OneComm
Transaction and/or the Dial Page Transaction there can be no assurance that the
McCaw Transaction will be consummated or that the applicable conditions to the
obligations of either Nextel or AMS to consummate the Merger will be satisfied.
RISKS OF IMPLEMENTATION OF DIGITAL MOBILE NETWORKS
Nextel has begun to implement its Digital Mobile networks in several of its
market areas. As of March 31, 1995, Nextel's Digital Mobile networks were
operating throughout most of California and in the greater metropolitan areas of
New York City and Chicago. In addition, as of such date, Nextel had Digital
Mobile networks under construction in several other market areas, including Las
Vegas, Reno, Detroit, the mid-Atlantic and New England, and in the design and
implementation stages in Ohio, western New York State, Pennsylvania, Texas and
Florida. Under its current nationwide Digital Mobile network build out plan
(which, as discussed below in "-- Nextel to Require Financing," "--
Implementation of Digital Mobile Networks Subject to Risks of Developing
Technology" and "-- Success of Digital Mobile Networks Is Dependent on the
Ability of Nextel to Compete," is premised on several key assumptions, including
the completion of all pending transactions, availability of sufficient funding,
achievement of satisfactory system performance standards and maintenance of
targeted service and subscriber equipment pricing levels), Nextel
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<PAGE> 41
currently expects ultimately to implement Digital Mobile networks in market
areas covering 85% of the U.S. population.
During 1995 and 1996 (without giving effect to any of the pending
transactions), Nextel expects to activate Digital Mobile network service in
additional markets, which, together with the markets already activated, would
involve providing coverage in major metropolitan market areas throughout the
nation that collectively account for more than half of the total U.S.
population. Such additional markets may include Reno, Detroit, Cleveland,
mid-Atlantic, New England, Dallas/Fort Worth, Houston, San Antonio, Rochester,
Buffalo, Pittsburgh, Columbus, Indianapolis, Cincinnati, Milwaukee and Salt Lake
City. Assuming the completion of all pending transactions and receipt of
sufficient financing (see "-- Nextel to Require Financing"), on a pro forma
basis, Nextel expects to provide Digital Mobile network coverage to
approximately 80% of the U.S. population by the end of 1996.
The implementation of Digital Mobile networks involves systems design, site
procurement, construction, electronics installation, receipt of necessary FCC
and local regulatory approvals and initial systems optimization prior to
commencing commercial service. Each stage can take from several weeks to several
months and involves various risks and contingencies, the outcome of which cannot
be predicted. There can be no assurance that Nextel will be able to implement
Digital Mobile networks in any particular existing market, including those
markets served by AMS' SMR systems in the State of Florida, or any particular
additional market that may be acquired in connection with Nextel's other pending
transactions in accordance with Nextel's current plans and schedules.
As discussed under "-- Implementation of Digital Mobile Networks Subject to
Risks of Developing Technology," Nextel has experienced technology-related
difficulties in the areas of system access, system reliability and various
characteristics affecting voice quality which have extended system optimization
activities beyond Nextel's original expectations and, accordingly, have delayed
its implementation, principally with respect to its marketing plans. As
discussed below, Nextel continues to work with Motorola in an effort to resolve
such technology issues. Nextel has stated that for a limited period of time
after first making its Digital Mobile network services available on a commercial
basis, it provided, and in certain markets continues to provide, discounts to
customers (principally with regard to to such customers' usage of mobile
telephone services) because of concerns with system performance and network
service-related issues, and gave, and in certain circumstances has continued to
give, credits to subscribers in those markets in an attempt to foster
satisfactory customer relations in response to certain performance and network
service-related issues. Such extended system optimization activities, customer
loading delays and customer discounts and credits have adversely affected and
may continue to adversely affect Nextel's ability to generate revenue.
Nextel has delayed commencing aggressive marketing efforts that would be
expected to produce significant increases in customer loading while the
technology issues are being addressed. In particular, Nextel is continuing to
focus its marketing efforts on attracting customers from its previously
identified targeted groups of potential subscribers, chiefly its existing analog
SMR dispatch system subscribers and other business users including current users
of multiple wireless communications services and those new users who may be
attracted to the combination of services made possible by its Digital Mobile
networks.
In connection with the discussions relating to the McCaw Transaction,
representatives of the McCaw Investor expressed their concurrence in Nextel's
view that improvements in the current voice transmission quality relating to
mobile telephone service would be necessary to enable Nextel's multi-service
offerings that utilize mobile telephone service to be competitive in the
wireless communications services markets as such markets are expected to develop
in the future. Accordingly, in connection with the McCaw Transaction, Nextel and
Motorola entered into the Second Equipment Agreement Amendment that provides for
the development of Reconfigured iDEN that is intended to produce, among other
desired outcomes, significant improvements in the voice quality of mobile
telephone service beyond the level of improvements contemplated by Motorola's
previous plans. The terms of the Second Equipment Agreement Amendment, when
implemented, may have the effect of increasing the amount of system
infrastructure equipment required to be deployed. However, the related increases
in Nextel's capital expenditures are expected to be offset by the more
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<PAGE> 42
favorable infrastructure equipment and subscriber unit pricing contemplated by
the Second Equipment Agreement Amendment. See "-- Nextel to Require Financing."
Motorola's agreement to develop Reconfigured iDEN will terminate if the
McCaw Transaction is not consummated. If the McCaw Transaction is consummated,
Reconfigured iDEN would not be implemented until at least early 1996, assuming
timely and satisfactory development of the relevant technology and related
system infrastructure and subscriber unit software. Motorola has advised Nextel
that (independent of the development commitment contained in the Second
Equipment Agreement Amendment) Motorola contemplates continuing to install
software upgrades during 1995 in accordance with its previous plans, directed at
producing voice transmission quality improvements and system access and
reliability improvements in the mobile telephone mode in Nextel's Digital Mobile
networks.
Based on the current technology and system performance issues associated
with the voice quality of mobile telephone service, and the current schedule for
implementing the system modifications and enhancements directed at addressing
these issues, Nextel does not anticipate that it will commence active marketing
efforts relating to service offerings that emphasize mobile telephone service
until Reconfigured iDEN or other modifications or enhancements that result in
sufficient improvements in the quality of the mobile telephone services have
been installed. No assurance can be given that Reconfigured iDEN or such
modifications or enhancements, if implemented, will be successful. The focus and
progress of Nextel's Digital Mobile network services marketing efforts is and
will continue to be dependent on a number of factors, including system
performance, subscriber equipment availability and the ability to provide
services that satisfy customer needs and expectations.
There can be no assurance that Nextel's existing analog SMR customers will
be willing to invest in new subscriber equipment necessary to migrate to the
Digital Mobile network systems. Through March 31, 1995, approximately 22,600
Digital Mobile subscriber units were placed on Nextel's Digital Mobile networks.
Consistent with Nextel's initial strategy to focus on dispatch-oriented
customers, as of March 31, 1995 approximately 75% of Nextel's Digital Mobile
customers subscribed to dispatch-only service while approximately 25% subscribed
to a multi-service package, including dispatch, mobile telephone and
short-message paging.
If Nextel for any reason is not able to implement Digital Mobile networks,
Nextel would be unable, utilizing its existing analog SMR systems, to provide
mobile telephone services comparable to those provided by other wireless
communications systems operators or to achieve significant further subscriber
growth. See "-- Success of Digital Mobile Networks is Dependent on the Ability
of Nextel to Compete."
Assuming Nextel is able to implement Digital Mobile network services in the
relevant markets on a timely basis, the success of Digital Mobile network
service also could be affected by matters beyond the control of Nextel, such as
availability and pricing of subscriber equipment, marketing and pricing
strategies of competitors, availability of superior competitive products and
general economic conditions. See "-- Success of Digital Mobile Networks is
Dependent on the Ability of Nextel to Compete" for a discussion of the impact of
subscriber equipment pricing on the ability of Nextel to compete with other
wireless communications providers.
IMPLEMENTATION OF DIGITAL MOBILE NETWORKS SUBJECT TO RISKS OF DEVELOPING
TECHNOLOGY
The iDEN technology currently incorporated in Nextel's Digital Mobile
networks uses a new type of digital transmission technology, based on the Time
Division Multiple Access ("TDMA") technology format, known as "six-time slot
TDMA." A different version of TDMA (three-time slot) has recently been deployed
by McCaw Cellular Communications, Inc., a subsidiary of AT&T, and Southwestern
Bell Mobile Systems, and is expected to be deployed by certain other cellular
carriers pursuant to a standard adopted by the cellular industry. Six-time slot
TDMA technology deployed by Nextel can carry up to six voice paths per channel,
compared with three voice paths available in a three-time slot TDMA format such
as that utilized in the initial digital systems being deployed by the cellular
industry. The use of six-time slot TDMA technology in combination with Nextel's
re-use of its licensed frequencies in a cellular-type system design permits
Nextel to more efficiently utilize its current holdings of spectrum in its
market areas. Efficient utilization of Nextel's
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<PAGE> 43
available spectrum is an important objective generally because less spectrum is
available in the SMR band than is or may be licensed to other wireless operators
in each market.
As described under "SUMMARY -- B. THE PARTIES TO THE
MERGER -- Nextel -- Pending Transactions -- Motorola Transaction," pursuant to
the Second Equipment Agreement Amendment, Motorola has agreed to use its best
efforts to develop, and Nextel has agreed to implement when developed,
Reconfigured iDEN. Reconfigured iDEN is intended to enhance audio quality but
will result in a reduction of time slots and, therefore, less efficient use of
spectrum for telephone interconnect services. There can be no assurance that
Reconfigured iDEN will be developed, or that, if developed, it will be
successfully deployed.
Although Nextel believes that TDMA technology, on balance, is superior to
analog technology that is used in traditional SMR systems, the use of digital
technology in general, and six-time slot TDMA in particular, involves certain
performance trade-offs, for example, various characteristics affecting voice
quality and fidelity. In general, as the relevant technologies are currently
deployed, digital voice transmission produces a distinguishably different set of
sound characteristics than analog voice transmission (whether SMR or cellular).
The difference results, in part, from the fact that digital voice transmission
requires the digital encoding and decoding of the voice communication. Hence,
both six-times TDMA and digital cellular voice transmissions sound different
from traditional analog cellular transmissions. These trade-offs may have an
effect on customer acceptance.
In addition to these technology-based differences, customer acceptance of
the service offered by Nextel also will be affected by the operational
performance and reliability of systems transmission on its Digital Mobile
networks. In that regard, as is frequently the case both in the development and
implementation of new technologies and the offering of related services, Nextel
has experienced difficulties and delays in the implementation of the iDEN TDMA
technology. Such difficulties have been encountered, and have been and continue
to be addressed, in three principal areas: system reliability (the percentage of
time the system is operating), system access (how often a user can gain access
to the system) and various characteristics affecting voice quality. Nextel's
objectives in carrying out the initial phase of system optimization activities
have been to achieve satisfactory performance levels in the areas of system
reliability and system access. During calendar year 1994, Nextel and Motorola
coordinated their efforts to identify and implement various system hardware
adjustments and software upgrades to bring about improvements in various
operating and performance characteristics. Although further improvements in the
area of system reliability and access are expected to be pursued, Nextel
believes that its existing Digital Mobile networks as operated at March 31, 1995
were demonstrating acceptable performance levels in these areas. Additional
software upgrades are being installed at the present time to further improve
system reliability and access. Nextel anticipates that there will be an ongoing
focus on system optimization activities principally directed at achieving
improvements in a number of areas relating to the quality of voice transmissions
over the Digital Mobile networks. In addition to the potential system
modifications and enhancements to the iDEN technology contemplated by the Second
Equipment Agreement Amendment, Motorola has scheduled software loads and other
system enhancements, which are anticipated to be introduced in mid-1995, that
are designed to address a number of system performance issues associated with
certain characteristics affecting the quality of voice transmissions encountered
by Digital Mobile subscribers. Ongoing optimization, software loading and
planned maintenance activities affecting the Digital Mobile network systems
periodically necessitate the schedule turn down of sub-systems during periods of
very low traffic, typically at night or on weekends.
Throughout late 1994 and continuing during 1995 Nextel and Motorola
conducted objective system testing as well as customer surveys designed to
assess the foregoing operational issues. As discussed above, during 1994 a
number of systems hardware adjustments and software upgrades were made to
address issues identified through such testing and surveys. Nextel believes that
customer acceptance of the dispatch service on the Digital Mobile networks was
generally at an acceptable overall level during such period, but that the mobile
telephone service needs further improvement before Nextel would be in a position
to actively market such services as part of a competitive wireless
communications services alternative to existing cellular telephone service in
its markets. To date, Nextel's experience is based on a limited number of
customers who are primarily oriented to dispatch service, and such experience
should not necessarily be regarded as an accurate predictor of Nextel's
experience in the future, particularly as Nextel's customer base expands beyond
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<PAGE> 44
such group of initial customers. Any inability to satisfactorily address and
resolve performance issues that affect customer acceptance of Digital Mobile
network service could delay or adversely affect the successful commercialization
of the Digital Mobile networks and could adversely affect the business and
financial prospects of Nextel.
Nextel expects that system optimization activities will be a continuing
component of normal Digital Mobile network operation, and the satisfactory
resolution of certain system performance issues in a particular market or at a
particular stage of operations does not necessarily preclude the need to address
those issues again, for example, as a result of a significant increase in the
number of subscribers using the Digital Mobile networks. Moreover, future
upgrades or modifications may have unexpected adverse effects on performance
issues previously addressed. However, each of Motorola and Nextel believes that
a large portion of the hardware and software adjustments developed in the course
of system optimization activities to address particular issues, and the
resulting system performance improvements realized, should be applicable to
similar issues in different markets. Nevertheless, as is often the case in the
deployment of utilized wireless communications networks, it should be expected
that there will be market-specific characteristics, such as local terrain,
topography, the number of licensed frequencies, the utilization of adjacent
radio frequencies and other factors, that will require customized optimization
activities to successfully address related system performance issues.
The cellular divisions of certain major telephone companies in the United
States have publicly announced that they have selected the digital technology
format known as code division multiple access ("CDMA"), predicted to provide a
significant increase in capacity over current analog technology, as the basis
for the digital technology that they intend to deploy in their cellular systems.
It is possible that in the future subscribers might prefer using CDMA rather
than TDMA technology. Moreover, customer acceptance of the service offered by
Nextel may also be affected by the development of new technologies in addition
to CDMA that may potentially offer features or performance characteristics that
are perceived by customers to be superior to TDMA, including the iDEN technology
being deployed by Nextel.
Nextel continuously reviews alternate technologies as they are developed.
However, to date, it has not been regarded as necessary or as a commercially
feasible strategy to adapt currently available alternative technologies to
operate on Nextel's present spectrum position. Nextel has pursued, and is
actively pursuing, certain regulatory initiatives seeking the right to use
contiguous blocks of spectrum, although there can be no assurance as to the
outcome of such initiatives.
Should Nextel choose to deploy a technology other than iDEN for any of its
wireless communications services, Nextel believes that its systems planning and
its contractual relationships with Motorola would permit it to utilize a
different technology. However, in light of the development period for
Reconfigured iDEN, Nextel has agreed, in the Second Equipment Agreement
Amendment, not to effect a change from iDEN technology prior to October 1, 1997
without Motorola's consent. See "SUMMARY -- B. THE PARTIES TO THE
MERGER -- Nextel -- Pending Transactions -- Motorola Transaction." Due to the
considerable present uncertainty surrounding the factors that might affect such
a decision, including the performance characteristics and customer perceptions
of iDEN or of competing digital technologies and possible future improvements in
iDEN technology, it is impossible to predict if or when such a decision could be
made.
NEXTEL TO REQUIRE FINANCING
Based on Nextel's operations as of December 31, 1994, and assuming
completion of the Merger and the other pending transactions described herein
(but not giving effect to financing received upon any consummation of the McCaw
Transaction or upon any exercise of the Comcast Purchase Right in connection
with any of the pending transactions, or to the impact of deployment of
Reconfigured iDEN, or revised infrastructure equipment and subscriber unit
pricing terms contemplated by the Second Equipment Agreement Amendment), Nextel
will require significant financing for capital expenditures for the construction
of Digital Mobile networks, operating expenses relating to Nextel's Digital
Mobile network and traditional analog SMR systems, potential acquisitions and
other corporate expenditures. As of March 27, 1995, Nextel estimated that the
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<PAGE> 45
following sources and uses of funds would be required first to meet Nextel's
continuing objective of developing, constructing and operating Digital Mobile
networks nationwide, which would provide service coverage to areas containing
approximately 85% of the U.S. population and second to meet Nextel's objective
of expanding the capacity of its Digital Mobile networks thereafter to meet
potential increased demand for such services in such areas:
SUMMARY BUSINESS PLAN
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
ANTICIPATED USES (SOURCES):
Capital Expenditures(1,7)
For Coverage........................ $ 556.8 $ 699.8 $ 222.7 $ 142.7 $ 168.7
For Increased Capacity.............. 42.6 143.2 223.7
------- ------- ------- ------- -------
Total............................... 556.8 699.8 265.3 285.9 392.4
Cash Interest Expense(8)................. 14.3 43.8 72.0 70.5 247.5
Operations, Net(2,7)..................... 172.6 243.1 193.1 (174.3) (640.5)
------- ------- ------- ------- -------
Total Uses (Sources)................ $ 743.8 $ 986.6 $ 530.4 $ 182.1 $ (0.6)
======= ======= ======= ======= =======
FINANCING:
Beginning Cash(3)........................ $ 781.0 $ 107.2 $ 30.0 $ 30.0 $ 30.0
(Uses) Sources From Above.............. (743.8) (986.6) (530.4) (182.1) 0.6
Debt Repayments........................ (9.7) (20.5) (62.6)
Anticipated Vendor Financing(4)........ 15.0 574.1
Option Proceeds(5)..................... 35.0 0.7 445.0
Other, Net(6).......................... 20.0
Additional Capital Needed(7)........... 334.6 95.1 202.6 62.0
------- ------- ------- ------- -------
Ending Cash.............................. $ 107.2 $ 30.0 $ 30.0 $ 30.0 $ 30.0
======= ======= ======= ======= =======
Cumulative Capital Needed:............... -0- $ 334.6 $ 429.7 $ 632.3 $ 694.3
======= ======= ======= ======= =======
Cell Sites Built(9):
Annual................................. 1,044 1,456 378 118 118
Cumulative............................. 1,811 3,267 3,645 3,763 3,881
</TABLE>
- ---------------
(1) Each cell site is planned for an initial construction with 18 voice paths.
Increased capacity represents installation of additional radios at cell
sites to handle increased numbers of subscribers.
(2) Includes estimated Digital Mobile network operating expenses, net of
revenue; analog SMR operating revenue, net of expenses; corporate expenses;
and other uses of funds.
(3) Includes estimated cash and marketable securities in aggregate for Nextel,
Dial Page and OneComm.
(4) Includes financing anticipated to be available pursuant to the existing
$260,000,000 Motorola facility, the existing $40,000,000 Northern Telecom
facility, the pending increase of $260,000,000 in the Motorola facility, and
the pending $165,000,000 Motorola facility for the OneComm markets. There
can be no assurance such sources will be available. In the event Nextel
receives only a portion or none of the funds described above, Nextel would
need to seek alternative financing, although there can be no assurances it
would be able to obtain any such financing.
(5) Includes the Comcast second tranche investment of $35,000,000, and assumes
the exercise of the Comcast warrant in 1997 (25,000,000 shares with a $16
per share exercise price) and the Motorola warrant in 1997 (3,000,000 shares
with a $15 per share exercise price). There can be no assurance such sources
will be available. In the event Nextel receives only a portion or none of
the funds described above,
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<PAGE> 46
Nextel would need to seek alternative financing, although there can be no
assurances it would be able to obtain any such financing.
(6) Includes receipt of estimated gross cash proceeds from the sale of the Dial
Page paging business, net of certain liabilities of such business, and net
of transaction costs and other anticipated uses.
(7) Includes expenditures for construction and operating expenses relating to
the build out of Digital Mobile networks in Florida.
(8) Assumes interest expense of 10% per annum. Additional capital assumed to be
in the form of equity. To the extent the additional capital is raised in the
form of debt, interest expense would increase accordingly.
(9) Includes cell sites built for Nextel, Dial Page, OneComm and AMS in the
aggregate.
The anticipated uses above for the pending transactions are based, in part,
upon information provided to Nextel by OneComm, Motorola and Dial Page. Nextel
continues to analyze such estimates and expects to re-evaluate such estimates
upon consummation of the Merger and the other pending transactions.
The anticipated uses noted above give effect to Nextel's agreement with
Motorola to purchase and install iDEN equipment during the three-year and
five-year periods beginning on August 4, 1994 sufficient to cover 70% and 85%,
respectively, of the U.S. population (which periods each will be extended by one
year if Nextel does not receive $650,000,000 in additional equity financing from
a strategic investor by August 4, 1995), but do not give effect to either any
differences in infrastructure equipment requirements or deployment schedules
that may be occasioned by implementation of Reconfigured iDEN pursuant to the
Second Equipment Agreement Amendment, nor to the different commercial terms,
including pricing for system infrastructure equipment and subscriber units,
contained in the Second Equipment Agreement Amendment.
The sources of financing set forth in the above table do not reflect
receipt by Nextel of any funds associated with the McCaw Transaction or upon any
exercise of the Comcast Purchase Right. As described in "SUMMARY -- B. THE
PARTIES TO THE MERGER -- Nextel -- Pending Transactions," at the closing of the
issuance of the McCaw Units in connection with the McCaw Securities Purchase
Agreement, Nextel would receive $300,000,000 from the McCaw Investor. In
addition, if the McCaw Options were fully exercised and involved solely
issuances by Nextel of shares of Nextel Common Stock, Nextel would receive
approximately $232,000,000 of additional funds prior to the second anniversary
of the closing under the McCaw Securities Purchase Agreement, $277,500,000 of
additional funds prior to the fourth anniversary of such closing, and
$107,500,000 of additional funds prior to the sixth anniversary of such closing,
pursuant to the applicable terms of the McCaw Options. The foregoing does not
assume any exercise of the McCaw Options or the Incentive Option. As described
in "SUMMARY -- B. THE PARTIES TO THE MERGER -- Nextel -- Recent
Developments -- Comcast Amendments", on April 30, 1995, Comcast exercised the
Comcast Purchase Right with respect to the issuance of shares of Nextel Common
Stock contemplated to occur in connection with the Dial Page Transaction.
Assuming consummation of such exercise of the Comcast Purchase Right, and based
upon Nextel's current estimate that approximately 26,400,000 shares of Nextel
Common Stock will be issued in the Dial Page Transaction, Nextel would issue
approximately 9,250,000 shares of Nextel Common Stock, for a purchase price of
$12.25 per share, to an affiliate of Comcast. As described in "THE
MERGER -- Anti-Dilutive Purchase Rights", any exercise of the Comcast Purchase
Right in connection with the Merger would occur in accordance with the terms of
the Comcast Stock Purchase Agreement as amended by the Comcast January
Amendment. No assurance can be given that the Dial Page Transaction will be
consummated, or that any other conditions to consummation of the Comcast
Purchase Right related thereto will be satisfied. It is not known whether the
Comcast Purchase Right relating to the Merger will be exercised. The foregoing
table does not assume any consummation of such Comcast Purchase Rights.
The uses of funds set forth in the above table do not reflect any impact on
Nextel associated with the development and deployment of Reconfigured iDEN or
other changes contemplated by the Second Equipment Agreement Amendment. As
previously noted, the audio quality enhancements intended to be produced through
Reconfigured iDEN are expected to result in increased capital expenditures
resulting from the installation of additional system infrastructure equipment,
which (in addition to certain other changes contemplated by the Second Equipment
Agreement Amendment) is expected to be offset by the more
37
<PAGE> 47
favorable system infrastructure equipment pricing terms contained in the Second
Equipment Agreement Amendment. Thus, Nextel does not currently expect that the
net change on aggregate uses over the relevant period associated with any such
development and deployment of Reconfigured iDEN or other changes contemplated by
the Second Equipment Agreement Amendment will be material, although timing
differences may occur.
The above is a summary business plan as of March 27, 1995 for Nextel for
the five years ending December 31, 1999 (the "Summary Business Plan"). Nextel
was the sole preparer of the Summary Business Plan. The Summary Business Plan is
based on Nextel's best estimate of the results it expects and assumes the
successful closing of all the then pending transactions in 1995 (but does not
reflect, or make any assumption concerning, other developments since that date,
including the McCaw Transaction and, except as described above, the related
Second Equipment Agreement Amendment and amendments to the Comcast Stock
Purchase Agreement) in accordance with the terms in effect on March 27, 1995.
With specific reference to the Merger, however, (which was not the subject of
any definitive agreement on March 27, 1995 and therefore is not reflected in the
Summary Business Plan), Nextel does not believe that the net impact on sources
and uses associated with the Merger over the relevant period will differ in
either amount or timing from the net impact associated with the transactions
contemplated in the Stock Purchase Agreement previously in effect which is
reflected in the Summary Business Plan.
In connection with the development and deployment of Reconfigured iDEN,
Nextel anticipates that it will further refine its estimates concerning the
related capital expenditures and other uses reflected in the Summary Business
Plan. However, Nextel does not intend to update or otherwise revise the Summary
Business Plan to reflect events or circumstances existing or arising after March
27, 1995, or to reflect the occurrence of unanticipated events, except as
required by applicable law.
The Summary Business Plan necessarily is based upon a number of estimates
and assumptions that, while prepared with numerical specificity and considered
reasonable by Nextel, are inherently subject to significant business, economic
and competitive uncertainties and contingencies, many of which are beyond the
control of Nextel, and upon assumptions with respect to future business
decisions which are subject to change based upon, among other things, the actual
experience of Nextel concerning aspects of its business that currently are
subject to such uncertain and contingent estimates and assumptions. The Summary
Business Plan assumes, among other things, that the performance of the Digital
Mobile network technology will improve as discussed herein (see "-- Risks of
Implementation of Digital Mobile Networks" and "-- Implementation of Digital
Mobile Networks Subject to Risks of Developing Technology"), and that Nextel
will construct and will open as scheduled additional markets using the Digital
Mobile networks and will achieve commercial success and will attract a
substantial number of users to the Digital Mobile networks. The commercial
success of the Digital Mobile networks is subject to a number of uncertainties
and contingencies that are beyond Nextel's control. Accordingly, there can be no
assurances that the Summary Business Plan will be achieved. The Summary Business
Plan and actual results will vary, and those variations may be material. The
inclusion of the Summary Business Plan herein should not be regarded as a
representation by Nextel or any other person that the Summary Business Plan or
any component part of such Summary Business Plan will be achieved. The Summary
Business Plan was prepared by Nextel solely in connection with the potential
solicitation by Nextel of certain consents of holders of debt securities (see
"THE MERGER -- Compliance with Indentures") in connection with certain pending
transactions described in "SUMMARY -- B. THE PARTIES TO THE
MERGER -- Nextel -- Pending Transactions" and not for purposes of assessing
equity value. Recipients of these materials are cautioned not to place undue
reliance on the Summary Business Plan.
Nextel anticipates that its net losses will increase significantly during
the ongoing start-up phase of the Digital Mobile networks and that it will
generate significant operating losses over the next several years. Accordingly,
there can be no assurance as to whether or when the operations of Nextel will
become profitable and, therefore, as to whether the amount of the anticipated
uses of funds noted above are sufficient or whether the funds will be required
earlier than noted.
Based on the foregoing, Nextel estimated, as of March 27, 1995, that it
will require approximately $334,600,000 in 1996, $95,100,000 in 1997,
$202,600,000 in 1998, and $62,000,000 in 1999 in additional funds
38
<PAGE> 48
in excess of the anticipated available sources listed above (which are subject
to certain conditions precedent as noted above) in order to finance capital
expenditures for the construction of Digital Mobile networks, operating expenses
relating to Nextel's Digital Mobile network and traditional analog SMR systems,
potential acquisitions and other corporate expenditures. The foregoing reflects,
in part, the effect of delays Nextel and OneComm have encountered in the
marketing of the Digital Mobile networks due to the current state of system
performance. See "-- Risks of Implementation of Digital Mobile Networks." To the
extent that Nextel, OneComm, or Dial Page continue to experience system
performance issues, the anticipated uses will increase due to further delay in
such companies' receipt of anticipated cash revenue. The significant level of
capital expenditures in 1995 and 1996 reflects the plan to build out markets
covering approximately 80% of the U.S. population by the end of 1996 and
approximately 85% of the U.S. population by the end of 1997. Thereafter, capital
expenditures are lower as Nextel anticipates adding capacity principally by
adding additional transmitters to the previously constructed cell sites to meet
the anticipated subscriber demand and, to a lesser extent, to increase coverage.
To the extent that the number of new subscribers is greater than currently
estimated, the required capital expenditures will be incurred earlier than
currently reflected; to the extent that the number of new subscribers is less
than currently estimated, the required capital expenditures will be incurred
later than currently reflected. Also, to the extent that Comcast and Motorola do
not exercise their respective options and warrants which expire in 1997, such
funding needs would increase by $400,000,000 and $45,000,000, respectively, in
1997.
In addition to evaluating whether there might be ways to build systems more
cost-effectively in those markets where it plans to operate, Nextel is also
evaluating, on a market-by-market basis, the appropriateness of the proposed
build out of Digital Mobile networks in such time frame as is currently planned.
More specifically, while Nextel intends to prioritize its resources toward those
markets with the greatest demand for wireless services, Nextel will also
evaluate whether certain other geographic areas economically warrant full
geographic coverage in a relatively short period of time, as the current
business plan assumes, or whether in some cases it would be more appropriate to
build out a market using an alternative plan; for example, to build city and
connecting highway coverage rather than an entire market, or to delay the build
out of one or more cities by several months. Such evaluation is being undertaken
with a view toward maximizing the cost effectiveness of capital expenditures and
operating funds and potentially to reduce the overall level of funds needed.
Finally, if the McCaw Transaction is not completed and Nextel does not
raise sufficient additional funds as required by the Summary Business Plan
outlined above (or does not receive funds from the Comcast second tranche
investment and from the full exercise of the Comcast and Motorola options and
warrants), Nextel could build out fewer markets with its Digital Mobile
networks. Nextel estimates that by implementing such alternative plan, it could
reduce the additional capital needed to approximately $250,000,000 ($100,000,000
in 1997 and $150,000,000 in 1998) which would enable it to provide coverage to
approximately half of the U.S. population while still servicing the debt
estimated to be outstanding. Such a revised business plan (which does not give
effect to the amendments to Nextel's agreements with Motorola entered into in
connection with the McCaw Transaction) would require changes to certain existing
agreements, including, but not limited to, Motorola's consent (as to which
consent there can be no assurance) to the extent that Nextel would not be able
to satisfy the terms of its equipment purchase agreements. To the extent that
Nextel builds out the markets which are included under the Motorola and Northern
Telecom finance agreements, and assuming the satisfaction of the conditions to
borrowing thereunder (as to which there can be no assurance) Nextel does not
expect such expected sources of funds to be affected by a revised business plan.
The consummation of certain of the pending transactions is subject to
compliance with the requirements of the relevant Indentures, or the receipt of
consents of the holders of notes issued thereunder as described in "THE
MERGER -- Compliance with Indentures." The McCaw Transaction is not subject to
such requirements; however, the obligation of the McCaw Investor to consummate
the transactions contemplated by the McCaw Securities Purchase Agreement is
subject to Nextel's receipt of necessary consents and waivers, on terms
reasonably satisfactory to the McCaw Investor, under each of the Nextel
Indentures to consummate the Merger, the Motorola Transaction, the OneComm
Transaction and the Dial Page Transaction. In the event that Nextel utilizes
available cash (to the extent such cash is contractually permitted to be so
utilized) to
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<PAGE> 49
reduce certain of its indebtedness, or for other purposes, in order to
facilitate consummation of the pending transactions in compliance with the
Indentures, such action would decrease the amount of cash available to Nextel to
finance the build out of the Digital Mobile networks. If, after consummation of
such transactions, Nextel chose not to or was unable to effectively reverse such
debt reduction, there would be a corresponding increase in the amount of, and
acceleration in the need for, additional financing required by Nextel to build
out its Digital Mobile networks. As described in "THE MERGER -- Compliance with
Indentures," Nextel currently contemplates that it will address the requirements
of the Indentures through the solicitation of consents rather than the reduction
of indebtedness.
The ability of Nextel to incur additional indebtedness is and will be
limited by the terms of (i) the Nextel Indentures and, following the OneComm
Transaction and the Dial Page Transaction, the OneComm Indenture and the Dial
Call Indentures, respectively, (ii) the Motorola and Northern Telecom vendor
financing agreements, and (iii) the indebtedness expected to be assumed by
Nextel in connection with certain of the pending transactions.
Nextel's Summary Business Plan requires additional financing as noted
above. As discussed above, a significant portion of these additional financing
requirements would be met with funds received by Nextel in an assumed
consummation of the McCaw Transaction (and assumed future exercises by the McCaw
Investor of the McCaw Options). Nextel has had and may in the future have
discussions with other parties regarding potential equity investments and debt
financing arrangements to satisfy such financing needs. Pursuant to the Motorola
Transaction, Nextel has agreed, under certain circumstances, not to grant
superior governance rights to any third-party investor without Motorola's
consent, which may make securing equity investments more difficult. Motorola has
given such consent with respect to the grants of superior governance rights in
connection with the McCaw Transaction. At present, other than the existing
equity or debt financing arrangements that have been consummated and/or
disclosed (including those contemplated by the McCaw Transaction), Nextel has no
commitments or understandings with any third parties to obtain additional equity
or debt financing, and no assurances can be made that Nextel will be able to
obtain any such additional financing on acceptable terms.
RISKS OF A HOLDING COMPANY STRUCTURE
The Digital Mobile networks currently activated or in construction in
Nextel's markets will be owned and operated by wholly owned subsidiaries of
Nextel. In certain circumstances, such subsidiaries will be direct obligors
under the agreements with Motorola and Northern Telecom to finance the purchase
price of the infrastructure equipment employed in those networks. In addition,
Motorola has committed that upon completion of the OneComm Merger and completion
of the Motorola Transaction, an additional $165,000,000 facility will be
provided to an operating subsidiary of OneComm (that will become a subsidiary of
Nextel upon consummation of the OneComm Merger) to finance the acquisition of
iDEN equipment for the buildout of Digital Mobile networks in OneComm's markets.
The subsidiary financing agreements limit dividends, loans and cash
distributions from such subsidiaries to Nextel so that profits generated by such
operating entities may not be available to Nextel while the loans from Motorola
and Northern Telecom are outstanding. In the event that any financing agreements
are entered into with respect to Digital Mobile networks proposed to be
constructed in the markets of DisCom, PowerFone, QTI, AMI-West or in other
markets that are to be added as a result of Nextel's pending acquisition
transactions as described herein, it is anticipated that such agreements will be
no more favorable to Nextel than the current agreements.
In addition, the Nextel Indentures also limit the ability of Nextel to pay
dividends or make other distributions to its stockholders or to repurchase
shares of its or its subsidiaries' capital stock. The OneComm Indenture limits
the ability of OneComm (and would limit the ability of Nextel, as the successor
to OneComm following the OneComm Merger) to pay dividends or to make other
distributions to its stockholders and to repurchase shares of its capital stock
or its subsidiaries' capital stock. In addition, the $115,000,000 revolving
credit facility between a OneComm operating subsidiary and The Chase Manhattan
Bank (National Association) (the "OneComm Chase Facility") limits dividends,
loans and cash distributions
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from the OneComm operating subsidiary to OneComm (or Nextel, as the successor to
OneComm subsequent to the OneComm Merger). Based upon the availability of funds
under the equipment finance agreement entered into with Motorola, it is
anticipated that Nextel will terminate the OneComm Chase Facility following the
OneComm Merger.
SUCCESS OF DIGITAL MOBILE NETWORKS IS DEPENDENT ON THE ABILITY OF NEXTEL TO
COMPETE
The success of Nextel's Digital Mobile networks (including those proposed
to be implemented in the markets that are to be added as a result of
consummation of the Merger and any other of Nextel's pending transactions) will
depend upon the ability of Nextel to compete with operators of other wireless
communications systems in each relevant market.
Nextel has stated that its marketing strategy for its proposed Digital
Mobile networks would involve three stages. The first stage involves focusing
Nextel's marketing efforts on attracting dispatch-oriented customers to its
Digital Mobile networks. The second stage, which may occur contemporaneously
with the first stage, involves marketing to mobile business users, including
current users of multiple wireless communications services and those new users
who may be attracted to the combination of services made possible by the Digital
Mobile networks. Nextel contemplated that the third stage of its marketing
effort would focus on attracting potential customers who are interested
primarily in mobile telephone service. However, Nextel believes that the mobile
telephone service currently being provided on its Digital Mobile networks needs
further improvement before Nextel would be in a position to actively market to
customers predominantly or exclusively interested in mobile telephone service.
See "-- Implementation of Digital Mobile Networks Subject to Risks of Developing
Technology."
In connection with the negotiations relating to the McCaw Transaction,
representatives of the McCaw Investor had numerous discussions with Nextel's
management relating to Nextel's marketing strategy for its Digital Mobile
networks. In these discussions, the McCaw Investor's representatives expressed
their belief, based on their assessment of the competitive environment faced by
various wireless communications service providers, that Nextel's business plan
and strategy, including its marketing strategy, should be focused principally on
meeting and servicing the needs of potential customers for integrated business
communication services rather than focusing on customers who are interested
primarily in mobile telephone service. The McCaw Investor's representatives and
members of Nextel management shared the assessment that this particular target
customer base presented a significant market opportunity.
Nextel reviews its business and marketing plans in light of a variety of
factors, including perceived opportunities, actual experiences in the
marketplace, availability of financial and other resources and overall economic
and/or competitive considerations, and may from time to time determine to
change, refine or redirect such plans. Because Nextel's business and marketing
strategies (as assumed to be implemented in the Summary Business Plan) to date
have focused principally on dispatch-oriented customers and potential customers
for integrated business communications services and have not relied on achieving
significant penetration of the mobile telephone-only market, Nextel management
does not believe that the view expressed by the representatives of the McCaw
Investor represents or requires a material deviation from the prior and current
conduct of Nextel's Digital Mobile network business, as contemplated by Nextel's
business and marketing plan.
As described in "SUMMARY -- B. THE PARTIES TO THE
MERGER -- Nextel -- Pending Transactions," upon completion of the McCaw
Transaction, the McCaw Investor will designate a majority of the members of a
newly created Operations Committee from its designated nominees on the Nextel
Board which will have the responsibility for, among other things, formulating
recommendations and proposals relating to Nextel's business strategy and
marketing plans. Accordingly, if the McCaw Transaction is completed, Nextel's
marketing strategy may be refined in accordance with the views of the
representatives of the McCaw Investor on the Operations Committee, possibly
resulting in greater emphasis on a marketing strategy focused on developing an
integrated wireless communications service package directed primarily at
business users as outlined above.
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Nextel will compete with established wireless operators in its efforts to
attract mobile telephone customers, dealers and possibly resellers to its
service in each of the markets in which Nextel expects to operate a Digital
Mobile network (including the markets that are to be added as a result of the
consummation of the Merger and any other of Nextel's pending transactions).
While Nextel believes that the mobile telephone service to be provided on its
Digital Mobile networks will be similar to other wireless services in certain
respects, as discussed under "-- Implementation of Digital Mobile Networks
Subject to Risks of Developing Technology," there are and will in certain cases
continue to be differences between the services provided by Nextel and cellular
operators and the performance of their respective systems. As a result of these
differences, there can be no assurance that Digital Mobile network mobile
telephone services will be competitive with other providers of mobile telephone
services. Moreover, the cellular operators in each of Nextel's markets, as well
as in the markets in which Nextel is expected to provide services upon the
consummation of the Merger and the other pending transactions, have been
operational for a number of years and such operators currently service a
significant subscriber base. Nextel currently markets a multi-function
subscriber unit that is significantly more expensive than digital or analog
cellular handsets which do not incorporate multi-function capability. The prices
expected to be available to Nextel for the subscriber handsets to be used by
Nextel's customers will be higher than those charged for analog cellular
handsets and may be higher than digital cellular handsets. Because many of the
cellular operators in Nextel's markets have substantially greater financial
resources than Nextel, such operators may be able to offer prospective customers
equipment subsidies or discounts that are substantially greater than those, if
any, which could be offered by Nextel. Thus, Nextel's ability to compete with
cellular operators based on the price of subscriber equipment will be limited.
Cellular carriers control more spectrum than Nextel and other SMR operators
in each of the relevant market areas. Each cellular carrier is licensed to
operate 25 MHz of spectrum, while 14 MHz is allocated in the 800 MHz band to all
SMR system operators, including Nextel, in those markets. Additionally, there is
12.5 MHz of spectrum for privately owned and operated systems that is also
available to SMR operators on a limited basis.
Nextel will not be able to provide roaming service comparable with that
currently available from cellular carriers unless and until the pending
transactions described elsewhere in this Proxy Statement/Prospectus (including
the Merger) and system build out are completed or, if such transactions are not
completed, Nextel and/or other SMR system operators in other major United States
market areas construct iDEN compatible systems and Nextel establishes suitable
roaming arrangements with such operators.
As is true for cellular carriers, the interconnection of subscriber units
with the public switched telephone network will require Nextel to purchase
certain exchange and inter-exchange services from telephone companies and
certain other common carriers. Unlike cellular operators, however, Nextel
currently is prohibited from profiting from the resale of certain services or
facilities purchased from common carriers, such as local and long distance
service, although implementation of recent legislation is expected to eliminate
this prohibition as it applies to Nextel's Digital Mobile networks.
The U.S. cellular industry is in the process of evaluating and implementing
new digital transmission technologies, which will increase the capacity of
existing cellular systems. See "-- Implementation of Digital Mobile Networks
Subject to Risks of Developing Technology". During the transition to digital
technology, the cellular industry is offering subscriber units with dual mode
(analog and digital) compatibility. Nextel cannot predict the competitive effect
that any of these factors, or any combination of these factors, will have on
Nextel.
The iDEN TDMA technology must also compete with competitive technologies
that may be implemented by other wireless providers as described above under
"-- Implementation of Digital Mobile Networks Subject to Risks of Developing
Technology."
The SMR industry has undergone and continues to undergo considerable
consolidation, as evidenced by transactions such as the Merger, the Motorola
Transaction, the OneComm Transaction and the Dial Page Transaction. Nextel, from
time to time, has had discussions with a variety of third parties concerning
potential acquisitions, dispositions, exchanges and combinations of SMR
frequencies and/or related SMR operations
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involving Nextel and its market areas. Except as disclosed herein, Nextel
presently has no binding agreements or commitments with any third party to
engage in any of such transactions that are material. There can be no assurance,
however, whether or to what extent there will be increasing SMR industry
consolidation in the future, or how any such future consolidation may involve or
affect Nextel, or its business or operations.
Applications for licenses to operate Digital Mobile networks have been
filed by third parties in certain of Nextel's markets, as well as in certain
other markets that are proposed to be added as a result of Nextel's pending
transactions.
Motorola, which had been a significant participant in the SMR industry, had
announced its intention to implement a digital iDEN SMR system in many regions
throughout the country, which would have included some or all of the Nextel and
OneComm markets, and had received authorization from the FCC to implement such
systems. Pursuant to the Motorola Agreement, Motorola has agreed, subject to
certain conditions, to transfer to Nextel the Motorola SMR Business; however,
the contribution of the SMR Licenses and related assets in the Motorola/OneComm
Territories is conditioned upon the closing of the OneComm Transaction (or the
waiver of such condition by Motorola). There can be no assurances that the
OneComm Transaction or the Motorola Transaction will be consummated. If the
OneComm Transaction or the Motorola Transaction is not consummated, Motorola
could retain its 800 MHz SMR systems in one or more of such geographic areas, in
which case Nextel would continue to face significant competition from Motorola
in such areas.
Nextel may face competition in the future in Florida and Texas from Dial
Page if the Dial Page Transaction is not consummated. In such circumstances, if
appropriate alternative arrangements with Dial Page are not reached for Nextel
either to acquire Dial Page's SMR operations and assets, or to transfer to Dial
Page Nextel's SMR operations and assets (or management rights thereto) in such
markets, Nextel will face significant competition from Dial Page in those
markets. In addition, certain of the markets served by QTI and AMI-West, which
were acquired by Nextel, are also served by OneComm. If the OneComm Transaction
is not consummated and appropriate alternative arrangements with OneComm are not
reached either to acquire OneComm's SMR operations and assets in such markets,
or to transfer to OneComm Nextel's SMR operations and assets (or management
rights thereto) in such markets, Nextel will face significant competition from
OneComm in such markets, particularly if Motorola elects under those
circumstances not to transfer the SMR assets relating to the Motorola OneComm
Territories to Nextel and instead proceeds with a transfer of such assets to
OneComm as had been originally contemplated by a letter agreement by and between
Motorola and OneComm.
Nextel also may face competition from other technologies and services
introduced in the future, including PCS. The FCC has allocated 120 MHz of
spectrum in the 1.8-2.2 GHz band for the provision of PCS, which may include
mobile wireless communications services similar to those provided over Nextel's
Digital Mobile networks. FCC licenses for this spectrum are to be awarded
through a competitive bidding process and will be granted on a geographic basis
for either a Major Trading Area ("MTA") or a Basic Trading Area ("BTA") (each as
defined in the Rand McNally Commercial Atlas). Three 30 MHz licenses and three
10 MHz licenses (or licenses for a total of 120 MHz of spectrum), will be
awarded in each market. The first round of this competitive bidding process, in
which two 30 MHz licenses were awarded in each MTA in the United States, began
on December 5, 1994 and was completed on March 13, 1995. The entities awarded a
substantial portion of the 30 MHz PCS licenses in the first round included a
number of current cellular communications service providers and joint ventures
of current and potential wireless communications service providers, many of
which have financial resources greater than those of Nextel. The next PCS
auction round, which is limited to entities that meet specific size and
ownership limitations, is currently scheduled to begin on August 29, 1995. That
auction will assign BTA-based licenses. While it is not clear how PCS will
develop or when such services will be available in Nextel's markets, PCS will
likely compete with some or all of the services provided over Nextel's Digital
Mobile networks.
RELIANCE ON ONE PRINCIPAL SUPPLIER IN IMPLEMENTATION OF DIGITAL MOBILE NETWORKS
Pursuant to existing equipment purchase agreements (the "Equipment Purchase
Agreements") between Motorola and Nextel, which have been or are proposed to be
amended by the Equipment Purchase Agreement
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Amendment entered into in connection with the Motorola Agreement (the "Prior
Equipment Agreement Amendment"), entered into in connection with the Motorola
Transaction, and by the Second Equipment Agreement Amendment, entered into in
connection with the McCaw Transaction, Motorola provides the iDEN infrastructure
and subscriber handset equipment to Nextel throughout its markets. As a result,
Nextel will rely on Motorola for the manufacture of a substantial portion of the
equipment necessary to construct Digital Mobile networks. The Equipment Purchase
Agreements, as amended, include a commitment from Nextel to purchase from
Motorola a significant amount of equipment, which will be subject to financing
arrangements with Motorola. Nextel has, among other things, agreed, subject to
certain conditions, to purchase and install iDEN equipment during the three-year
and five-year periods beginning on August 4, 1994 (which periods will be
extended by one year if Nextel does not receive $650,000,000 in additional
equity financing by August 4, 1995) sufficient to cover 70% and 85%,
respectively, of the United States population. In addition, under the Second
Equipment Agreement Amendment Nextel has agreed until August 4, 1999 and subject
to certain conditions, to purchase from Motorola at least 50% of the base radios
it purchases in any calendar year. Motorola estimates that such commitments to
purchase base radios and associated infrastructure equipment could have an
aggregate purchase price in excess of approximately $750,000,000, although the
amount may be higher or lower depending on circumstances such as systems design,
changes in the producer price index, the timing of purchases or other cost
adjustments or the success of Nextel's marketing plan. If Nextel does not
consummate the Dial Page Transaction or the OneComm Transaction, the size of the
purchase commitment will be reduced on a mutually agreed proportionate basis. In
addition, Nextel has agreed to purchase specified percentages of its subscriber
unit requirements from Motorola. Such commitments are in addition to amounts
purchased from Motorola or for which Nextel, OneComm or Dial Page had placed
orders with Motorola prior to August 4, 1994, which orders would be obligations
of Nextel following the consummation of such pending transactions. It is
expected that for the first few years of Digital Mobile network operations by
Nextel, Motorola and competing manufacturers who are licensed by Motorola
(including Matsushita Communication Industrial Co., Ltd. ("Matsushita"), which
has executed a definitive license agreement with Motorola to employ Motorola's
proprietary technology) will be the only manufacturers of subscriber equipment
that is compatible with Nextel's Digital Mobile networks. The Prior Equipment
Agreement Amendment provides for the licensing by Motorola of interfaces
relating to infrastructure and subscriber equipment and of additional
manufacturers for subscriber equipment. In connection with the Second Equipment
Agreement Amendment, Motorola further agreed to negotiate to enter into licenses
with at least one alternative manufacturer of iDEN infrastructure equipment.
Motorola is currently a competitor of Nextel in some of Nextel's markets.
In the event the Motorola Transaction is not completed, Motorola will continue
to be a competitor. See "-- Potential Conflict of Interest Relationship with
Motorola May Affect Prospects of Nextel" and "-- Uncertainty of Pending
Transactions."
NEXTEL'S PROSPECTS ARE DEPENDENT ON KEY PERSONNEL
Nextel's affairs are managed by a small number of key management and
operating personnel the loss of any of whom could have an adverse impact on
Nextel.
NEXTEL'S PROSPECTS ARE DEPENDENT ON GOVERNMENTAL REGULATION
The licensing, operation, acquisition and sale of Nextel's SMR businesses
are regulated by the FCC. Nextel's subsidiaries currently hold FCC licenses to
use SMR radio channels in each of Nextel's markets. However, to use these
channels to provide Digital Mobile network service, Nextel is required to obtain
additional site authorizations from the FCC for transmitter sites in each of its
markets. Additional site authorizations will also need to be obtained from the
FCC for the transmitter sites that will be associated with development and
implementation of Digital Mobile networks in each of the markets proposed to be
acquired by Nextel as a result of Nextel's pending transactions. Assuming such
site authorizations are obtained initially, they will be subject to renewal and
may be cancelled if the respective sites for Digital Mobile networks are not
constructed in the relevant markets within a prescribed time after issuance.
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In addition, each of Nextel's SMR licenses is subject to renewal, and there
can be no assurance that any such SMR License will be renewed upon the
expiration of its five-year term. Each SMR License also may be revoked for cause
at any time such a determination is made by the FCC.
The foregoing also would apply with respect to SMR licenses acquired in
connection with the Merger and the other pending transactions involving Nextel.
In addition, in the case of the Merger and the other pending transactions, prior
FCC approval will be required to transfer the existing SMR Licenses and pending
authorizations for the construction of Digital Mobile networks from the current
licensees or applicants to Nextel.
Congress enacted the Omnibus Budget Reconciliation Act (the "Budget Act")
in August 1993, which, among other things, provides for the release of 200 MHz
of federal government spectrum for commercial use over a 15 year period,
authorizes the FCC to conduct competitive bidding for certain spectrum licenses
and requires the FCC to adopt new rules that eliminate the regulatory
distinctions between common and private carriers for those private carriers who
interconnect with the public switched telephone network and make their services
available to a substantial portion of the public for profit. The legislation
creates a new regulatory category of providers of "commercial mobile radio
services" ("CMRS") which will be treated as common carriers, but the legislation
also permits the FCC to forbear from imposing many of the common carrier
regulations on these providers. In addition, the legislation prohibits state
entry and rate regulation of such carriers, permits states to regulate other
terms and conditions of CMRS and provides that, under certain specified
circumstances, the FCC may permit states to impose rate regulation on CMRS
providers. The legislation also requires local telephone companies to provide
CMRS providers with interconnection arrangements that are comparable with those
utilized by the cellular industry.
On March 7, 1994, the FCC issued its Second Report and Order (the "Order")
implementing the Budget Act provisions requiring that all providers of CMRS be
classified as common carriers. The Order reclassifies both traditional analog
SMR systems if interconnected with public switched telephone networks and
wide-area SMR operations such as the Digital Mobile networks of Nextel as CMRS,
thereby subjecting those services to the FCC's common carrier regulations.
Cellular carriers, paging services and PCS providers were also placed into the
CMRS classification by the FCC. In the Order, the FCC exercised its Budget Act
authority to forbear from imposing certain common carrier statutory provisions
on the newly created CMRS providers. Among those provisions which will be
imposed upon CMRS providers are the requirements that service be provided on a
non-discriminatory basis and at rates that are just and reasonable. On the other
hand, the FCC concluded that CMRS providers will not be required to file tariffs
because the market will be sufficiently competitive to protect consumers. The
FCC also concluded in the Order that Nextel and other private carriers whose
services are being reclassified as common carrier services are entitled to a
three-year transition period during which they can prepare for imposition of
common carrier regulations. All of Nextel's operations will therefore continue
to be regulated under the private carrier rules until August 10, 1996.
The FCC left several issues unresolved in the Order, postponing their
resolution to subsequent proceedings. The FCC has initiated or will initiate
proceedings on the following topics: (i) to address whether CMRS providers
should be required to provide interconnection to other CMRS providers; (ii) to
determine whether equal access obligations should be imposed upon all CMRS
providers; (iii) to modify and combine the rules and regulations currently
applicable to common and private carriers to ensure that the licensing and other
requirements are the same for all CMRS providers; (iv) to determine whether and
to what extent local exchange carriers will be required to file interconnection
tariffs; (v) to monitor cellular licensees and the competitiveness of cellular
markets; (vi) to determine whether the FCC should further forbear for certain
classes of CMRS providers; (vii) to investigate whether cellular providers
should be permitted to provide dispatch services; and (viii) to determine
whether wireline companies should be allowed into the SMR business.
The FCC released a Notice of Proposed Rule Making ("NPRM") on May 20, 1994
to rewrite the technical, operational and licensing rules as they apply to Part
90 licensees, such as Nextel, that are being reclassified as CMRS. The rule
making sought industry comment on whether Digital Mobile networks should be
licensed and operated on a basis similar to that of cellular systems. The NPRM
also proposed to place a
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spectrum cap on all CMRS providers, limiting them to 40 MHz of CMRS spectrum. On
September 23, 1994, the FCC released its Third Report and Order which imposed a
45 MHz CMRS spectrum cap on all broadband CMRS providers, including cellular,
PCS and wide-area SMRs (with a limit of 10 MHz on the amount of SMR spectrum
that can be attributed to a single entity). In the Third Report and Order, the
FCC concluded that regulatory parity requires that wide-area SMRs be licensed on
a wide-area basis similar to cellular and PCS. Although concluding that these
licenses should be based on MTAs, the FCC also stated that the specific
implementation of such wide-area licenses should be determined in a Further NPRM
("FNPRM"). While awaiting the outcome of that rule making, the FCC suspended the
acceptance of applications proposing newer or modified stations on any of the
280 trunked 800 MHz SMR channels. Only those applicants who can show that their
application (i) affects only channels on which such applicant is already
permanently licensed and (ii) affects coverage only within the applicant's
geographic coverage area will be permitted to file applications. While the Third
Report and Order provides for the licensing of the wide-area SMR systems
underlying the Nextel Digital Mobile networks, there can be no assurance that
further revisions to the 800 MHz wide-area SMR licensing rules and the licensing
freeze will not have an adverse effect on the development of Nextel's Digital
Mobile networks.
The FCC released its FNPRM for the licensing of wide-area SMRs on November
4, 1994. In the FNPRM, the FCC tentatively concluded that the upper 200 SMR
channels in the 800 MHz SMR band should be auctioned in blocks of 50 channels,
but that licensees should be permitted to accumulate all four blocks in a single
market. The block licensee would then have the ability to use all available
spectrum within the MTA, including the ability to add, subtract or move stations
within the MTA, subject to providing co-channel interference protection for the
incumbent licensees or negotiating with those incumbents to acquire their SMR
Licenses. The FCC tentatively concluded that the MTA licensee would not be
permitted to require the retuning of incumbent SMR systems in their block to
frequencies in other portions of the 800 MHz band. In this FNPRM, the FCC
proposes to require all MTA licensees to construct their wide-area systems
within five years and provide service to one-third of the MTA population within
three years and two-thirds of the MTA population within five years. These
proposals were the subject of industry comments on January 5, 1995. Reply
comments were filed March 1, 1995. The FCC has given no indication of a time for
a final decision. The ultimate outcome of FCC auction rule making, including
actions by third parties in accordance therewith, could be adverse to Nextel.
On May 4, 1994, the FCC issued its NPRM seeking comment on whether to
further forbear from the remaining Title II provisions for all or only certain
CMRS providers. On July 1, 1994, the FCC released an NPRM and Notice of Inquiry
on the equal access and interconnection issues, tentatively concluding that
equal access should be imposed upon all cellular and possibly some other CMRS
providers. While the FCC concluded that interconnection must be provided by
local exchange carriers to all CMRS providers, the FCC adopted an NPRM on how to
implement that interconnection obligation and on whether CMRS providers must
likewise provide interconnection to CMRS resellers. The FCC released an FNPRM on
resale and interconnection on April 24, 1995. While it made no decisions
regarding the equal access issue, the FCC did seek further comment on the resale
and CMRS-to-CMRS interconnection issues, tentatively concluding that CMRS
providers should not be mandated to interconnect with other CMRS but that CMRS
providers should be required to provide interconnection to resellers. Comments
are due June 14, 1995, and reply comments were filed on July 14, 1995. On March
7, 1995, the FCC issued a Report and Order eliminating the wireline restrictions
on SMR ownership and the restrictions on common carrier dispatch. The
restrictions were immediately eliminated upon the effective date of the Order.
All of these rule makings, some of which are still pending at the FCC, will
have a significant impact on
Nextel and the way Nextel develops, implements and operates its systems. The
decision to permit cellular into the dispatch market could affect Nextel's
competitive advantage in providing integrated services. With regard to other
rule makings, the FCC could impose other obligations on Nextel's CMRS operations
should it ultimately determine that Digital Mobile networks must provide, among
other things, interconnection with CMRS resellers and equal access to
long-distance providers. However, with regard to Nextel's CMRS Digital Mobile
network services, the FCC could conclude that these operations are entitled to
further forbearance
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from such requirements. At this time, however, the FCC has completed only the
wireline entry/common carrier dispatch rule making, and there is no assurance as
to the eventual outcome of the others.
As a CMRS provider, Nextel would be subject to limitations in the
Communications Act of 1934, as amended (the "Communications Act"), concerning
foreign investment in and ownership of FCC licensees that are not currently
applicable to private carriers. However, the Communications Act gives the FCC
authority to grandfather foreign ownership of private carriers existing on May
24, 1993, subject to certain limitations. Nextel has filed a petition with the
FCC for waiver of the prohibition against a foreign national serving as a member
of a licensee's board of directors, pursuant to the grandfather provisions. On
June 12, 1995, the FCC approved Nextel's petition, granting Nextel's waiver
request. In addition, Nextel has filed pro forma license assignments to comply
with the CMRS foreign ownership requirements.
Future changes in regulation or legislation effecting Digital Mobile
network service or the allocation by the FCC or Congress of additional spectrum
for services that compete with such services could materially adversely affect
Nextel's business.
NEXTEL'S ASSETS PRIMARILY CONSIST OF INTANGIBLE FCC LICENSES
Nextel's assets consist primarily of intangible assets, principally FCC
licenses, the value of which will depend significantly upon the success of
Nextel's business and the growth of the SMR and wireless communications
industries in general. In the event of default on indebtedness or liquidation of
Nextel, there can be no assurance that the value of these assets will be
sufficient to satisfy its obligations. Nextel had a negative net tangible book
value of $211,678,000 at March 31, 1995 (or negative $460,865,000 net tangible
book value on a pro forma basis after giving effect to consummation of and
taking into account the pending transactions identified in the unaudited pro
forma financial data contained elsewhere herein). See "NEXTEL COMMUNICATIONS,
INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS."
NEXTEL SUSCEPTIBLE TO CONTROL BY SIGNIFICANT STOCKHOLDERS
On May 19, 1995, there were approximately 148,100,000 shares of Nextel
Class A Common Stock outstanding, on a fully diluted basis, which assumes: (i)
the conversion into shares of Nextel Class A Common Stock and/or exercise of all
issued warrants, options (including Comcast's options for 25,000,000 shares,
which expire in September 1997), shares of Nextel Class B Common Stock issuable
pursuant to certain warrants, options and other stock rights granted under
Nextel's Incentive Equity Plan (the "Nextel Plan"); and (ii) the satisfaction of
all outstanding obligations (absolute or contingent) to issue Nextel Common
Stock in payment of any performance shares or other incentive equity
compensation awards and subscription shares (including Comcast's commitment to
purchase, subject to the satisfaction of certain conditions, additional shares
by June 30, 1995 including shares issuable in the Comcast Philadelphia
Transaction), but does not include shares that may be issued in the Merger or in
the McCaw Transaction, the Motorola Transaction, the OneComm Transaction or the
Dial Page Transaction, or shares that may be purchased pursuant to the Comcast
Purchase Right with respect to the Dial Page Transaction or the Merger.
Based upon securities ownership information relating to Nextel as of such
date, and assuming (i) the issuance of the maximum number of shares issuable in
the Motorola Transaction, the McCaw Transaction and the OneComm Transaction (and
giving effect to the waiver of the Comcast Purchase Right with respect to those
transactions), and (ii) the purchase by the McCaw Investor of 4,000,000 shares
of Nextel Common Stock from Motorola in connection with the McCaw Transaction,
the conversion of the Nextel Preferred Stock and the exercise in full by the
McCaw Investor of options granted in connection with the McCaw Transaction to
acquire 9,000,000 shares of Nextel Common Stock from Motorola and the Incentive
Option, the McCaw Investor will hold approximately 25.7%, Motorola will hold
approximately 17.9%, and Comcast will hold approximately 13.5%, of the Nextel
Common Stock estimated to be outstanding, on a fully diluted basis, immediately
after consummation of the McCaw Transaction, the Motorola Transaction and the
OneComm Transaction. However, giving effect to the transactions described in (i)
and (ii) above and to the issuance of the maximum number of shares of Nextel
Common Stock currently estimated to be issuable in all of the other pending
transactions described herein, and pursuant to the Comcast Purchase Right with
respect
47
<PAGE> 57
to the Dial Page Transaction, the McCaw Investor will hold approximately 22.6%,
Motorola will hold approximately 15.7%, and Comcast will hold approximately
14.7%, of the Nextel Common Stock estimated to be outstanding, on a fully
diluted basis, immediately after consummation of the Merger and such other
transactions. As indicated in "-- Shares Eligible for Future Sale," however,
Comcast has elected to exercise certain registration rights granted to it
pursuant to the Comcast Stock Purchase Agreement in order to effect a secondary
public offering of the shares of Nextel Common Stock held by Comcast or its
affiliates.
As described in "SUMMARY -- B. THE PARTIES TO THE
MERGER -- Nextel -- Pending Transactions," in connection with the execution of
the McCaw Securities Purchase Agreement, the McCaw Investor has designated one
person who has been appointed to the Nextel Board and, upon closing of the McCaw
Transaction contemplated by the McCaw Securities Purchase Agreement, the McCaw
Investor will be entitled to designate and elect in the aggregate 25% of the
Nextel Board or, if greater, a number proportionate to the McCaw Investor's
equity interest in Nextel, which is anticipated by Nextel to result in a total
of four such designees at the time of the closing of the McCaw Transaction.
Additionally, with respect to the contemplated five-member Operations Committee
of the Nextel Board, three members would be selected from among the McCaw
Investor's representatives on the Nextel Board. The Operations Committee will
have the authority to formulate key aspects of Nextel's business strategy,
including decisions relating to the technology used by Nextel (subject to
existing equipment purchase agreements), acquisitions, the creation and approval
of operating and capital budgets and marketing and strategic plans, approval of
financing plans, endorsement of nominees to the Nextel Board and nomination and
oversight of certain executive officers. As a result, based upon the McCaw
Investor's stock ownership position, as well as its ability to elect 25% of the
members of the Nextel Board, and to control the Operations Committee, the McCaw
Investor will be in a position to exert significant influence over Nextel's
affairs. Pursuant to the Motorola Agreement Amendment, Motorola has agreed to
support the decisions and recommendations of the Operations Committee and to
vote the shares of Nextel Common Stock held by it accordingly, subject to (i)
the right of any Motorola-designated Nextel directors to vote in a manner
consistent with their fiduciary duties and (ii) the right of Motorola to vote
its shares as it determines necessary with respect to issues that conflict with
Motorola's corporate ethics or that present conflicts of interest, or in order
to protect the value or marketability of the shares of Nextel Common Stock held
by it. As discussed under "SUMMARY -- B. THE PARTIES TO THE
MERGER -- Nextel -- Pending Transactions -- McCaw Transaction," the Nextel Board
retains the authority to override actions taken or proposed to be taken by the
Operations Committee, subject, in certain circumstances, to certain financial
consequences. The creation and existence of the Operations Committee would not
change the normal fiduciary duties of the Nextel Board, including fiduciary
duties in connection with any proposal to override any action of or to terminate
the Operations Committee; whether or not such action would give rise to such
consequences. In addition, Comcast is entitled to designate one or more members
(depending on its ownership percentage) to the Nextel Board and, following
consummation of the Motorola Transaction, Motorola will be entitled to nominate
one director (two directors upon closing of the McCaw Transaction) to the Nextel
Board. As a result of such interests, each of Motorola and Comcast will also be
in a position to exert influence over Nextel's affairs. The two directors
designated by Comcast recently resigned from the Nextel Board and Comcast has
elected to exercise its right to require Nextel to file a registration statement
under the Securities Act for all 11,266,366 shares of Nextel Common Stock
currently held by Comcast or its affiliates.
Based upon their respective ownership positions (and assuming the issuance
of approximately 9,250,000 shares of Nextel Common Stock pursuant to the
exercise by Comcast of the Comcast Purchase Right with respect to the Dial Page
Transaction and an assumed full exercise by Comcast of the Comcast Purchase
Right with respect to the Merger), if two or more of the McCaw Investor,
Motorola and Comcast chose to act together, the parties agreeing to so act could
have a sufficient voting interest in Nextel, among other things, to (i) exert
effective control over the approval of amendments to the Nextel Charter,
mergers, sales of assets or other major corporate transactions, (ii) defeat a
takeover attempt, and (iii) otherwise control whether particular matters are
submitted for a vote, and, as to matters so submitted the outcome of such vote,
of the stockholders of Nextel. Although Motorola has made certain commitments to
Nextel as described in the last sentence of the preceding paragraph, Nextel is
not aware of any current agreements among the McCaw Investor, Motorola and
Comcast with respect to the ownership or voting of Nextel Common Stock and each
of
48
<PAGE> 58
the McCaw Investor and Motorola has informed Nextel that it has no present
intention to seek to exercise such control. Pursuant to the McCaw Securities
Purchase Agreement, the McCaw Investor has agreed that it will not vote for any
nominee to the Nextel Board other than persons it is entitled to designate under
the terms of the Class A Preferred Stock, the Class B Preferred Stock or the
McCaw Securities Purchase Agreement. Upon request of Nextel, the McCaw Investor
also has agreed to cause shares of Nextel Common Stock, the voting of which is
controlled by the McCaw Investor or its affiliates, to be voted in a manner
proportionate to the votes of other holders of Nextel Common Stock in the
election of directors so designated by the Nextel Board.
Each of the McCaw Investor, Comcast and Motorola has and (subject to the
terms of applicable agreements between such parties and Nextel) may have
investments or interests in entities that provide wireless telecommunications
services that could potentially compete with Nextel. Under the McCaw Securities
Purchase Agreement, the McCaw Investor, Mr. McCaw and their controlled
affiliates may not, for a period of time after consummation of the McCaw
Transaction, participate in other two-way terrestrial-based mobile wireless
communications systems unless such opportunities have first been presented to
and rejected by Nextel in accordance with the provisions of the McCaw Securities
Purchase Agreement. Such limitation is subject to certain limited exceptions,
including certain existing securities holdings and relationships (and expressly
including Mr. McCaw's investment in AT&T resulting from its acquisition of McCaw
Cellular Communications, Inc., which investment may not exceed 3% of the
outstanding stock of AT&T). Such restrictions terminate on the later to occur of
the fifth anniversary of the consummation of the transactions contemplated by
the McCaw Securities Purchase Agreement and one year after termination of the
Operations Committee.
POTENTIAL DILUTION FROM PENDING TRANSACTIONS
As indicated elsewhere in this Proxy Statement/Prospectus, Nextel has
commitments, and from time to time may enter into additional commitments, to
issue a substantial number of new shares of Nextel Common Stock.
As of May 19, 1995, there were approximately 107,400,000 shares of Nextel
Common Stock outstanding, on a primary, rather than a fully diluted, basis and
approximately 40,700,000 shares of Nextel Common Stock issuable upon exercise of
options (including Comcast's options for 25,000,000 shares, which expire in
September, 1997, shares issuable to Comcast in June, 1995 pursuant to the
Comcast Transaction), warrants and other existing rights to acquire Nextel
Common Stock. In addition to the issuance of shares of Nextel Common Stock and
the assumption of options in connection with the Merger, Nextel has entered into
(i) a definitive agreement pursuant to which Nextel issued 1,220,000 shares of
Nextel Common Stock and agreed to issue 8,163,265 shares of Class A Preferred
Stock and 82 shares of Class B Preferred Stock (which in the aggregate are
convertible into approximately 24,500,000 shares of Nextel Common Stock) and
options to acquire up to 36,000,000 shares (including 35,000,000 to the McCaw
Investor and 1,000,000 to Eagle River) of Nextel Common Stock in connection with
the McCaw Transaction, (ii) a definitive agreement to issue approximately
59,500,000 shares of Nextel Common stock in connection with the Motorola
Transaction, (iii) a definitive agreement to issue approximately 22,550,000
shares of Nextel Common Stock in connection with the OneComm Transaction and
(iv) a definitive agreement to issue up to a current estimate of 26,400,000
shares of Nextel Common Stock in connection with the Dial Page Transaction
(which would result in the issuance of 9,250,000 additional shares of Nextel
Common Stock in connection with Comcast's exercise of the Comcast Purchase Right
with respect thereto). In addition, Nextel is currently negotiating a definitive
agreement to issue 462,963 shares of Nextel Common Stock relating to the Comcast
Philadelphia Transaction. Assuming the completion of all of the pending
transactions (including the Merger), on a fully diluted basis, there would be an
aggregate of approximately 330,950,000 shares of Nextel Common Stock outstanding
(assuming the exercise of the Comcast Purchase Right only with respect to the
Dial Page Transaction). See "SUMMARY -- B. THE PARTIES TO THE
MERGER -- Nextel -- Pending Transactions."
Included in such 40,700,000 shares issuable upon exercise of options,
warrants and other existing rights are shares that Nextel has a commitment to
issue to Comcast and that Comcast has an obligation to purchase
49
<PAGE> 59
from Nextel (in each case subject to the satisfaction of certain conditions), by
June 30, 1995 (the amount of which will be determined under a formula set forth
in the Comcast Stock Purchase Agreement). Pursuant to the Motorola Transaction,
Motorola will be granted the Motorola Purchase Right with respect to certain
Nextel share issuances (including the Merger, but not including any of the
issuances contemplated to occur in any of the other currently existing pending
transactions discussed herein) which rights and related terms are largely
comparable to the Comcast Purchase Right. However, Motorola has agreed to
suspend the Motorola Purchase Right with respect to all issuances of Nextel
securities (including the issuance of shares of Nextel Common Stock in
connection with the Merger) until the consummation of the McCaw Transaction,
and, assuming such consummation of the McCaw Transaction, the Motorola Purchase
Right would be terminated prospectively as well. Finally, pursuant to the McCaw
Securities Purchase Agreement, the McCaw Investor will be granted the McCaw
Purchase Right with respect to certain Nextel share issuances (including the
Merger, but not including any of the issuances contemplated to occur in the
currently existing, pending transactions described herein), which rights and
related terms are largely comparable to the Comcast Purchase Right. An increase
in the number of shares of Nextel Common Stock that will become available for
sale in the public market may adversely affect the market price of Nextel Common
Stock and could impair Nextel's ability to raise additional capital through the
sale of its equity securities.
SHARES ELIGIBLE FOR FUTURE SALE
Nextel has a significant number of shares of Nextel Common Stock
outstanding that have not been registered under the Securities Act. Upon
consummation of the Motorola Transaction, holders of such restricted shares of
Nextel Common Stock will receive registered shares of Nextel Common Stock that
will be freely tradeable by such holders so long as such holders are not deemed
to be "affiliates" of Nextel for purposes of Rule 144 under the Securities Act
("Rule 144"). Transfers of shares of Nextel Common Stock by affiliates will be
subject to the restrictions imposed by such rule. In accordance with Rule 144,
an affiliate of Nextel may not sell these shares of Nextel Common Stock except
pursuant to the volume and manner of sale limitations specified therein or
pursuant to an effective registration statement under the Securities Act. Nextel
has also granted registration rights with respect to a significant number of its
shares outstanding, on a fully diluted basis, including shares of Nextel Common
Stock issuable in the Motorola Transaction and issuable upon conversion of
securities to be issued in, or upon exercise of, the McCaw Options to be granted
in the McCaw Transaction. Upon consummation of the Motorola Transaction, the
significantly increased number of shares of Nextel Common Stock that will be
freely tradeable may adversely affect the market price for the Nextel Common
Stock and could impair Nextel's ability to raise additional capital through the
sale of its equity securities. Further, the exercise of registration rights by
affiliates of Nextel would permit such persons to sell such shares without
regard to the limitations of Rule 144. Registration rights covering a total of
approximately 190,000,000 shares of Nextel Common Stock have been granted to,
among others, the McCaw Investor and certain of its affiliates, affiliates of
Comcast, First Capital Corporation of Chicago, Chase Manhattan Corporation,
Matsushita, NTT and Motorola. Comcast has elected to exercise its right to
require Nextel to file a registration statement under the Securities Act for all
11,266,366 shares of Nextel Common Stock currently held by Comcast or its
affiliates. Nextel has filed such a registration statement which contemplates
that such secondary public offering of shares of Nextel Common Stock will be
effected on a "shelf" basis in accordance with Rule 415 promulgated under the
Securities Act. An increase in the number of shares of Nextel Common Stock that
will become available for sale in the public market may adversely affect the
market price of Nextel Common Stock and could impair Nextel's ability to raise
additional capital through the sale of its equity securities. For a discussion
of other possible issuances of additional equity securities see "-- Potential
Dilution From Pending Transactions" and "THE MERGER -- Compliance with
Indentures."
DIVIDEND POLICY LIMITS EXPECTATION OF FUTURE DIVIDENDS
Except for certain dividends paid with respect to preferred stock that was
converted into Nextel Common Stock in connection with Nextel's initial public
offering in February 1992, Nextel has not paid any dividends on Nextel Common
Stock. Nextel does not plan to pay dividends on Nextel Common Stock for the
foreseeable future.
50
<PAGE> 60
The Nextel Indentures place significant restrictions on Nextel's ability to
pay dividends, as would the OneComm Indenture and the Dial Call Indentures
(which would be assumed by Nextel upon the completion of the OneComm Transaction
and the Dial Page Transaction, respectively).
In addition, the financing agreements with Motorola and Northern Telecom
limit dividends, loans and cash distributions to Nextel from Nextel's
subsidiaries that will operate Digital Mobile networks in Nextel's existing
markets, so that, while such limitations are in place, profits generated by such
subsidiaries will not be available to Nextel for, among other purposes, the
payment of dividends on shares of Nextel Common Stock. All of such restrictions
will continue to apply to such subsidiaries. Although similar restrictions are
applicable to an operating subsidiary of OneComm (which will become a subsidiary
of Nextel as a result of the OneComm Transaction) pursuant to the OneComm Chase
Facility, Nextel anticipates that it will terminate such facility following
consummation of the OneComm Transaction.
In connection with the Motorola Transaction, Nextel has entered into an
agreement with Motorola for the purchase of Motorola infrastructure equipment
for certain of Nextel's Digital Mobile networks nationwide and new vendor
financing for certain existing Nextel subsidiaries and a OneComm operating
subsidiary that will become a Nextel subsidiary upon consummation of the OneComm
Transaction. Such agreement also limits the availability of any profits
generated by such existing or future subsidiaries for the payment of dividends
on shares of Nextel Common Stock. See "-- Risks of a Holding Company Structure."
POTENTIAL CONFLICT OF INTEREST RELATIONSHIP WITH MOTOROLA MAY AFFECT PROSPECTS
OF NEXTEL
Nextel will be highly dependent on Motorola for the infrastructure
equipment, subscriber handset units and financing required for the Digital
Mobile networks it plans to implement. Historically, Nextel has competed with
Motorola to provide wireless communications services to customers. Motorola had
announced its intention to install Digital Mobile networks in certain of its
markets but subsequently, pursuant to the Motorola Agreement, has agreed to
contribute to Nextel the 800 MHz SMR licenses owned or managed by Motorola and
related assets in various areas throughout the U.S. (with the obligation to
contribute SMR licenses in the Motorola OneComm Territories being subject to the
waiver, if necessary, by Motorola of the condition that the OneComm Transaction
shall theretofore have been consummated).
As the operator of the Motorola SMR Business and other wireless
communications businesses, Motorola is a competitor of Nextel. Pursuant to the
Motorola Transaction, Motorola will convey certain assets and liabilities
relating to Motorola's 800 MHz SMR communications business in the continental
United States to ESMR, Inc., a wholly owned subsidiary of Motorola with which
Nextel will be merged. Motorola and its affiliates currently engage in wireless
communications businesses, and may in the future engage in additional such
businesses, which are or may be competitive with some or all of the services
offered by Nextel's Digital Mobile networks although the Motorola Land Mobile
Products Sector (as constituted at any time from January 1, 1992 until closing
of the Motorola Transaction) ("Motorola LMPS") may not, for three years after
the closing of the Motorola Transaction, make use (with certain limited
exceptions) of the customer lists conveyed to ESMR to solicit subscribers for
any 800 MHz SMR commercial mobile voice business owned or managed by Motorola
LMPS in the continental United States. Pursuant to the Second Equipment
Agreement Amendment, Motorola has agreed that from the date thereof until 18
months after certain development targets for Reconfigured iDEN have been
achieved, LMPS will not solicit other iDEN customers, and neither Motorola LMPS
nor Motorola's credit corporation subsidiary will make any equity investment in,
or provide equipment/vendor financing to, certain iDEN customers with respect to
purchases of iDEN equipment.
In light of the competitive posture of Motorola, Nextel and Motorola have
agreed that any information relating to Nextel's business plans and projections
(which, under existing equipment finance agreements, must be periodically
submitted to and approved by Motorola) will be used by Motorola only for
purposes of ensuring compliance with Nextel's obligations under the various
equipment purchase agreements and financing agreements between Nextel and
Motorola. The financing agreements provide specifically that Motorola's finance
department will not share any of Nextel's business plans and projections with
the division within Motorola responsible for operating Motorola's SMR systems.
Following consummation of the Motorola Transaction, Motorola will have the right
to nominate one director (two directors upon consummation of the
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<PAGE> 61
McCaw Transaction) to the Nextel Board and, hence, following the Motorola
Transaction, such director or directors will have access to Nextel's business
plans.
Although Nextel believes that its equipment purchase and financing
relationship with Motorola has been structured to reflect the realities of
purchasing and borrowing from a competitor, there can be no assurance that the
potential conflict of interest will not adversely affect Nextel in the future.
Moreover, if the Motorola Transaction is consummated, Motorola's role as a
significant stockholder of Nextel will, in addition to its role as a major
creditor and supplier, also create potential conflicts of interest, particularly
with regard to significant transactions.
CONCERNS ABOUT MOBILE COMMUNICATIONS HEALTH RISK MAY AFFECT PROSPECTS OF NEXTEL
Allegations have been made by certain individuals that serious health risks
have resulted from the use of portable mobile communications devices. The
Cellular Telecommunications Industry Association has undertaken studies
concerning the health risk from using mobile communications devices and has
publicly announced its belief that no such risk exists. The actual or perceived
risk of mobile communications devices could adversely affect Nextel 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.
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<PAGE> 62
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
The following table presents selected historical financial data for Nextel
as of December 31, 1994 and as of and for the four years ended March 31, 1994,
the nine months ended December 31, 1993 and 1994, the twelve months ended
December 31, 1994 and as of March 31, 1995 and for the three months ended March
31, 1994 and 1995 and selected pro forma financial data as of March 31, 1995 and
for the twelve months ended December 31, 1994 and the three months ended March
31, 1995. The historical data as of March 31, 1994 and December 31, 1994 and for
each of the two years in the period ended March 31, 1994 and the nine months
ended December 31, 1994 have been derived from the audited consolidated
financial statements of Nextel. Effective December 31, 1994, Nextel changed its
year end from March 31 to December 31. Accordingly, the income statement data is
presented for the transition period from April 1, 1994 to December 31, 1994. The
historical data for the nine months ended December 31, 1993 and the twelve
months ended December 31, 1994, which is presented for comparative purposes, are
unaudited and reflect all adjustments which, in the opinion of management, are
necessary for a fair statement of the results for such periods. The historical
data as of March 31, 1995 and for the three months ended March 31, 1994 and 1995
are unaudited, and reflect all adjustments which, in the opinion of management,
are necessary for a fair statement of the results for the interim period. All
adjustments made were normal recurring accruals. Operating results for the
interim period are not necessarily indicative of results for the entire year.
The selected pro forma financial data as of March 31, 1995 and for the twelve
months ended December 31, 1994 and the three months ended March 31, 1995 are
derived from the Nextel Pro Forma Financial Statements appearing elsewhere in
this Proxy Statement/Prospectus. The data derived from the Nextel Pro Forma
Financial Statements give effect to: (i) the Merger, the PowerFone Merger and
the Questar/AMI Share Exchange for the twelve months ended December 31, 1994 and
the Merger for the three months ended March 31, 1995 which data appears in the
column headed "Pro Forma Consolidated (AMS)" and (ii) the McCaw Transaction, the
Motorola Transaction, the OneComm Transaction, the Dial Page Transaction, the
exercise of the Comcast Purchase Right with respect to the Dial Page Transaction
and the Comcast Philadelphia Transaction (in addition to the transactions listed
in clause (i)), which data appears in the column headed "Pro Forma Consolidated
(AMS and Pending Transactions)" as of the date and at the beginning of the
periods indicated. The pro forma results of operations for the twelve months
ended December 31, 1994 and the three months ended March 31, 1995 and the pro
forma financial position as of March 31, 1995, are presented for informational
purposes only and are not necessarily indicative of the results that actually
would have occurred had these transactions been consummated on the dates
indicated in the Nextel Pro Forma Financial Statements and related notes thereto
nor are they necessarily indicative of the future results or the financial
position of Nextel. The information set forth below should be read in
conjunction with Nextel's consolidated financial statements and the related
notes thereto incorporated by reference in this Proxy Statement/Prospectus and
the Nextel Pro Forma Financial Statements appearing elsewhere in this Proxy
Statement/Prospectus.
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<PAGE> 63
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
Caption>
HISTORICAL
--------------------------------------------------------------------------
NINE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, DECEMBER 31,
----------------------------------------------- ------------------------
1991 1992 1993 1994 1993 1994(7)
-------- -------- -------- -------- ------------ ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue...................................... $ 53,902 $ 52,529 $ 53,002 $ 67,928 $ 48,901 $ 83,677
-------- -------- -------- -------- ------------ ---------
Gross Profit................................. 33,700 33,564 32,023 39,262 29,093 24,104
-------- -------- -------- -------- ------------ ---------
Selling, general, administrative and corporate
expense(1)................................. 14,432 15,686 18,971 41,107 24,966 85,730
Depreciation and amortization................ 24,639 27,273 25,942 58,398 37,129 94,147
-------- -------- -------- -------- ------------ ---------
Operating loss............................. (5,371) (9,395) (12,890) (60,243) (33,002) (155,773)
Other income (expense)(2).................... (10,076) (9,542) 2,248 (18,098) (7,742) (41,421)
Income tax benefit (expense)................. 8,496 3,266 1,027 21,437 7,656 71,345
-------- -------- -------- -------- ------------ ---------
Loss before extraordinary item............... (6,951) (15,671) (9,615) (56,904) (33,088) (125,849)
Extraordinary item(3)........................ (747) (12,765)
-------- -------- -------- -------- ------------ ---------
Net loss..................................... $ (7,698) $(28,436) $ (9,615) $(56,904) $(33,088) $(125,849)
======== ======== ======== ======== ============ =========
NET LOSS PER SHARE:
Before extraordinary item.................. $ (0.30) $ (0.58) $ (0.16) $ (0.73) $ (0.43) $ (1.25)
Extraordinary item......................... (0.03) (0.47)
-------- -------- -------- -------- ------------ ---------
Net Loss..................................... $ (0.33) $ (1.05) $ (0.16) $ (0.73) $ (0.43) $ (1.25)
======== ======== ======== ======== ============ =========
Number of shares used in computations(4)..... 23,154,000 26,925,000 58,736,000 78,439,000 76,726,000 100,639,000
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------------------------------------
AS OF MARCH 31, AS OF
------------------------------------------------- DECEMBER 31,
1991 1992 1993 1994 1994
-------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 541 $ 13,393 $ 17,083 $ 483,483 $ 301,679
Marketable securities................................. 14,768 426,113 172,313
Current assets........................................ 10,137 20,161 39,932 921,983 504,248
Intangible assets -- net.............................. 173,803 160,558 144,666 889,912 1,451,780
Total assets.......................................... 211,993 210,797 333,557 2,197,266 2,889,110
Long-term debt(5)..................................... 106,118 1,028 55,024 1,080,702 1,163,221
Stockholders' equity(6)............................... 23,602 191,108 255,224 846,304 1,268,575
</TABLE>
- ---------------
(1) Increases in fiscal 1994 and for the nine months ended December 31, 1994
relate to expenses incurred with respect to the Digital Mobile networks.
(2) Includes interest expense of $14,417, $12,917, $396, $29,891, $12,508 and
$69,491 and interest income of $27, $115, $1,720, $11,790, $5,441 and
$28,037 for the fiscal years ended March 31, 1991, 1992, 1993 and 1994 and
for the nine months ended December 31, 1993 and 1994, respectively.
(3) Represents early extinguishment of debt.
(4) Includes the weighted average number of shares of Nextel Common Stock
outstanding during the respective periods plus, for fiscal year 1991, the
weighted average number of shares of Nextel Common Stock subject to options
and warrants issued during the respective preceding 12 months.
(5) Excludes the current portions of long-term debt and is net of unamortized
debt issuance costs. See Note 5 to the Notes to Nextel's Consolidated
Financial Statements, incorporated by reference in this Proxy
Statement/Prospectus (the "Notes").
(6) See Notes 10 and 11 to the Notes to Nextel's Consolidated Financial
Statements.
(7) Effective December 31, 1994, Nextel changed its fiscal year end from March
31 to December 31. Accordingly, the income statement data is presented for
the transition period from April 1, 1994 to December 31, 1994. For
comparative purposes, data for the nine months ended December 31, 1993 is
presented.
54
<PAGE> 64
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA CONSOLIDATED(1) PRO FORMA CONSOLIDATED(1)
------------ --------------------------- ---------------------------
TWELVE TWELVE MONTHS ENDED HISTORICAL THREE MONTHS ENDED
MONTHS DECEMBER 31, 1994 -------------------------- MARCH 31, 1995
ENDED --------------------------- THREE MONTHS ENDED ---------------------------
DECEMBER 31, (AMS MARCH 31, (AMS
1994 AND PENDING -------------------------- AND PENDING
------------ (AMS) TRANSACTIONS) 1994 1995 (AMS) TRANSACTIONS)
(UNAUDITED) ----------- ------------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Revenue......... $ 102,704 $ 126,404 $ 231,970 $ 19,027 $ 37,133 $ 39,344 $ 68,892
----------- ----------- ----------- ----------- ------------ ----------- -----------
Gross Profit.... 34,273 43,803 72,134 10,169 6,266 7,626 10,866
----------- ----------- ----------- ----------- ------------ ----------- -----------
Selling,
general,
administrative
and corporate
expense(2).... 101,871 110,185 175,597 16,143 36,043 36,914 55,847
Depreciation and
amortization... 115,416 137,419 273,664 21,269 40,363 42,159 95,144
----------- ----------- ----------- ----------- ------------ ----------- -----------
Operating
loss.......... (183,014) (203,801) (377,127) (27,243) (70,140) (71,447) (140,125)
Other
(expense)(3).. (51,777) (51,775) (107,117) (10,354) (14,403) (14,732) (31,570)
Income tax
benefit....... 85,126 90,722 169,043 13,781 31,344 31,705 58,264
----------- ----------- ----------- ----------- ------------ ----------- -----------
Net loss........ $ (149,665) $ (164,854) $ (315,201) $ (23,816) $ (53,199) $ (54,474) $ (113,431)
=========== =========== =========== =========== ============ =========== ===========
Net loss per
share......... $ (1.51) $ (1.52) $ (1.26) $ (.27) $ (.50) $ (0.50) $ (.45)
=========== =========== =========== =========== ============ =========== ===========
Number of shares
used in
computations... 98,818,000 108,640,000 250,508,000 87,098,000 105,655,000 109,855,000 251,723,000
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED(1)
---------------------------
HISTORICAL AS OF MARCH 31, 1995
------------ ---------------------------
AS OF (AMS
MARCH 31, AND PENDING
1995 (AMS) TRANSACTIONS)
------------ ---------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and marketable securities........................ $ 354,942 $ 356,077 $ 1,051,703
Current assets........................................ 387,195 389,271 1,118,083
Intangible assets -- net.............................. 1,427,910 1,535,213 3,888,393
Total assets.......................................... 2,801,812 2,912,782 6,376,468
Long-term debt(4)..................................... 1,191,694 1,191,843 1,704,761
Stockholders' equity(5)............................... 1,216,232 1,283,432 3,427,528
</TABLE>
- ---------------
(1) Derived from the Nextel Pro Forma Financial Statements included elsewhere in
this Proxy Statement/Prospectus which should be read in conjunction
herewith.
(2) Increases in the historical twelve months ended December 31, 1994 and the
three months ended March 31, 1995 relate to expenses incurred with respect
to the Digital Mobile networks.
(3) Includes interest expense for historical data of $86,874, $16,703 and
$20,960 and interest income of $34,386, $6,349 and $6,557 for the twelve
months ended December 31, 1994 and the three months ended March 31, 1994 and
1995, respectively.
(4) Excludes the current portions of long-term debt and is net of unamortized
debt issuance costs. See Note 5 to the Notes to Nextel's Consolidated
Financial Statements.
(5) See Notes 10 and 11 to the Notes to Nextel's Consolidated Financial
Statements.
55
<PAGE> 65
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited Pro Forma Condensed Consolidated Balance Sheets as
of March 31, 1995 give effect to the Merger, assuming such transaction occurred
at that date. The unaudited Pro Forma Condensed Consolidated Statements of
Operations for the three months ended March 31, 1995 give effect to the Merger
as if it had occurred at the beginning of the periods presented. The unaudited
Pro Forma Condensed Consolidated Statements of Operations for the twelve months
ended December 31, 1994 also give effect to the completion of the PowerFone
Merger on April 14, 1994, and the completion of the acquisitions of QTI and
AMI-West on August 4, 1994 in the Questar/AMI Share Exchange as if each had
occurred at the beginning of the period. The pro forma information which appears
under the column headed "Pro Forma Consolidated (AMS)" gives effect to the above
acquisitions under the purchase method of accounting and to the assumptions and
adjustments described in the accompanying notes to the unaudited Pro Forma
Condensed Consolidated Financial Statements.
Additionally, the following unaudited Pro Forma Condensed Consolidated
Balance Sheets as of March 31, 1995, give effect to the transactions described
above plus the pending transactions (as described below) by Nextel, assuming
such pending transactions had occurred at that date. The unaudited Pro Forma
Condensed Consolidated Statements of Operations for the three months ended March
31, 1995 and the twelve months ended December 31, 1994 give effect to the
transactions described above and the pending transactions as if they had
occurred at the beginning of the periods presented. The pending transactions
include the McCaw Transaction, the Motorola Transaction, the OneComm
Transaction, the Dial Page Transaction, the exercise of the Comcast Purchase
Right with respect to the Dial Page Transaction and the Comcast Philadelphia
Transaction. The pro forma information which appears under the column headed
"Pro Forma Consolidated (AMS and Pending Transactions)" gives effect to the
pending acquisitions under the purchase method of accounting and to the
assumptions and adjustments described in the accompanying notes to the unaudited
Pro Forma Condensed Consolidated Financial Statements.
The unaudited Pro Forma Condensed Consolidated Statements of Operations for
the twelve months ended December 31, 1994 reflect the results of operations of
Nextel, AMS, the Motorola SMR Business, OneComm and Dial Page for the twelve
months ended December 31, 1994.
The unaudited Pro Forma Condensed Consolidated Financial Statements should
be read in conjunction with the historical audited financial statements and
related notes thereto of Nextel, PowerFone, QTI, AMI-West, AMS, the Motorola SMR
Business, OneComm and Dial Page (including Transit), included elsewhere or
incorporated by reference in this Proxy Statement/Prospectus. It should be noted
that, as part of the Motorola Transaction, certain of the managed SMR systems
will be delivered with management rights and certain as owned systems.
Therefore, the financial position and results of operations of such systems may
differ from those included in the financial statements of the Motorola SMR
Business. These unaudited Pro Forma Condensed Consolidated Financial Statements
are presented for informational purposes only, are based on preliminary
estimates of purchase price allocations and are not necessarily indicative of
the results that would actually have occurred had the transactions been
consummated at the dates indicated, nor are they necessarily indicative of
future operating results or financial position of Nextel.
The unaudited Pro Forma Condensed Consolidated Financial Statements do not
include financial information for certain other entities being acquired because
the impact of including such information is not material.
56
<PAGE> 66
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
---------------------- ADJUSTMENTS CONSOLIDATED
NEXTEL AMS (AMS) (AMS)
---------- ------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Marketable Securities....... $ 354,942 $ 1,135 $ 356,077
Other Current Assets................. 32,253 941 33,194
---------- ------- ------- ----------
Total current assets.............. 387,195 2,076 389,271
INTANGIBLE ASSETS --
Net.................................. 1,427,910 11,167 $96,136 (2) 1,535,213
OTHER NON-CURRENT ASSETS --
Net.................................. 986,707 6,591 (5,000)(3) 988,298
---------- ------- ------- ----------
TOTAL ASSETS........................... $2,801,812 $19,834 $91,136 $2,912,782
========== ======= ======= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES.................... $ 188,944 $12,913 $ 1,800 (2) $ 203,657
DEFERRED INCOME TAXES.................. 204,942 28,908 (2) 233,850
LONG-TERM DEBT......................... 1,191,694 149 1,191,843
OTHER..................................
STOCKHOLDERS' EQUITY(11)............... 1,216,232 6,772 67,200 (2) 1,283,432
(6,772)(3)
---------- ------- ------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY................. $2,801,812 $19,834 $91,136 $2,912,782
========== ======= ======= ==========
</TABLE>
See Notes to the Pro Forma Condensed Consolidated Financial Statements
57
<PAGE> 67
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA CONSOLIDATED
HISTORICAL ADJUSTMENTS (AMS
----------------------------------- (PENDING AND PENDING
MOTOROLA ONECOMM DIAL PAGE TRANSACTIONS) TRANSACTIONS)
-------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Marketable Securities........................ $98,582 $117,948 $ 314,945(5) $ 1,051,703
50,900(6)
113,251(8)
Other Current Assets.................................. $ 14,162 13,693 5,331 66,380
-------- -------- --------- ----------- -----------
Total current assets............................ 14,162 112,275 123,279 479,096 1,118,083
INTANGIBLE ASSETS -- Net................................ 247,118 113,618 596,962 1,373,746(6) 3,888,393
21,736(8)
OTHER NON-CURRENT ASSETS -- Net......................... 63,816 189,156 128,722 1,369,992
-------- -------- --------- ----------- -----------
TOTAL ASSETS............................................ $325,096 $415,049 $848,963 $ 1,874,578 $ 6,376,468
======== ======== ========= =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES..................................... $ 10,467 $95,162 $ 48,853 $ 2,300(5) $ 392,739
32,100(6)
200(8)
DEFERRED INCOME TAXES................................... 118,561 413,085(6) 849,002
76,970(6)
6,536(8)
LONG-TERM DEBT.......................................... 484 284,933 406,501 (179,000)(6) 1,704,761
OTHER................................................... 2,438 2,438
STOCKHOLDERS' EQUITY(11)................................ 314,145 32,516 275,048 312,645(5) 3,427,528
1,703,200(6)
(621,709)(7)
15,000(8)
113,251(8)
-------- -------- --------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $325,096 $415,049 $848,963 $ 1,874,578 $ 6,376,468
======== ======== ========= =========== ===========
</TABLE>
See Notes to the Pro Forma Condensed Consolidated Financial Statements
58
<PAGE> 68
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
------------------------ ADJUSTMENTS CONSOLIDATED
NEXTEL AMS (AMS) (AMS)
----------- --------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUE...................................................... $ 37,133 $ 2,211 $ 39,344
----------- --------- -----------
GROSS PROFIT................................................. 6,266 1,360 7,626
----------- --------- -----------
OTHER OPERATING COSTS AND EXPENSES:
Selling, general, administrative and corporate expense..... 36,043 871 36,914
Depreciation and amortization.............................. 40,363 594 $ 1,202 (4) 42,159
----------- --------- ---------- -----------
76,406 1,465 1,202 79,073
----------- --------- ---------- -----------
OPERATING (LOSS)............................................. (70,140) (105) (1,202) (71,447)
OTHER (EXPENSE).............................................. (14,403) (329) (14,732)
----------- --------- ---------- -----------
(LOSS) BEFORE INCOME TAX..................................... (84,543) (434) (1,202) (86,179)
INCOME TAX BENEFIT........................................... 31,344 361 (4) 31,705
----------- --------- ---------- -----------
NET (LOSS)................................................... $ (53,199) $ (434) $ (841) $ (54,474)
=========== ========= ========== ===========
NET (LOSS) PER SHARE......................................... $ (0.50) $ (0.50)
=========== ===========
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING.................. 105,655,000 4,200,000 109,855,000
=========== ========= ===========
</TABLE>
See Notes to the Pro Forma Condensed Consolidated Financial Statements
59
<PAGE> 69
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA CONSOLIDATED
HISTORICAL ADJUSTMENTS (AMS
-------------------------------------------- (PENDING AND PENDING
MOTOROLA ONECOMM DIAL PAGE TRANSACTIONS) TRANSACTIONS)
---------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
REVENUE.......................................... $ 19,387 $ 4,907 $ 5,254 $ 68,892
---------- ----------- ----------- ------------
GROSS PROFIT (LOSS).............................. 7,044 (4,240) 436 10,866
---------- ----------- ----------- ------------
OTHER OPERATING COSTS AND EXPENSES:
Selling, general, administrative and corporate
expense...................................... 1,710 10,509 6,714 55,847
Depreciation and amortization.................. 7,760 8,237 34,633 $ 17,445(9) 95,144
(15,090)(9)
---------- ----------- ----------- --------- ------------
9,470 18,746 41,347 2,355 150,991
---------- ----------- ----------- --------- ------------
OPERATING (LOSS)................................. (2,426) (22,986) (40,911) (2,355) (140,125)
OTHER (EXPENSE).................................. (234) (4,682) (7,197) (4,725)(9) (31,570)
---------- ----------- ----------- --------- ------------
(LOSS) BEFORE INCOME TAX......................... (2,660) (27,668) (48,108) (7,080) (171,695)
INCOME TAX BENEFIT (EXPENSE)..................... 236 8,188 5,246(9) 58,264
16,600(9)
2,032(9)
(5,743)(9)
---------- ----------- ----------- --------- ------------
NET INCOME (LOSS)................................ $ (2,424) $ (27,668) $ (39,920) $ 11,055 $ (113,431)
========== =========== =========== ========= ============
NET (LOSS) PER SHARE............................. $ (0.45)
============
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING...... 59,500,000 22,050,000 24,900,000 35,418,000 251,723,000
========== =========== =========== ========= ============
</TABLE>
See Notes to the Pro Forma Condensed Consolidated Financial Statements
60
<PAGE> 70
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
------------------------------------------------ ADJUSTMENTS CONSOLIDATED
NEXTEL QTI AMI-WEST AMS (AMS) (AMS)
---------- --------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE.................................... $ 102,704 $ 13,967 $ 777 $ 8,956 $ 126,404
---------- --------- --------- ---------- ------------
GROSS PROFIT............................... 34,273 4,033 454 5,043 43,803
---------- --------- --------- ---------- ------------
OTHER OPERATING COSTS AND EXPENSES:
Selling, general, administrative and
corporate expense...................... 101,871 4,167 403 3,744 110,185
Depreciation and amortization............ 115,416 2,624 1,227 2,536 $ 15,616 (4) 137,419
---------- --------- --------- ---------- ----------- ------------
217,287 6,791 1,630 6,280 15,616 247,604
---------- --------- --------- ---------- ----------- ------------
OPERATING (LOSS)........................... (183,014) (2,758) (1,176) (1,237) (15,616) (203,801)
OTHER INCOME (EXPENSE)..................... (51,777) 42 63 (103) (51,775)
---------- --------- --------- ---------- ----------- ------------
(LOSS) BEFORE INCOME TAX................... (234,791) (2,716) (1,113) (1,340) (15,616) (255,576)
INCOME TAX BENEFIT......................... 85,126 902 4,694 (4) 90,722
---------- --------- --------- ---------- ----------- ------------
NET (LOSS)................................. $ (149,665) $ (1,814) $ (1,113) $ (1,340) $ (10,922) $ (164,854)
========== ========= ========= ========== =========== ===========
NET (LOSS) PER SHARE....................... $ (1.51) $ (1.52)
========== ===========
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING.............................. 98,818,000 2,261,000 1,028,000 4,200,000 2,333,000 108,640,000
========== ========= ========= ========== =========== ===========
</TABLE>
See Notes to the Pro Forma Condensed Consolidated Financial Statements
61
<PAGE> 71
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
CONSOLIDATED
PRO FORMA (AMS
HISTORICAL ADJUSTMENTS AND PENDING
-------------------------------------------- (PENDING TRANSACTIONS)
MOTOROLA ONECOMM DIAL PAGE TRANSACTIONS) -
---------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
REVENUE.......................................... $ 76,626 $ 14,775 $ 14,165 $ 231,970
---------- ------------- --------------- -------------
GROSS PROFIT (LOSS).............................. 30,186 (2,541) 686 72,134
---------- ------------- --------------- -------------
OTHER OPERATING COSTS AND EXPENSES:
Selling, general, administrative and corporate
expense...................................... 6,681 43,899 14,832 175,597
Depreciation and amortization.................. 18,683 15,801 88,227 $ 69,774(9) 273,664
(56,240)(9)
---------- ------------- --------------- ------------- -------------
25,364 59,700 103,059 13,534 449,261
---------- ------------- --------------- ------------- -------------
OPERATING INCOME (LOSS).......................... 4,822 (62,241) (102,373) (13,534) (377,127)
OTHER INCOME (EXPENSE)........................... (923) (19,498) (21,673) 4,675(9) (107,117)
(17,923)(9)
---------- ------------- --------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAX.................. 3,899 (81,739) (124,046) (26,782) (484,244)
INCOME TAX BENEFIT (EXPENSE)..................... (4,331) 19,888 20,981(9) 169,043
46,523(9)
7,707(9)
(12,447)(9)
---------- ------------- --------------- ------------- -------------
NET INCOME (LOSS)................................ $ (432) $ (81,739) $ (104,158) $ 35,982 $ (315,201)
========== ============= =============== ============= =============
NET (LOSS) PER SHARE............................. $ (1.26)
=============
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING...... 59,500,000 22,050,000 24,900,000 35,418,000 250,508,000
========== ============= =============== ============= =============
</TABLE>
See Notes to the Pro Forma Condensed Consolidated Financial Statements
62
<PAGE> 72
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The unaudited Pro Forma Condensed Consolidated Balance Sheets reflect
the issuances and assumed issuances of shares of Nextel Common Stock in
connection with the transactions described in the following notes. The
acquisitions are accounted for as purchases and the market value of Nextel
Common Stock is assumed to be $16.00 per share (See Note 12) unless the
respective agreement includes an agreed upon per share price or such a price is
implied from the terms of the agreement, in which case such agreed or implied
per share price is used. The estimated fees related to these transactions and
included in the cost of the transactions as described in the following notes are
subject to change prior to the closing of such transactions.
THE FOLLOWING ADJUSTMENTS ARE REFLECTED IN THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEETS AND UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS UNDER THE COLUMN HEADED "PRO FORMA CONSOLIDATED (AMS)":
2. The pro forma acquisition cost of AMS is allocated as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS,
EXCEPT
SHARE AND PER
SHARE DATA)
<S> <C>
Shares assumed to be issued............................. 4,200,000
Price of Nextel Common Stock............................ $ 16.00
------------
Aggregate value of the Nextel Common Stock assumed to be
issued................................................ 67,200
Increase in cost of intangible assets acquired
representing the tax effect of the difference between
the financial accounting and tax bases thereof........ 28,908
Estimated transaction fees directly identified with the
acquisition........................................... 1,800
------------
Pro forma acquisition cost.............................. $ 97,908
============
</TABLE>
3. The Pro Forma Adjustments include the elimination of stockholders'
equity of AMS ($6.8 million).
Additionally, the Pro Forma Adjustments reflect the elimination of the $5.0
million equity investment previously made by Nextel in AMS.
4. The Pro Forma Adjustments reflect the effects of the increase in
amortization expense due to the increase in intangible assets resulting from the
acquisitions and the reversal of the related deferred income tax liability as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, 1995 DECEMBER 31, 1994
--------------------------- ---------------------------
AMORTIZATION DEFERRED AMORTIZATION DEFERRED
EXPENSE INCOME TAX EXPENSE INCOME TAX
------------ ---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
PowerFone.................. $ 5,797 $1,743
QTI........................ 3,245 975
AMI-West................... 1,767 531
AMS........................ $1,202 $361 4,807 1,445
------ ---- -------- ------
$1,202 $361 $ 15,616 $4,694
====== ==== ======== ======
</TABLE>
The intangible assets, comprised of acquisition costs allocated to FCC
licenses, are amortized over 20 years.
The amortization expense and related reversal of deferred income tax
liability related to the PowerFone Merger and the Questar/AMI Share Exchange for
the twelve months ended December 31, 1994 represents amounts for the period
January 1, 1994 to April 14, 1994 and January 1, 1994 to August 4, 1994,
respectively, the dates the transactions were consummated. PowerFone's
operations for this period are not significant. The
63
<PAGE> 73
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
operations for the period prior to the acquisition of QTI and AMI-West represent
operations for the six months ended June 30, 1994, as the operations for the
period July 1, 1994 to August 4, 1994 are not significant.
THE FOLLOWING ADJUSTMENTS ARE REFLECTED IN THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEETS AND UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS UNDER THE COLUMN HEADED "PRO FORMA CONSOLIDATED (AMS
AND PENDING TRANSACTIONS):"
5. The Pro Forma Adjustments reflect the McCaw Transaction as follows:
<TABLE>
<CAPTION>
UNITS SHARES TOTAL
-------- ---------- --------
(IN THOUSANDS, EXCEPT UNIT, SHARE
AND PER UNIT AND SHARE DATA)
<S> <C> <C> <C>
Units and shares assumed to be issued............. 8,163,265 1,220,000
Price per Unit and share of Nextel Common Stock... $ 36.75 $ 12.25
-------- ----------
Aggregate value of Units and shares
to be issued.................................... 300,000 14,945 $314,945
Estimated transaction fees........................ 2,300 2,300
-------- ---------- --------
Net proceeds...................................... $300,000 $ 12,645 $312,645
======== ========= ========
</TABLE>
The Units are convertible into approximately 24,490,000 shares of Nextel
Common Stock. See "SUMMARY -- B. THE PARTIES TO THE MERGER -- Nextel -- Pending
Transactions."
The Pro Forma Adjustments do not include the impact of the possible future
purchase of three additional tranches of shares of Nextel Common Stock by the
McCaw Investor of 15,000,000 shares for $15.50 per share, 15,000,000 shares for
$18.50 per share and 5,000,000 shares for $21.50 per share. See "SUMMARY -- B.
THE PARTIES TO THE MERGER -- Nextel -- Pending Transactions."
6. The pro forma acquisition cost of the Motorola SMR Business, OneComm
and Dial Page is allocated as follows:
<TABLE>
<CAPTION>
MOTOROLA
SMR
BUSINESS ONECOMM DIAL PAGE TOTAL
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Shares assumed to be issued..................... 59,500,000 22,050,000 24,900,000
Price of Nextel Common Stock.................... $ 16.00 $ 16.00 $ 16.00
---------- ---------- ----------
Aggregate value of the Nextel Common Stock
assumed to be issued.......................... 952,000 352,800 398,400 $1,703,200
Increase in cost of intangible assets acquired
representing the tax effect of the difference
between the financial accounting and tax bases
thereof....................................... 279,352 115,487 18,246 413,085
Estimated transaction fees directly identified
with the
acquisition................................... 11,800 11,500 8,800 32,100
---------- ---------- ---------- ----------
1,243,152 479,787 425,446 2,148,385
Less: Proceeds assumed to be received from the
exercise of options and warrants.............. (15,900) (35,000) (50,900)
---------- ---------- ---------- ----------
Pro forma acquisition cost...................... $1,243,152 $ 463,887 $ 390,446 $2,097,485
========== ========== ========== ==========
</TABLE>
The shares assumed to be issued for OneComm and Dial Page exclude 500,000
and 1,500,000 shares, respectively, attributable to options and warrants with
exercise prices in excess of an assumed market price (which equals the assumed
market price per share of Nextel Common Stock of $16.00 times the respective
exchange ratios).
64
<PAGE> 74
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The Pro Forma Adjustments reflect a reduction of long-term debt to market
value and the related deferred income tax liability as follows:
<TABLE>
<CAPTION>
LONG-TERM DEFERRED INCOME
DEBT TAX LIABILITY
--------- ---------------
(IN THOUSANDS)
<S> <C> <C>
OneComm............................... $ 83,000 $35,690
Dial Page............................. 96,000 41,280
-------- -------
$179,000 $76,970
======== =======
</TABLE>
7. The Pro Forma Adjustments include the elimination of stockholders'
equity, as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
------------
<S> <C>
Motorola SMR Business.................................................... $314,145
OneComm.................................................................. 32,516
Dial Page................................................................ 275,048
--------
$621,709
========
</TABLE>
8. The Pro Forma Adjustments reflect the pro forma acquisition cost of
certain SMR licenses to be acquired from Comcast as follows:
<TABLE>
<CAPTION>
IN
THOUSANDS
-----------
<S> <C>
Aggregate value of Nextel Common Stock assumed to be issued (462,963
shares at an agreed per share price of $32.40)........................ $15,000
Increase in cost of intangible assets acquired representing the tax
effect of the difference between the financial accounting and tax
bases thereof......................................................... 6,536
Estimated transaction fees directly identified with the acquisition..... 200
-------
Pro forma acquisition cost.............................................. $21,736
=======
</TABLE>
The Pro Forma Adjustments include the exercise of the Comcast Purchase
Right with respect to the Dial Page Transaction of approximately 9,245,000
shares of Nextel Common Stock at a purchase price of $12.25 per share ($113.3
million). See "THE MERGER -- Anti-Dilutive Purchase Rights -- Comcast Purchase
Right."
9. The Pro Forma Adjustments reflect the effects of the increase in
amortization expense due to the increase in intangible assets resulting from the
acquisitions and the reversal of the related deferred income tax as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, 1995 DECEMBER 31, 1994
--------------------------- ---------------------------
AMORTIZATION DEFERRED AMORTIZATION DEFERRED
EXPENSE INCOME TAX EXPENSE INCOME TAX
------------ ---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Motorola SMR Business...... $ 11,613 $3,492 $ 46,450 $ 13,968
OneComm.................... 4,801 1,444 19,203 5,774
Dial Page.................. 759 228 3,034 912
Comcast Transaction........ 272 82 1,087 327
--------- -------- --------- --------
$ 17,445 $5,246 $ 69,774 $ 20,981
========= ======== ========= ========
</TABLE>
The intangible assets, comprised of acquisition costs allocated to FCC
licenses, are amortized over 20 years.
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NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The Pro Forma Adjustments reflect the elimination of merger cost of $4.7
million expensed by OneComm during the twelve months ended December 31, 1994 and
a deferred tax benefit of $16.6 million and $46.5 million for the three months
ended March 31, 1995 and the twelve months ended December 31, 1994,
respectively, related to the offset of losses of OneComm and Dial Page against
Nextel's deferred income tax liability.
The Pro Forma Adjustments reflect additional interest of $4.7 million and
$17.9 million related to the reduction of OneComm's and Dial Page's long-term
debt to market value and the reversal of the related deferred income tax of $2.0
million and $7.7 million for the three months ended March 31, 1995 and the
twelve months ended December 31, 1994, respectively.
Additionally, the Pro Forma Adjustments for the twelve months ended
December 31, 1994 reflect the reversal of amortization expense ($56.2 million)
to conform Dial Page's amortization period for intangible assets to Nextel's
accounting policy ($65.5 million), partially offset by additional amortization
expense ($9.3 million) related to the acquisition of Transit by Dial Page for
the period January 1, 1994 to May 5, 1994, the date the acquisition was
consummated (Transit operations for such period were not significant), and the
reversal of the related deferred income tax liability ($12.4 million). The Pro
Forma Adjustments for the three months ended March 31, 1995 reflect the reversal
of amortization expense ($15.1 million) to conform Dial Page's amortization
period for intangible assets to Nextel's accounting policy and the reversal of
the related deferred income tax liability ($5.7 million).
10. The weighted average number of shares outstanding used in the
computation of pro forma net loss per share consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, 1995 DECEMBER 31, 1994
------------------- -------------------
<S> <C> <C>
Weighted average number of shares of Nextel Common
Stock outstanding............................... 105,655,000 98,818,000
Adjustment for Nextel Common Stock issued or
assumed to be issued in connection with:
PowerFone Merger................................ -- 2,333,000
QTI acquisition................................. -- 2,261,000
AMI-West acquisition............................ -- 1,028,000
The Merger...................................... 4,200,000 4,200,000
---------------- ----------------
Average number of common shares outstanding
(AMS)........................................... 109,855,000 108,640,000
Nextel Common Stock expected to be issued in
connection with:
Motorola Transaction............................ 59,500,000 59,500,000
OneComm Transaction............................. 22,050,000 22,050,000
Dial Page Transaction........................... 24,900,000 24,900,000
McCaw Transaction............................... 25,710,000 25,710,000
Comcast Philadelphia Transaction................ 463,000 463,000
Comcast Purchase Right.......................... 9,245,000 9,245,000
---------------- ----------------
Average number of common shares outstanding
(AMS and Pending Transactions).................. 251,723,000 250,508,000
================ ================
</TABLE>
The unaudited Pro Forma Condensed Consolidated Statements of Operations are
presented as if the acquisitions or transactions took place at the beginning of
the periods presented; thus the stock issuances referred to above are considered
outstanding as of the beginning of the periods presented for purposes of per
share calculations.
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NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS -- (CONCLUDED)
(UNAUDITED)
11. Stockholders' equity as of March 31, 1995 consists of the following:
<TABLE>
<CAPTION>
PRO FORMA
CONSOLIDATED
PRO FORMA (AMS
HISTORICAL CONSOLIDATED AND PENDING
NEXTEL (AMS) TRANSACTIONS)
---------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Preferred stock...................................... $ -- $ -- $ --
Class A Preferred Stock.............................. -- -- 300,000
Common stock......................................... 106 110 227
Additional paid-in capital........................... 1,520,331 1,587,527 3,431,506
Accumulated deficit.................................. (301,265) (301,265) (301,265)
Treasury stock....................................... (768) (768) (768)
Unrealized loss on investments....................... (581) (581) (581)
Notes receivable -- equity incentive plan............ (1,263) (1,263) (1,263)
Deferred compensation -- net......................... (328) (328) (328)
---------- ------------- -------------
Stockholders' equity....................... $1,216,232 $ 1,283,432 $ 3,427,528
========== ============= =============
</TABLE>
12. For all transactions involving Nextel Common Stock, the Pro Forma
Financial Statements assume a price of $16.00 per share, unless the respective
transaction agreement includes an agreed upon per share price or such a price is
implied from the terms of the agreement, in which case such agreed or implied
per share price is used. An increase or decrease of $1.00 per share in the price
of Nextel Common Stock would result in a corresponding increase or decrease,
respectively, in the Pro Forma Financial Statements as follows:
<TABLE>
<CAPTION>
PRO FORMA
CONSOLIDATED
PRO FORMA (AMS
CONSOLIDATED AND PENDING
BALANCE SHEETS (AMS) TRANSACTIONS)
- ------------------------------------------------------------------ ------------ ---------------
(IN THOUSANDS)
<S> <C> <C>
Intangible Assets -- Net.......................................... $6,006 $ 158,230
Total Assets...................................................... $6,006 $ 158,230
Deferred Income Taxes............................................. $1,806 $ 47,580
Stockholders' Equity.............................................. $4,200 $ 110,650
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, 1995 DECEMBER 31, 1994
-------------------------------- --------------------------------
PRO FORMA PRO FORMA
CONSOLIDATED CONSOLIDATED
PRO FORMA (AMS PRO FORMA (AMS
CONSOLIDATED AND PENDING CONSOLIDATED AND PENDING
STATEMENTS OF OPERATIONS (AMS) TRANSACTIONS) (AMS) TRANSACTIONS)
- --------------------------------------- ------------ --------------- ------------ ---------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Loss Before Income Tax Benefit......... $ 75 $ 1,978 $ 300 $ 7,912
Net Loss............................... $ 53 $ 1,383 $ 210 $ 5,533
Net Loss Per Share..................... $ 0.00 $ 0.01 $ 0.00 $ 0.02
</TABLE>
The consummation of the Merger and certain of the other pending
transactions are subject to a number of conditions, including the receipt of
certain consents under certain indentures or compliance with certain
requirements thereof. See "THE MERGER -- Compliance with Indentures."
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<PAGE> 77
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The following discussion compares the Pro Forma Condensed Consolidated
Financial Statements of Nextel and Subsidiaries for the periods indicated which
give effect to the transactions described in the Notes to the unaudited Pro
Forma Condensed Consolidated Financial Statements.
Twelve Months Ended December 31, 1994
The total pro forma revenue for the twelve months ended December 31, 1994
was $231,970,000, 126% greater than Nextel's revenue of $102,704,000. The
increase in revenue is primarily due to the additional revenues of $76,626,000
from the Motorola SMR Business, and to a lesser extent from the revenues of
OneComm of $14,775,000, Dial Page of $14,165,000, AMS of $8,956,000 and
pre-acquisition QTI of $13,967,000. Total pro forma gross profit for the twelve
months ended December 31, 1994 was $72,134,000, 110% greater than Nextel's gross
profit of $34,273,000. This increase was primarily due to the additional gross
profit of $30,186,000 from the Motorola SMR Business, and to a lesser extent
from gross profits of $5,043,000 and $4,033,000 from AMS and pre-acquisition
QTI, respectively, which were partially offset by a negative gross profit of
$2,541,000 from OneComm. Nextel generated a gross profit margin of 33% on a
historical basis and 31% on a pro forma basis. The gross profit margin on a pro
forma basis was less principally because of the lower gross profit margins of
OneComm (negative 17%) and Dial Page (5%) partially offset by a higher gross
profit attributable to the Motorola SMR Business (39%) which had no expenses
related to operations of Digital Mobile networks, which expenses caused OneComm
to have a negative gross profit. Total pro forma selling, general,
administrative and corporate expenses were $175,597,000, or 76% of revenue; such
expenses were $101,871,000, or 99% of revenue for Nextel. The decrease of
selling, general, administrative and corporate expenses as a percentage of
revenue was principally due to the lower selling, general, administrative and
corporate expenses of the Motorola SMR Business (9% of revenue) partially offset
by higher selling, general, administrative and corporate expenses of OneComm
(297% of revenue) due to costs related to the operations of its Digital Mobile
networks. Pro forma depreciation and amortization was $273,664,000 on a pro
forma basis, an increase of $158,248,000 over that of Nextel. This increase was
primarily due to amortization of increased intangible assets resulting from the
pro forma transactions, including increased amortization of $46,450,000 for the
Motorola SMR Business and $19,203,000 for OneComm, and historical depreciation
and amortization of $18,683,000 for the Motorola SMR Business, $15,801,000 for
OneComm and $31,987,000 for Dial Page (net of reversed amortization to conform
Dial Page with Nextel's accounting policy). The $55,340,000 increase in the pro
forma other expenses reflects primarily an increase in indebtedness for the debt
facilities of OneComm and Dial Page and the accretion on the related long-term
debt which was marked to market value, which increases totaled $32,958,000 for
OneComm and $39,798,000 for Dial Page. These increases were partially offset by
historical interest income of OneComm and Dial Page. The pro forma tax benefit
was $169,043,000 on a pro forma basis as compared with $85,126,000 for Nextel.
This increase was primarily due to deferred tax benefits of $30,477,000 and
$16,046,000 related to the offset of losses of OneComm and Dial Page,
respectively, against Nextel's deferred income tax liability, and the reversals
of the deferred tax liability that was recorded as a result of the difference
between the tax and book bases of intangible assets acquired by Nextel referred
to above primarily consisting of $13,968,000 for the Motorola SMR Business and
$5,774,000 for OneComm. The resulting pro forma net loss for the twelve months
ended December 31, 1994 was $315,201,000 as compared with $149,665,000 for
Nextel for the same period.
Three Months Ended March 31, 1995
The total pro forma revenue for the three months ended March 31, 1995 was
$68,892,000, 86% greater than Nextel's revenue of $37,133,000. The increase in
revenue is primarily due to the additional revenues of
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<PAGE> 78
$19,387,000 from the Motorola SMR Business, and to a lesser extent from the
revenues of OneComm of $4,907,000, Dial Page of $5,254,000 and AMS of
$2,211,000. Total pro forma gross profit for the three months ended March 31,
1995 was $10,866,000, 73% greater than Nextel's gross profit of $6,266,000. This
increase was primarily due to the additional gross profit of $7,044,000 from the
Motorola SMR Business, and to a lesser extent from gross profit of $1,360,000
from AMS, which were partially offset by a negative gross profit of $4,240,000
from OneComm. Nextel generated a gross profit margin of 17% on a historical
basis and 16% on a pro forma basis. The gross profit margin on a pro forma basis
was less principally because of the lower gross profit margins of OneComm
(negative 86%), and Dial Page (8%), offset by a higher gross profit margin of
the Motorola SMR Business (36%) which had no expenses related to operations of
Digital Mobile networks, which expenses caused OneComm to have a negative gross
profit. Total pro forma selling, general, administrative and corporate expenses
were $55,847,000 or 81% of revenue; such expenses were $36,043,000, or 97% of
revenue for Nextel. The decrease of selling, general, administrative and
corporate expenses as a percentage of revenue was principally due to the lower
percentage of the Motorola SMR Business (9% of revenue) partially offset by a
higher selling, general, administrative and corporate expenses percentage of
OneComm (214% of revenue) due to costs related to the operations of its Digital
Mobile networks. Pro forma depreciation and amortization was $95,144,000, an
increase of $54,781,000 over that of Nextel. This increase was primarily due to
the amortization of increased intangible assets resulting from the pro forma
transactions, including increased amortization of $11,613,000 for Motorola and
$4,801,000 for OneComm, and historical depreciation and amortization of
$7,760,000 for the Motorola SMR Business, $8,237,000 for OneComm and $19,543,000
for Dial Page (net of reversed amortization to conform Dial Page with Nextel's
accounting policy). The $17,167,000 increase in the pro forma other expenses
reflects primarily an increase in indebtedness for the debt facilities of
OneComm and Dial Page and the accretion on the related long-term debt which was
marked to market value, which increases totaled $7,892,000 for OneComm and
$11,880,000 for Dial Page. These increases were partially offset by historical
interest income of OneComm and Dial Page. The pro forma tax benefit was
$58,264,000 as compared with $31,344,000 for Nextel. This increase was primarily
due to deferred tax benefits of $10,900,000 and $5,700,000 related to the offset
of losses of OneComm and Dial Page, respectively, against Nextel's deferred
income tax liability, and related to the reversals of the deferred tax liability
that was recorded as a result of the difference between the tax and book bases
of intangible assets acquired by Nextel referred to above of $3,492,000 for the
Motorola SMR Business and $1,444,000 for OneComm. The resulting pro forma net
loss for the three months ended March 31, 1995 was $113,431,000, as compared
with $53,199,000 for Nextel for the same period.
LIQUIDITY AND CAPITAL RESOURCES
Nextel's cash and marketable securities were $354,942,000 as of March 31,
1995, compared with $1,051,703,000 on a pro forma basis. The increase is
principally due to net proceeds from the McCaw Transaction of approximately
$314,945,000, proceeds of approximately $113,251,000 from the exercise of the
Comcast Purchase Right and the cash and marketable securities of $98,582,000 and
$117,948,000 expected to be received in connection with the acquisition of
OneComm and Dial Page, respectively. The principal cause of the increase in pro
forma long-term debt is the additional debt of $201,933,000 and $310,501,000 of
OneComm and Dial Page, respectively, expected to be assumed in connection with
their acquisitions. Pro forma intangible assets (on a net basis) were
$3,888,393,000 as compared with Nextel's $1,427,910,000, principally due to (i)
the intangible assets acquired in the pending transactions, (ii) the purchase
differentials relating to these transactions, and (iii) the differences between
the book and the tax bases of the assets being acquired. The combined impact of
these three factors result in increases to intangible assets of $1,176,125,000
for the Motorola SMR Business, $497,679,000 for OneComm, $657,640,000 for Dial
Page and $107,303,000 for AMS. Pro forma deferred income tax liability was
$849,002,000 as compared with $204,942,000 for Nextel, as a result of the
differences between the book and the tax bases of the assets acquired. Such
increases were $279,352,000 for the Motorola SMR Business, $115,487,000 for
OneComm, $28,908,000 for AMS and $18,246,000 for Dial Page. The pro forma
stockholders equity was $3,427,528,000, as compared with Nextel's balance of
$1,216,232,000, reflecting (i) $300,000,000 related to the newly created Nextel
Preferred Stock to be issued in connection with the McCaw Transaction, (ii) the
assumed value of Nextel Common Stock to be issued to the stockholders of the
Motorola SMR Business ($952,000,000), OneComm ($352,800,000), Dial
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<PAGE> 79
Page ($398,400,000) and AMS ($67,200,000), and (iii) $113,251,000 related to the
exercise of the Comcast Purchase Right with respect to the Dial Page
Transaction.
Nextel's cash needs on a pro forma basis will increase significantly.
Nextel currently estimates that, without giving effect to the McCaw Transaction
or the related amendments to Nextel's agreements with Motorola and Comcast or
the exercise by Comcast of the Comcast Purchase Right with respect to issuances
of Nextel Common Stock in the Dial Page Transaction, it will require
approximately $694,300,000 in additional funds to finance its capital
expenditures for the constructions of Digital Mobile networks, operating
expenses, analog SMR operations, acquisitions and other corporate expenditures
through fiscal 1997. See "RISK FACTORS -- Nextel to Require Financing."
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THE SPECIAL MEETING
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies from the holders of AMS Common Stock by the AMS Board
for use at the Special Meeting.
TIME AND PLACE; PURPOSE
The Special Meeting will be held at the Warner Center Hilton, 6360 Canoga
Avenue, Woodland Hills, California 91367 on July 28, 1995, starting at 10:00
a.m., local time. At the Special Meeting, holders of AMS Common Stock will be
asked to consider and vote upon (i) the Merger Proposal, (ii) the election of
Directors Proposal, and (iii) such other matters as may properly come before the
Special Meeting.
VOTES REQUIRED FOR APPROVAL; QUORUM
The affirmative vote of a majority of the outstanding shares of AMS Common
Stock entitled to vote thereon is required to approve the Merger Proposal. The
two directors nominated for election to the AMS Board at the Special Meeting
will be elected by a plurality of the total votes cast at the Special Meeting.
The AMS Board has fixed the close of business on June 23, 1995 as the
Record Date for the Special Meeting. Only holders of AMS Common Stock of record
as of the close of business on the Record Date are entitled to receive notice of
and to vote at the Special Meeting. At the close of business on the Record Date,
there were 7,243,006 shares of AMS Common Stock issued and outstanding
(excluding treasury shares), each of which has one vote with respect to each
Proposal and any other matter that may be properly presented for a vote at the
Special Meeting. The presence, in person or by proxy, of the holders of a
majority of the issued and outstanding shares of AMS Common Stock as of the
Record Date is necessary to constitute a quorum at the Special Meeting. Under
the bylaws of AMS, if a quorum shall not be present or represented at any
meeting of the holders of the AMS Common Stock, the holders present in person or
represented by proxy shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented.
In connection with the Merger Agreement, TCI, the largest single
stockholder of AMS, and Nextel have entered into the Voting Agreement pursuant
to which TCI has agreed, among other things, (i) not to dispose of its AMS
Common Stock prior to the Merger except in certain limited circumstances and
(ii) to vote (or grant a proxy to Nextel to vote) its shares of AMS Common Stock
in favor of the Merger. In addition, pursuant to the Merger Agreement Nextel has
agreed not to dispose of its shares of AMS Common Stock prior to the Merger and
to vote its shares of AMS Common Stock in favor of the Merger. (A copy of the
Voting Agreement is included in this Proxy Statement/Prospectus as Appendix C.)
As of the Record Date, TCI and Nextel together beneficially owned approximately
46% of the outstanding shares of AMS Stock. In addition, as of the Record Date,
officers and directors of AMS owned 13,941 shares (or less than one percent) of
the then outstanding shares of AMS Common Stock, and such officers and directors
have indicated that they will vote such shares in favor of the Merger Proposal.
See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF AMS."
The bylaws of AMS provide for two duly sworn inspectors of election to take
charge of the polls for the purpose of counting all votes at the Special Meeting
and certifying the results of such counting. No director or candidate for
director shall serve as an inspector. If inspectors are not appointed or if an
appointed inspector is absent or refuses to act, the stockholders present at the
Special Meeting, in person and by proxy, may choose temporary inspectors.
PROXIES AND EFFECT OF ABSTENTIONS
The persons named as proxies on the enclosed proxy card were designated by
the AMS Board and are officers and/or directors of AMS. Any holder of AMS Common
Stock giving a proxy may revoke it at any time before it is voted by providing a
duly executed proxy bearing a later date, by giving notice of revocation in
writing (as provided below), or by attending the Special Meeting and voting in
person. Any written notice given prior to the Special Meeting for the purpose of
revoking a proxy should be delivered to American Mobile
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<PAGE> 81
Systems Incorporated, 20920-C Warner Center Lane, Woodland Hills, California
91367, Attention: Corporate Secretary. Attendance at the Special Meeting will
not by itself constitute the revocation of a proxy.
All shares of AMS Common Stock represented by properly executed proxies
received prior to or at the Special Meeting and not revoked will be voted in
accordance with the instructions indicated on such proxies. If no instructions
are indicated, such proxies will be voted "FOR" the Merger Proposal and each of
the nominees for director. Neither AMS nor any of the persons named as proxies
on the enclosed proxy card knows of any business, other than consideration of
and voting upon the Merger Proposal and the Election of Directors, which may be
presented for stockholder action at the Special Meeting. If any other matter
does properly come before the Special Meeting, it is intended that the persons
named on the enclosed proxy will vote the shares of AMS Common Stock represented
by proxies with respect to such matter in accordance with their best judgment.
A properly executed proxy marked "ABSTAIN" with respect to a Proposal,
although counted for purposes of determining whether there is a quorum at the
Special Meeting, will not be voted. Shares represented by "broker non-votes"
(i.e., shares held by brokers or nominees which are represented at a meeting but
with respect to which the broker or nominee is not empowered to vote on a
particular proposal) will be counted for purposes of determining whether there
is a quorum at the Special Meeting, but will be deemed shares not entitled to
vote at the Special Meeting.
The entire cost of the solicitation of proxies on behalf of the AMS Board
will be borne by AMS. It is contemplated that the solicitation will be primarily
by mail. In addition, some of the officers, directors and employees of AMS may
solicit proxies personally or by telephone, for which they will receive no
compensation in addition to their regular salaries, but will be reimbursed for
any out-of-pocket expenses incurred in connection therewith. Although there are
no formal agreements to do so, AMS will reimburse brokerage houses and other
custodians, nominees and fiduciaries for their reasonable expenses in forwarding
proxy soliciting materials to their principals.
REPRESENTATIVE FROM ACCOUNTING FIRM
A representative from KPMG Peat Marwick LLP, AMS' independent auditors, is
expected to be present at the Special Meeting to respond to appropriate
questions and to make a statement if such representative desires to do so.
THE MERGER
BACKGROUND OF THE MERGER
Beginning in 1989, AMS pursued a strategy of concentrating its SMR
operations in the southeastern United States, where AMS historically has had its
greatest concentration of SMR systems. This strategy was undertaken due to a
belief by AMS' management that the Southeast was one of the most rapidly growing
sectors of the United States economy and that wireless communications could be
expected to benefit from that growth in the foreseeable future. AMS' management
further believed that AMS, by concentrating its operations, could take advantage
of economies of scale and reduce its overhead and other operating expenses as a
percentage of revenues.
In furtherance of this strategy, in July 1989 AMS sold to Nextel AMS' SMR
systems in New York City, Chicago and Atlantic City and in various communities
in New York State, Connecticut and Pennsylvania (other than in the Philadelphia
metropolitan region) for approximately $10 million. AMS also sold to a
subsidiary of Nextel AMS' SMR systems in Houston and Dallas for approximately
$2.3 million. In connection with these transactions, Nextel provided AMS with an
option, exercisable by AMS at any time prior to June 30, 1991, to require Nextel
to acquire AMS pursuant to the terms of a previously-negotiated agreement and
plan of merger (the "Merger Option"). The consideration payable by Nextel in
such a merger would be based on a multiple of AMS' operating airtime revenue for
a specified period prior to such merger, plus certain assets and less certain
liabilities, subject to certain conditions. The Merger Option was sought in an
effort to
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ensure that AMS would have a possible buyer in the event its strategy of
concentrating its operations in the Southeast proved unsuccessful. AMS notified
Nextel on June 28, 1991 of its decision not to exercise such option. The
decision of AMS was based on a determination by the AMS Board that the
underlying value of AMS at that time exceeded the price that would have been
payable by Nextel under the Merger Option.
In the summer of 1991, William J. Young, who was then President and a
director of AMS, and Richard G. Somers, who was then an officer and a director
of AMS, met with C. Meade Sutterfield, the President of Johnson Communications
Corporation ("JCC"), and other representatives of JCC on several occasions
concerning a possible business combination between AMS and JCC. JCC at the time
was a principal supplier of SMR services in central and northeastern Florida and
in the Atlanta, Georgia and Memphis, Tennessee metropolitan areas. Discussions
looking towards a combination of AMS and JCC ended primarily due to differing
management philosophies concerning how the business of the combined companies
would be operated. In lieu of a larger transaction, AMS entered into two asset
exchange and purchase agreements with JCC, pursuant to which AMS exchanged its
SMR and community repeater businesses in Atlanta and Orlando for JCC's SMR,
community repeater and sales and service businesses in Miami and Tampa, with
cash being paid by AMS to JCC in the amount of $2,210,000 for the difference in
the values assigned by AMS and JCC to the assets being exchanged. (A community
repeater consists of a single channel that is shared by various end users, each
of whom holds a license from the FCC to transmit on the channel. In Miami and
Tampa, AMS manages the repeater and owns (or leases) the associated equipment.
By contrast, the majority of AMS' SMR systems consist primarily of trunked
channels for which AMS holds the license issued by the FCC, and usage is limited
to customers of AMS.)
In the second quarter of fiscal 1992, AMS recorded a $4.8 million net loss
(after restatement) and management anticipated significant cash flow problems in
the foreseeable future due to the net operating losses being incurred by AMS.
Concerned by AMS' financial condition, in early February 1992, Messrs. Young and
Somers discussed with the two other directors of AMS at that time, Brendan
Clouston and Gary Howard, whether it would be advisable to approach Nextel with
a proposal pursuant to which AMS would be sold to Nextel. (Messrs. Clouston and
Howard are officers of TCI and served on the AMS Board at that time as the
designees of UAI (as defined herein), which is an indirect wholly owned
subsidiary of TCI and a significant stockholder of AMS. See "SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF AMS" and "CERTAIN INFORMATION
REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS OF AMS -- Identification of
Officers; Business Experience -- Arrangements Regarding Selection of Directors
and Officers".) Messrs. Clouston and Howard suggested that they would be
interested in pursuing an acquisition transaction if Nextel was willing to pay
AMS' stockholders at least $10 per share (or approximately $60 million for AMS).
Later that month Messrs. Young and Somers met with Morgan O'Brien and Brian
McAuley, the Chairman and President, respectively, of Nextel to discuss a
possible acquisition of AMS by Nextel. Discussions with Nextel ended after
Messrs. O'Brien and McAuley indicated that Nextel would be unwilling to pay in
excess of $7-8 per share to AMS stockholders in such a transaction.
On March 25, 1992, AMS issued a press release announcing that the AMS Board
had commenced an investigation into the unauthorized transfer of approximately
$4.1 million from the accounts of AMS by Mr. Young. See "CERTAIN INFORMATION
REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS OF AMS -- Certain Relationships
and Related Transactions -- Unauthorized Transfers of Funds by William J.
Young." Mr. Young subsequently resigned from all his positions with AMS and as a
director. On or about March 25, 1992, Mr. McAuley of Nextel contacted Mr. Somers
(who was appointed Chairman of the Board, President and Chief Executive Officer
of AMS following Mr. Young's resignation) concerning AMS' circumstances and
suggested resuming acquisition discussions. Mr. Somers and Mr. Howard
subsequently met with Messrs. O'Brien and McAuley in Washington, D.C. on April
12, 1992. Nextel took the position at that meeting that any acquisition of AMS
would need to be structured as a purchase of assets, as Nextel was unwilling to
consider other forms of transactions (such as a merger) in which certain
contingent and other liabilities of AMS might be acquired by Nextel
(specifically, including any liabilities that might arise out of a purported
class action lawsuit that had been filed against AMS and its directors in
connection with AMS' announcement regarding the possible unauthorized transfer
of AMS funds
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by Mr. Young). The purchase price proposed to be paid by Nextel consisted of
3,100,000 shares of Nextel Common Stock, which Nextel valued at $15 per share.
Messrs. Howard and Somers requested a floor on the value of the shares of Nextel
Common Stock to be issued to AMS to protect AMS stockholders (who AMS planned
would receive such shares following a liquidation of AMS) against a possible
decline in the trading price of Nextel Common Stock. Mr. O'Brien stated that
Nextel would be unwilling to provide such a guaranteed minimum value for its
shares in such a transaction. Discussions and further negotiations on the terms
of a possible acquisition transaction continued by telephone over the next
several days.
On April 16, 1992, AMS and Nextel reached a non-binding agreement in
principle pursuant to which Nextel (or a wholly owned subsidiary of Nextel)
would acquire substantially all of the assets of AMS (other than assets related
to its Philadelphia SMR systems, which were then subject to a pending sales
agreement) and assume certain related liabilities, in exchange for 3,100,000
shares of Nextel Common Stock, which shares at the time had an aggregate market
value of approximately $39.5 million. AMS contemplated that it would satisfy
those liabilities that were not assumed by Nextel out of the proceeds from the
sale of a portion of such shares, and distribute the remaining shares to its
stockholders pursuant to a plan of liquidation. The value to be received by AMS
stockholders, based on the market value of the Nextel shares on April 16, 1992
and before reduction for payment of unassumed liabilities (including the
contingent liability represented by the purported class action lawsuit brought
in connection with the unauthorized transfer of funds by Mr. Young) would have
been approximately $6.60 per share of AMS Common Stock. The agreement in
principle provided that Nextel would loan AMS $1 million upon the execution of
definitive agreements. Such loan would be in the form of a convertible note
bearing interest at 20% per annum. AMS agreed not to solicit or engage in any
discussions or negotiations with any third party with respect to a sale of all
or any substantial part of the business of AMS for up to 60 days after the
signing of the agreement in principle, subject to the fiduciary duties of the
AMS Board. The consummation of the transactions contemplated by the agreement in
principle was subject to a number of conditions, including the satisfactory
completion of a legal, financial and operational due diligence review by each
party of the other, approval of the transaction by each party's board of
directors, and the negotiation of a mutually satisfactory acquisition agreement.
The agreement in principle provided for an expiration date of June 15, 1992,
which date was subsequently extended to June 22, 1992. Following the execution
of the agreement in principle, the parties undertook a due diligence review of
their respective operations, including a detailed review by Nextel of AMS' SMR
channels in anticipation of their inclusion in an application to the FCC for an
enhanced SMR ("ESMR") Digital Mobile network by Nextel in the Southeast.
On June 16, 1992, Nextel delivered to AMS a list of issues that it had
developed based on its due diligence review of AMS and its SMR channels. These
issues related primarily to: (i) Nextel's concern that the composition and
loading of AMS' SMR systems would make it more difficult to obtain an ESMR
waiver and implement Digital Mobile networks in Florida involving those systems
than Nextel had originally anticipated when it entered into the non-binding
agreement in principle; (ii) the construction and loading deadlines on certain
AMS systems; (iii) the amount of the net liabilities of AMS and the extent of
AMS' cash flow deficit; and (iv) legal issues relating to AMS' participation in
certain joint ventures, third party consents, outstanding litigation and certain
contractual obligations of AMS. Nextel further indicated to AMS that, to resolve
such issues in a manner satisfactory to Nextel, significant changes would be
required to the terms outlined in the April 16 agreement in principle. Although
representatives of AMS and Nextel held several days of discussions concerning
potential areas of change in such terms, those discussions proved inconclusive.
On June 22, 1992, the agreement in principle with Nextel, as extended, expired
by its terms. Nextel had indicated during the course of discussions that it
would advise AMS of the terms and conditions on which Nextel would be willing to
pursue a potential acquisition of substantially all of the assets of AMS.
Accordingly, on June 25, 1992, Nextel delivered to AMS a written proposal in the
form of a revised agreement in principle. Among the significant areas of
difference between the June 25 proposal and the expired April 16 agreement in
principle were the following: a reduction in the purchase price if AMS'
annualized cash flow did not meet targeted levels; a reduction for liabilities
assumed by Nextel in excess of a specified dollar amount; and a reduction for
the failure of AMS to deliver, in connection with an ESMR application to the
FCC, a specified number of SMR frequencies in designated cities in the
Southeast. The purchase price remained at 3,100,000 shares of Nextel Common
Stock, subject to the foregoing adjustments. The June 25 proposal also
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contemplated that approximately 10% of the purchase price would be held back
until AMS had collected in full certain amounts owing from Mr. Young, that an
additional approximately 22% of the purchase price would be placed in escrow for
two years to satisfy claims or liabilities that might arise during that period
based on the ownership or use of AMS' assets or the operation of AMS' business
prior to the closing of such transaction (but which were not to be among the
identified liabilities to be assumed by Nextel in the proposed transaction), and
that the full purchase price would be escrowed for a period of 90 days after the
closing of the proposed transaction to satisfy any such claims or liabilities.
On or about June 27, 1992, in light of Nextel's proposed modifications and,
among other factors, a decline in the trading price of the Nextel Common Stock
from approximately $12 3/4 per share on April 16, 1992 to $9 5/8 per share as of
the close of business on June 26, 1992, AMS indicated to Nextel that it did not
find the June 25 proposal acceptable and terminated further negotiations with
Nextel.
Following the termination of negotiations with Nextel, Mr. Somers received
separate inquires from Mr. Sutterfield of JCC and Richard Stewart, the Chairman
of Transit, concerning a possible acquisition of, or merger with, AMS. Transit
at that time was a principal provider of SMR services in Georgia and had
recently entered into and completed acquisitions of SMR businesses in several
markets in the southeastern United States. Informal discussions continued from
time to time between representatives of AMS and each of JCC and Transit through
the winter of 1992-93.
On February 2, 1993, representatives of AMS, JCC and Transit met to discuss
the possible terms on which the three companies might be combined. Messrs.
Somers and Howard, together with William Wedum, a director of AMS (who had
earlier replaced Mr. Clouston on the AMS Board as a designee of UAI), were
present on behalf of AMS. Mr. Sutterfield and Mr. Stewart were also present. At
this meeting the relative exchange ratios that the stockholders of each company
might receive in a possible combination of the three companies were discussed.
Over the course of the next several weeks, discussions continued by telephone
concerning the terms of a three-way merger among AMS, JCC and Transit. These
negotiations resulted in the execution, on February 23, 1993, of a non-binding
letter of intent. The letter of intent contemplated the merger of each of JCC
and Transit with and into AMS, with the result that following the mergers former
JCC stockholders would hold 19% of the outstanding AMS Common Stock, former
Transit stockholders would hold 40% of such stock, and the stockholders of AMS
prior to the merger would, after the merger, hold 41% of the outstanding AMS
Common Stock. The foregoing implied exchange ratios were derived based on an
assumed per POP* value for each company of $8.00, which the AMS Board considered
reasonable at such time due to the market penetration represented by the
channels controlled by AMS, JCC and Transit, the number of SMR competitors in
those markets, the amount of spectrum that would need to be acquired to
construct a Digital Mobile network covering the markets in which those channels
were located and the demographics of those markets. An aggregate value for each
company was then determined using the number of POPs claimed by each of AMS, JCC
and Transit, which was then reduced to a "net equity value" for each company by
subtracting the amount of debt carried by each company and applying a
debt/operating cash flow equalization factor of 5x operating cash flow to arrive
at a relative adjusted value for each of AMS, JCC and Transit. The channels
controlled by each party were to be subject to an engineering study to determine
such channels' eligibility for inclusion in a wide-area filing for a Digital
Mobile network and whether the number of POPs claimed by each party were
justified by the features of the channels they controlled (including the
location of the channels, loading and construction information and the number of
competitors for the POPs in each market). The transaction was further subject to
a legal and financial due diligence review by each of AMS, JCC and Transit of
each other. The parties agreed in the letter of intent not to solicit other
offers or provide confidential information to or participate in any discussions
or negotiations with any other person with respect to a sale of material assets
or stock, subject to fiduciary obligations under applicable law, during the
period the letter of intent remained in effect. The letter of intent provided
for an expiration date of March 31, 1993. Drafts of a merger agreement were
subsequently distributed and negotiated by the parties and their respective
counsel.
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* "POP" refers to the population in the relevant Metropolitan Statistical Areas.
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In early March 1993, AMS learned that Nextel was undertaking a significant
acquisition program of SMR businesses in Florida. Later that month Nextel's
broker, Ritzel Communications ("Ritzel"), approached Mr. Somers and Mr. Howard
on behalf of Nextel concerning a possible transaction with Nextel. Ritzel's role
was one of arranging and facilitating communications and meetings between AMS
and Nextel. Mr. McAuley of Nextel subsequently contacted Mr. Somers and proposed
that Nextel acquire approximately 54% of the common equity of AMS, on a fully
diluted basis, for $50 million, based on a per share price of $6.30 per share of
AMS Common Stock. Mr. Somers suggested that Nextel prepare an outline of the
principal terms of its offer for consideration by the AMS Board.
On March 18, 1993, Nextel delivered to AMS a proposal which set forth the
basic terms on which Nextel proposed to acquire 54% of the fully diluted common
equity of AMS for $50 million, or $6.30 per share of AMS Common Stock. The
purchase price to be paid by Nextel would consist of an unspecified combination
of cash and property consisting of various SMR systems located in Florida which
Nextel had acquired or was in the process of acquiring, valued at Nextel's
acquisition and related transaction costs. The proposal contemplated that AMS
would grant Nextel anti-dilution rights to protect its proposed investment in
AMS. The proposal also provided that Nextel would have the right to review and
approve the terms of any merger agreement among JCC, Transit and AMS (including
the relative values to be contributed by each party, after giving effect to the
proposed transaction outlined in Nextel's proposal).
On March 24, 1993, during a trade show in Anaheim, California, Messrs.
Somers, Howard and Wedum (who at that time constituted, and continue to
constitute, the entire AMS Board) met with Messrs. O'Brien and McAuley and
several other Nextel representatives. Principals of Ritzel also attended the
meeting, but did not actively participate in the discussions. The terms of
Nextel's proposal were discussed at this meeting. AMS' representatives asked
Nextel to increase the AMS Common Stock per share purchase price contained in
the proposal. Nextel stated that it was prepared to offer a maximum price of $7
per share, which represented a 22% (or $1.25) premium over the closing price of
$5 3/4 for a share of AMS Common Stock on the Nasdaq NM on the preceding day.
Mr. Howard stated that, while the AMS Board would consider Nextel's offer, it
would need assurances that AMS stockholders would reap the benefits of Nextel's
management experience over the long term, as well as assurances that a Digital
Mobile network would be constructed in AMS' markets over the near term. In order
to obtain such assurances, AMS' representatives proposed that a mechanism be
created by which Nextel would be obligated to purchase all shares of AMS Common
Stock currently outstanding in the event a Digital Mobile network, built to
standards equivalent to those found in Nextel's other Digital Mobile network
markets, was not constructed in the areas served by AMS' SMR systems within the
applicable FCC construction deadline pursuant to an FCC license grant for a
Digital Mobile network in AMS' Florida markets. It was further proposed that AMS
be given access to Nextel's vendor arrangements for digital infrastructure and
subscriber equipment. Additionally, it was proposed that if on the seventh
anniversary of the closing of the proposed transaction the AMS Common Stock had
not appreciated in value commensurately with Nextel's Common Stock, then Nextel
would be required to offer to purchase all shares of AMS Common Stock currently
outstanding.
During the course of the discussions with Nextel on March 24, Messrs.
Somers, Wedum and Howard negotiated separately with JCC and Transit concerning
the terms of a three-way merger in an effort to obtain better terms than those
proposed by Nextel. By the end of that day AMS determined that the transaction
proposed by Nextel was superior to the proposed transaction with JCC and
Transit, and on March 25 AMS so advised JCC and Transit.
AMS received a proposed binding letter agreement from Nextel during the
evening of March 24, which set forth the terms on which Nextel proposed to
acquire at least 51% of the fully diluted common equity of AMS for $50 million,
based on a stated per share price of $7. The purchase price would be payable in
a combination of cash and the Florida SMR Systems then consisting of various 800
MHz SMR systems located in the state of Florida, including related FCC licenses,
contract rights and assets, aggregating to approximately 475 channels, that
Nextel or its wholly owned subsidiary had acquired or would acquire. The Florida
SMR Systems would be valued at Nextel's fully-loaded acquisition cost therefor,
plus the amount of certain related transaction expenses to be paid by Nextel
(except for certain previously acquired SMR systems which Nextel and AMS agreed
would have a value of $300,000). Nextel would retain all revenues and cash flows
from the
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Florida SMR Systems prior to their transfer to AMS. The letter contemplated
Nextel's payment of the purchase price in two steps. The first step, consisting
of the purchase of the Initial Shares (consisting of 714,286 newly issued shares
of AMS Common Stock) for $7 per share in cash ($5 million in the aggregate),
would occur ten days after the later to occur of (i) April 5, 1993 or (ii) the
execution of a definitive merger agreement among AMS, JCC and Transit on terms
acceptable to Nextel or the termination of all agreements among AMS, JCC and
Transit relating to their proposed three-way merger. The second step, consisting
of the purchase of an additional number of shares which, when added to the
number of shares acquired in the first step, would represent at least 51% of the
common equity of AMS on a fully diluted basis, would occur after the receipt of
governmental and other approvals and the satisfaction of customary closing
conditions. The letter agreement provided for anti-dilution rights in favor of
Nextel, and contemplated the grant to Nextel, at the time of its purchase of the
Initial Shares, of an option to purchase 1,800,000 shares of AMS Common Stock,
exercisable for a five-year period at $8.50 per share in cash. The letter also
provided that if Nextel had not acquired 51% of AMS' common equity within one
year of the date of the letter agreement, it was to have the right to "put" the
Initial Shares back to AMS at their purchase price of $7 per share.
The proposed binding letter agreement further contemplated that if
construction of a Digital Mobile network in AMS' Florida markets to standards
similar to Digital Mobile networks implemented in Nextel's other markets had not
occurred by the end of the construction deadline on an ESMR grant by the FCC to
AMS (but in any case no sooner than June 30, 1998) (the "Expiration Date"), then
all stockholders of AMS who held shares ("Qualifying Shares") of AMS Common
Stock that had been originally issued prior to the date of the letter agreement
would have the right, within 30 days after the Expiration Date, to require
Nextel to purchase their Qualifying Shares at a formula price per share. The
formula price per share was to equal the product of (i) the average per share
price of Nextel's Common Stock based on the 30 trading days prior to the
Expiration Date and (ii) a fraction the numerator of which is seven (the stated
purchase price per share of AMS Common Stock to be paid by Nextel) and the
denominator of which is 22 (the approximate trading price on that date of Nextel
Common Stock); provided, that Nextel's purchase obligation would be contingent
on its ownership, at the time it was to make its offer to purchase, of at least
51% of the voting power represented by the then outstanding shares of AMS'
capital stock. Nextel would have the option of paying for Qualifying Shares in
cash or in shares of Nextel Common Stock. Holders of Qualifying Shares would
have a similar right to require Nextel to purchase their Qualifying Shares on
the seventh anniversary of the closing of Nextel's purchase of AMS Common Stock
in the second step contemplated by the proposed binding letter agreement,
subject to Nextel's then owning at least 51% of the voting power represented by
the then outstanding shares of AMS' capital stock.
The proposed binding letter agreement also provided that Nextel would
conduct all of its SMR/ESMR operations in Florida solely through AMS and would
include AMS' Florida operations in Nextel's proposed nationwide Digital Mobile
network, so long as Nextel owned at least 51% of the voting power represented by
the outstanding shares of AMS' capital stock. Nextel would also seek to provide
AMS with access to Nextel's vendor arrangements for infrastructure and
subscriber equipment on terms similar to those available to Nextel, for so long
as Nextel owned at least 51% of the voting power represented by the outstanding
shares of AMS' capital stock. The closing of the second step contemplated by the
letter agreement would be subject, among other things, to AMS' receipt of an
opinion from a nationally-recognized investment banking firm that the
transactions described in the proposed binding letter agreement were fair to the
holders of AMS Common Stock from a financial point of view.
On March 25, 1993, AMS received a letter from Transit which urged AMS to
complete its merger with JCC and Transit, and further proposed that, subject to
completion of that merger, Transit would acquire an additional 2 million shares
of AMS Common Stock from AMS at a price of $10.00 per share. Transit further
proposed to provide $5 million to AMS for the purpose of enabling AMS to redeem
shares of AMS Common Stock from its existing stockholders following the proposed
merger, at $10 per share. Transit stated that within 30 days after the
acceptance of its proposal, it would arrange for $75 million in financing to
provide funds for the initial construction of a Digital Mobile network in AMS'
markets following the mergers. Transit further stated that it had made
arrangements to obtain all of the funds necessary to complete the stock
acquisitions at the price levels described in its letter.
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On March 26, 1993, AMS responded in writing to Transit with a request for
further information concerning its proposal. AMS asked for information regarding
the source of the funds that would be used by Transit to purchase and redeem
shares of AMS Common Stock at $10.00 per share, the status of Transit's
discussions with any banks as to the financing for the $75 million to be used to
construct a Digital Mobile network, and a detailed schedule of Transit's SMR
channels. AMS advised Transit that the proposal from Nextel was extremely time
sensitive, that Transit would need to respond to AMS' request for information by
no later than 5:00 p.m. (Eastern Time) the next day, and that if Transit could
not comply with AMS' requests for information within the foregoing timeframe AMS
would have no alternative but to reject Transit's offer due to a lack of
evidence that Transit was able to close its proposed transaction or that such
transaction would bring to AMS channels that were as attractive as those being
offered by Nextel.
Also on March 26, AMS delivered to Nextel its written comments on
(including proposed revisions to) the terms of the proposed letter agreement
between Nextel and AMS.
In the evening of March 26, Messrs. Somers and Howard discussed by
telephone certain of the principal terms of the proposed letter agreement with
Brian McAuley of Nextel. Mr. Somers requested, and Mr. McAuley agreed, that at
least $20 million of the purchase price to be paid by Nextel be paid in cash,
due to AMS' cash needs. Mr. Howard stated that AMS was not willing to accept
Nextel's proposal that its obligation to purchase Qualifying Shares of AMS
Common Stock be subject to Nextel's ownership at the time of at least 51% of the
voting power represented by the then outstanding shares of AMS' capital stock.
Mr. McAuley responded by offering to lower Nextel's ownership threshold to 30%,
which was rejected by Mr. Howard. Mr. Howard stated that because the purpose of
the obligatory purchase rights was to provide Nextel with an incentive to cause
a Digital Mobile network to be constructed in AMS' Florida markets within the
next five years, and also to assure that AMS' stockholders would have an
opportunity to dispose of their equity investment in AMS at a price linked by
formula to the market value of Nextel Common Stock at certain points in the
future, any limitation imposed on those rights in terms of continued stock
ownership by Nextel would frustrate AMS' intended purpose of Nextel's purchase
obligations. Messrs. Howard and Somers also argued that a similar stock
ownership limitation on the obligations of Nextel to conduct its SMR/ESMR
operations in Florida only through AMS, to include AMS' Florida operations in
its proposed nationwide roaming system, and to provide AMS with access to its
vendor arrangements should also be removed. Mr. McAuley acceded to their request
concerning Nextel's obligation to purchase Qualifying Shares, but required that
Nextel's other obligations be subject to its continued share ownership in AMS at
some specified threshold. It was eventually agreed that the threshold would be
set at ownership of at least 25% of the voting power represented by the
outstanding shares of AMS Common Stock on a fully diluted basis. It was further
agreed that the letter agreement would not be binding until Nextel had completed
the first step contemplated by the letter agreement: its initial $5 million
investment in AMS through the purchase of the Initial Shares. Mr. Howard
requested that Nextel increase its per share purchase price for AMS in light of
Transit's $10 per share proposal. Mr. McAuley stated that Nextel would not pay a
higher price, and further stated that Nextel would not be a "stalking horse" for
other offers. He then cautioned that Nextel's proposed binding letter agreement
would be withdrawn on March 29 if it was not signed by that date. Later that
same day, Nextel advised AMS in writing that the proposed binding letter
agreement would be withdrawn if it was not signed and returned by AMS before
9:00 a.m (Eastern Time) on March 29.
Transit responded preliminarily to AMS' request for further information in
the evening of March 26. Transit requested that AMS move its deadline from 5:00
p.m. the next day to 5:00 p.m. (Eastern Time) on March 29 (following the
expiration of the deadline for signing the proposed letter agreement with
Nextel). Transit stated that the source of the $25 million in funds required for
its proposed stock purchases would be Transit's existing investors. Transit
further stated that based on preliminary discussions with major
telecommunications lending banks, those banks were prepared to finance the
construction of a Digital Mobile network subject to certain conditions, one of
which was the financial condition of AMS. Transit opined that the contemplated
post-transaction capitalization of AMS would prove attractive to those lenders.
Transit argued that a combined Transit, JCC and AMS would produce a company
capable of serving markets containing in excess of 20 million POPs, including
all of Florida, Atlanta, Georgia, Birmingham, Alabama, Charlotte, North Carolina
and surrounding areas.
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AMS advised Transit on March 27 that it would require signed financing
commitments from Transit's investors and lenders in order for AMS to
substantiate Transit's ability to raise the funds outlined in its proposal,
especially since Nextel's offer in its proposed letter agreement was not
conditioned upon financing and Nextel possessed demonstrated ability to raise
financing for ESMR projects. Transit provided SMR channel information responsive
to AMS' request on March 28, and at that time also offered to advance AMS
$1,000,000 upon AMS' acceptance of its proposal. However, Transit never provided
evidence satisfactory to AMS of committed funding by its investors or any
lenders.
A special meeting of the AMS Board was held in the evening of March 28, by
conference telephone call, to consider the proposed letter agreement with Nextel
and Transit's proposal. All of the members of the AMS Board and counsel to AMS
participated. In reviewing the proposed letter agreement with Nextel, the AMS
Board discussed the intangible merits of selling a majority position in AMS to
Nextel, including, among others, that AMS could be expected to gain almost
immediate access to the capital markets, that through its affiliation with
Nextel AMS would obtain the experience and knowledge of what members of the AMS
Board believed to be the best managers in the SMR business, that AMS and Nextel
would be able to file an expanded ESMR application with the FCC, that AMS would
be able to assure itself of participation in Nextel's proposed nationwide
roaming arrangements, and that AMS would obtain access to Nextel's favorable
vendor arrangements. The AMS Board also discussed the licenses to be included
among the SMR systems in Florida that were being acquired by Nextel and would be
transferred to AMS and that a combination of AMS' channels and the channels
included in the Florida SMR Systems would provide sufficient spectrum to enable
the build out of a Digital Mobile network covering the combined systems in
Florida.
In discussing the price being offered by Nextel, it was observed that $7
per share represented a 22% premium over the price of the AMS Common Stock at
the close of business on Friday, March 26, which was $5.50 per share. The AMS
Board viewed that price as a reasonable indicator of AMS' public market value at
the time, given that over the past year the AMS Common Stock had fluctuated from
a low of $2.25 on November 27, 1992 to a high of $7.00 on March 4, 1993. (AMS
does not believe the price of AMS Common Stock was affected by the discussions
with Nextel until after the public announcement of the signing of a letter
agreement with Nextel on March 29, 1993.) The AMS Board believed the premium
being paid by Nextel, when coupled with the incentives provided to Nextel (in
the form of its purchase obligation with respect to the Qualifying Shares) to
assist AMS in the build out of a Digital Mobile network in Florida within the
next five years and to assist the management of AMS in the creation of
shareholder value over the next seven years was sufficient consideration for
selling a controlling interest in AMS to Nextel. The AMS Board also considered
that Mr. Howard had attempted to obtain a higher offer from Nextel in light of
the Transit offer and had been firmly rebuffed by Nextel; instead, Nextel had
responded by stating it would withdraw its offer, as set forth in the proposed
letter agreement, if AMS did not sign the letter agreement by the morning of
March 29. Further discussions with Nextel on increasing its offer were therefore
viewed by the AMS Board as futile.
The AMS Board also recognized that AMS had for years been incurring
significant operating losses and that its cash flow deficits needed to be funded
through borrowings or private placements of equity. In the past year, borrowings
by AMS had only been available from UAI and Mr. Somers, and UAI had indicated
its unwillingness to continue to fund AMS' cash deficits. The AMS Board
therefore considered an immediate alliance with a strategic partner such as
Nextel as essential to both the ability of AMS to continue to fund its cash flow
deficits over the near term as well as to achieve future profitability through
the construction and operation of a Digital Mobile network in Florida. The AMS
Board viewed the offer from Nextel as both permitting AMS' public stockholders
to continue to participate in any future growth of wireless mobile
communications and AMS to achieve both of the foregoing objectives on the best
terms available to AMS and its stockholders. The AMS Board also considered what
they believed to be the per POP value of Nextel's proposal. Based on AMS
management's estimate that channels controlled by AMS reached markets containing
approximately 8.1 million POPs, the AMS Board determined that the proposal had a
per POP value in the range of $8 to $10 per share. The AMS Board compared this
value to the estimated per POP value for the markets served by Nextel based on
the trading value of Nextel Common Stock. Based primarily on reports of
financial analysts, the AMS Board estimated the Nextel per POP values to be in
the range of $15 to $20 per POP. The AMS Board viewed Nextel as an appropriate
barometer for comparing per POP values,
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given that Nextel was at that time the only company in the SMR industry that had
designed, developed and was in the process of optimizing a Digital Mobile
network. A per POP analysis is commonly used in valuing cellular companies, and
the AMS Board viewed a per POP analysis for purposes of valuing an SMR company
useful only to the extent that the channels involved had the potential to
compete with cellular carriers; Nextel at that time was the only SMR business
that appeared to be nearing a position of being capable of competing with
cellular carriers, through its Digital Mobile network. In determining that the
per POP value being offered by Nextel was fair, the AMS Board considered a
number of factors related to the POPs in AMS' markets that necessitated that a
discount be applied to the Nextel per POP trading value. These factors included
(i) that at that time AMS's request for rule waiver and related Digital Mobile
network application for its Florida markets had not yet been granted by the FCC,
(ii) that unlike Nextel, AMS had not constructed a Digital Mobile network in any
of its markets and lacked the requisite financing for such an undertaking, (iii)
that additional channel spectrum would be required before a quality Digital
Mobile network could be designed and constructed which would encompass the POPs
attributable to AMS' channels, (iv) the probability that AMS could acquire such
additional spectrum, especially in the context of the SMR channel acquisition
program then being undertaken by Nextel in Florida, (v) the construction and
loading of AMS' channels, and (vi) the amount of actual and potential
competition faced by AMS with respect to its POPs from other SMR operators in
its markets (including Nextel). The AMS Board also viewed the requirement that
AMS obtain a favorable fairness opinion from an investment banking firm before
AMS would be obligated to sell a majority interest to Nextel as an important
safeguard to assuring that the transactions contemplated by the proposed letter
agreement with Nextel were fair to the public stockholders of AMS.
The AMS Board discussed the proposal received from Transit and compared it
to the proposed letter agreement with Nextel. The AMS Board viewed the
transaction proposed by Transit as speculative. It was noted in this regard that
Transit had not, to the AMS Board's knowledge, previously raised funds in excess
of $20,000,000, and yet its proposal contemplated raising $100,000,000. It was
further noted that although Transit stated it would obtain financing for a
portion of the funds from its existing investors, Transit had failed to produce
satisfactory evidence of commitments in response to letters from AMS which
warned that absent such signed commitments AMS would assume that no such
commitments existed. The AMS Board believed at that time that Transit's failure
to provide any third party confirmation of its ability to raise the necessary
financing was substantial evidence that commitments for such financing did not
exist. Moreover, the AMS Board viewed the assertion of Transit that its proposed
merger among Transit, JCC and AMS would produce a company capable of serving in
excess of 20,000,000 POPs as highly conjectural, as the channel information
provided by Transit to AMS did not indicate sufficient loading or spectrum to
support a Digital Mobile network, even after completion of the proposed merger,
in many of the areas claimed by Transit. The number of channels controlled by
competing SMR operators in Transit's markets also cast considerable doubt on the
part of the AMS Board as to the number of POPs that could appropriately be
claimed by Transit. The AMS Board also viewed the markets in which the combined
company would compete as demographically less desirable than the Florida markets
that AMS had determined to concentrate in and which would be covered in the
proposed transaction with Nextel. The AMS Board did not consider the per POP
value of Transit's proposal, due to the AMS Board's belief that the number of
POPs claimed by Transit were not supported by (i) channel information for
Transit reviewed by the AMS Board (which consisted of information supplied by
Transit or obtained from the FCC through public filings) and (ii) the number of
channels controlled by competing SMR operators in markets where Transit claimed
all or substantially all of the POPs contained within those markets. The AMS
Board also discussed the likelihood that Nextel would seek to acquire JCC as
part of its then ongoing Florida SMR acquisition program if AMS and Nextel did
not enter into the proposed letter agreement, as such an acquisition would
result in the failure of a condition to Transit's proposal (the prior completion
of the merger among JCC, Transit and AMS). The AMS Board also discussed the
premium offered by Transit as compared to the premium offered by Nextel. It was
observed that Transit's $25 million for the purchase and redemption of shares of
AMS Common Stock at $10 per share would not be paid immediately, while Nextel's
initial $5,000,000 investment at $7 per share would be paid in the next few
weeks, upon consummation of the first step contemplated by its proposed letter
agreement. It was also observed that Transit's $10 per share offer was not
comparable to Nextel's $7 per share offer, as Transit's investment would not
occur until after the mergers of AMS, JCC and Transit. Accordingly, Transit's
offer would benefit AMS'
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stockholders only to the extent of their holdings in AMS following the mergers,
which, as then proposed, would constitute only approximately 40% of AMS
immediately after the mergers. Accordingly, it was the unanimous decision of the
AMS Board that the Nextel offer was superior to the Transit proposal, and the
AMS Board unanimously approved AMS' execution of the letter agreement with
Nextel.
On March 29, 1993, AMS and Nextel entered into the letter agreement (as
subsequently amended, as described below, the "Letter Agreement"), which
contained substantially the same terms as those set forth in the draft of the
letter agreement delivered to AMS by Nextel on March 24, as modified by the
agreements reached by Messrs. Howard and Somers with Mr. McAuley during the
course of their discussions during the evening of March 26.
Also on March 29, AMS signed an engagement letter with Salomon Brothers.
Salomon Brothers was retained for the purpose of rendering an opinion to the AMS
Board as to the fairness, from a financial point of view, to the public holders
of AMS Common Stock of the consideration to be paid by Nextel in the
transactions contemplated by the Letter Agreement. As contemplated by the Letter
Agreement, the obligation of AMS to sell a majority position to Nextel would be
subject to the receipt by AMS of a favorable opinion of Salomon Brothers.
Salomon Brothers had earlier advised AMS in connection with its discussions with
Nextel in April 1992, but Salomon Brothers did not advise the AMS Board on the
value of Nextel's offer or the value of AMS prior to the execution by AMS of the
Letter Agreement.
Over the next nine days, AMS, Nextel and their respective counsel
negotiated the terms of the Initial Stock Purchase Agreement providing for the
sale of the Initial Shares and a put agreement (the "Put Agreement") providing
for the right of Nextel to cause AMS to repurchase the Initial Shares at $7 per
share (up to an aggregate of $5 million) in the event Nextel had not acquired a
majority equity interest in AMS by the first anniversary of its purchase of the
Initial Shares. The Option Agreement was also negotiated, which granted Nextel
the right, at any time (subject to certain exceptions) prior to the fifth
anniversary of Nextel's purchase of the Initial Shares, to purchase up to
1,800,000 shares of AMS Common Stock at $8.50 per share in cash. Those
agreements were signed on April 7, 1993, and Nextel funded its initial
$5,000,000 cash investment in AMS on the same date in exchange for the Initial
Shares.
On April 12, 1993, AMS and Nextel amended the Letter Agreement in
connection with Nextel's execution of agreements with respect to the acquisition
of additional SMR systems in Florida, which AMS and Nextel agreed would become
part of the Florida SMR Systems which Nextel could transfer to AMS as part of
the consideration to be paid by Nextel to AMS. As a result of the inclusion of
such additional SMR systems, the Letter Agreement was amended to provide that
the maximum number of shares of AMS Common Stock to be purchased by Nextel
(including the Initial Shares) was 9,428,571 shares, or approximately 58% of the
fully diluted equity interest in AMS (exclusive of shares issuable pursuant to
the Option) for an aggregate purchase price of approximately $66 million,
consisting of at least $20 million in cash (including the $5 million previously
paid by Nextel for the Initial Shares on April 7) and Florida SMR Systems valued
at approximately $46 million and aggregating to approximately 655 SMR channels.
On April 13, 1993, AMS received an unsolicited offer from Transit to
purchase not less than 8,750,000 newly issued shares of AMS Common Stock for
consideration which Transit valued at $8.50 per share. Transit's offer, which
assumed the completion of AMS' transaction with Nextel, contemplated the
purchase of shares for consideration consisting of $20 million in cash and the
remainder in unidentified SMR systems, the FCC licenses with respect to which
Transit stated it had obtained or had applications pending before the FCC. These
systems were valued by Transit at $56,000,000, which Transit stated was based on
those systems having sufficient 800 MHz spectrum to serve in excess of 3% of an
unidentified Metropolitan Statistical Area with a population base in excess of
5,500,000. Transit proposed that the parties negotiate to acquire JCC on the
terms previously outlined in the letter of intent entered into by AMS, JCC and
Transit on February 23, 1993 (which had expired by its terms on March 31, 1993),
and that following the closing of the transactions contemplated by Transit's
offer (including the transaction with Nextel) Transit's stockholders would own
approximately 34.5% of the AMS Common Stock, with Nextel owning approximately
27.5%, JCC's stockholders owning approximately 12%, and current stockholders of
AMS owning approximately 26%. The obligation of Transit to
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proceed with the transaction would be subject, among other things, to its
satisfaction with the value of the Florida SMR Systems being transferred to AMS
by Nextel.
By letter dated April 15, 1993, AMS requested from Transit clarification of
its proposed terms and further information, including evidence of its ability to
fund its offer. AMS further requested that Transit supply to AMS detailed
information concerning the SMR systems proposed to be utilized by Transit in
payment of the proposed purchase price. Transit was also asked to advise AMS as
to how its offer was affected by the Option, by the anti-dilution rights granted
to Nextel and by the increase in the number of shares of AMS Common Stock that
Nextel was entitled to purchase as a result of the April 12 amendment to the
Letter Agreement with Nextel. Clarification was also requested from Transit as
to whether the shares it proposed to purchase would be deemed Qualifying Shares,
and hence covered by Nextel's contingent purchase obligations. AMS advised
Transit that under its agreements with Nextel, any transaction with Transit
would be subject to Nextel's prior approval, and that AMS was required to share
with Nextel any information that was provided to it by Transit. AMS further
advised Transit that the AMS Board would only consider Transit's proposal once
AMS had received an adequate response to its request for clarification and
further information.
On or about April 30, 1993, Transit responded to AMS' requests in writing,
following a meeting among certain investors of Transit, Mr. Howard and counsel
to AMS. Transit stated that the source of the $20 million cash portion of its
purchase price would be its existing investors and a new investor. Transit also
supplied information partially responsive to AMS' request for information about
the SMR systems included in its offer, as well as a separate valuation of those
systems which Transit stated was based on those systems' ESMR business
potential. Transit also stated that its offer assumed that Nextel would not
receive anti-dilution rights, and that Nextel's contingent purchase obligations
would be unnecessary given the capitalization of AMS following the consummation
of the transactions proposed in its letter. Transit also asked for further
information about the Option, which it had not factored into its proposal.
The AMS Board subsequently determined not to accept Transit's proposal.
Transit's proposed $8.50 per share purchase price was not comparable to Nextel's
$7 per share purchase price because Transit's offer was conditioned on Nextel
investing in and contributing its Florida SMR Systems to AMS at the same time.
Accordingly, the AMS Board believed that Transit would be acquiring shares in
AMS at a time when its assets would have increased by at least 150% as compared
to the value of the assets of AMS at the time Nextel proposed to make its
investment. The AMS Board's determination was also based in large part on its
disagreement with Transit as to the value of the SMR systems that constituted a
substantial portion of the consideration that Transit proposed to use in making
its stated $8.50 per share offer, and the ability of those systems to be
combined into a Digital Mobile network without adding a significant amount of
additional spectrum. The AMS Board also felt that certain of the markets that
would be served by the proposed combined company were inferior to the Florida
market, and that it was in the best interests of AMS to continue to concentrate
its efforts and resources on building and operating a Digital Mobile network in
Florida. Moreover, unlike Nextel, Transit had never constructed a Digital Mobile
network and had no experience in optimizing or operating a Digital Mobile
network; yet under Transit's proposal it would acquire the largest equity
interest in AMS and thereby have operating control. The AMS Board also believed
that Nextel continued to offer AMS and its stockholders the best opportunity of
having a Digital Mobile network constructed in its Florida markets in the
shortest period of time. This belief of the AMS Board was based on its
evaluation of the incentives provided to Nextel by its contingent purchase
obligation with respect to the Qualifying Shares, public statements by Nextel
concerning its timetable for building a national Digital Mobile network, and
Nextel's experience in raising capital, which the AMS Board determined was
superior to the untested ability of Transit in raising such funds. AMS was also
advised by Nextel that it was not in favor of the transaction proposed by
Transit. Accordingly, were AMS to accept Transit's proposal AMS would be
required to breach the Letter Agreement with Nextel and thereby lose all of the
benefits of its transaction with Nextel. In addition to being liable for
damages, AMS would also be required to repurchase the Initial Shares for $5
million, if requested to do so by Nextel. Nextel's refusal to agree to Transit's
proposal also rendered that proposal moot, since Transit's offer was conditioned
on Nextel's investing in and contributing the Florida SMR Systems to the new
combined company. After determining that the transaction with Nextel continued
to be in the best interests of AMS' stockholders and was superior to the Transit
proposal, AMS advised
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Transit that it was not interested in its proposal and AMS made a public
announcement to that effect. No subsequent acquisition proposals were received
from Transit or any other third party.
On May 26, 1993, the Letter Agreement was further amended in connection
with the execution by Nextel of agreements with respect to the acquisition of
additional SMR systems in Florida, which AMS and Nextel agreed would also become
part of the Florida SMR Systems which Nextel could transfer to AMS as part of
the consideration to be paid by Nextel to AMS. As a result of the inclusion of
such additional SMR systems, the Letter Agreement was amended to provide that
the maximum number of shares of AMS Common Stock to be purchased by Nextel
(including the Initial Shares) was 10,714,286 shares, or approximately 61% of
the fully diluted equity interest in AMS (exclusive of shares issuable pursuant
to the Option), for an aggregate purchase price of approximately $75 million,
consisting of at least $20 million in cash (including the $5 million previously
paid by Nextel for the Initial Shares on April 7) and Florida SMR Systems valued
at approximately $55 million and aggregating to approximately 744 SMR channels.
In June 1993, Nextel delivered to AMS and its counsel a first draft of a
proposed stock purchase agreement providing, among other things, for the
purchase by Nextel of up to 10,200,000 additional shares of AMS Common Stock and
the other transactions contemplated by the Letter Agreement that had not
previously been negotiated and documented in connection with the sale of the
Initial Shares to Nextel on April 7, 1993. Over the course of the next two
months, representatives of AMS, Nextel and their respective counsel negotiated
the terms of the Stock Purchase Agreement, which was signed on August 26, 1993.
The Stock Purchase Agreement provided, among other things, for the purchase
by Nextel of up to 10,200,000 shares, but not less than 6,342,159 shares, of a
new class of common stock of AMS to be designated the "Class B Common Stock."
The Class B Common Stock was to be identical to the AMS Common Stock, except
that the Class B Common Stock would not be entitled to participate in the
Contingent Purchase Process. The stated purchase price for the Class B Common
Stock was $7 per share (or up to a maximum stated purchase price of
$71,400,000). At least $15 million of the stated purchase price was to have been
payable in cash and the remainder was to have been payable through the transfer
by Nextel to AMS of the Florida SMR Systems (valued generally at the purchase
price paid therefor by Nextel plus Nextel's related acquisition costs). Nextel
was also obligated under the Stock Purchase Agreement, pursuant to the
Contingent Purchase Process, subject to certain conditions specified therein, to
offer to purchase, by either a cash tender offer or an exchange offer involving
Nextel Common Stock, all shares of AMS Common Stock originally issued (or
subject to outstanding warrants or options) immediately prior to the initial
closing (the "Initial Closing") under the Stock Purchase Agreement. Nextel would
have been required to perform its purchase obligation under the Contingent
Purchase Process if by June 30, 1999 it had not completed construction of a
Digital Mobile network covering certain of AMS's markets in the State of Florida
and, whether or not such Digital Mobile network had been constructed by such
date, Nextel would have been required to perform its purchase obligation under
the Contingent Purchase Process on the seventh anniversary of the Initial
Closing. The purchase price to be paid by Nextel for each share of AMS Common
Stock pursuant to the Contingent Purchase Process was to have consisted of (i)
in the case of a cash tender offer, an amount equal to 7/22 of the then market
price of (or an agreed reference price for) a share of Nextel Common Stock and
(ii) in the case of an exchange offer, 7/22 of a share of Nextel Common Stock.
It was contemplated that only shares of AMS Class B Common Stock would be issued
after the Initial Closing (other than in connection with transfers of shares of
AMS Common Stock issued prior to the Initial Closing), in order to more easily
distinguish which shares of AMS common stock would be entitled to participate in
the Contingent Purchase Process. Under the Stock Purchase Agreement, Nextel
further agreed that following the Initial Closing and for so long as Nextel held
at least 25% of the outstanding common stock of AMS on a fully-diluted basis,
Nextel would not, directly or indirectly, own, operate, manage, control or
conduct any Digital Mobile network or other SMR wireless operations in Florida
or hold any FCC licenses relating thereto, other than through its ownership of
an equity interest in AMS. In addition, following such Initial Closing and for
so long as Nextel held at least 25% of the outstanding common stock of AMS,
Nextel agreed that it would (i) include any Digital Mobile network and any other
SMR systems operated by AMS as part of the Digital Mobile networks operated in
other jurisdictions in the United States by Nextel and/or its subsidiaries and
(ii) avail AMS of the opportunity to purchase system infrastructure and
subscriber equipment on the same basic terms that were available to Nextel at
the time, plus any incremental costs reasonably incurred by
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Nextel in connection with any such purchases. Nextel was not subject to any
contractual restrictions on its ability to dispose of any or all of the shares
of AMS common stock acquired by it. The Initial Closing was subject to customary
closing conditions, including receipt by the AMS Board of a favorable fairness
opinion from a nationally-recognized investment banking firm.
In connection with the execution of the Stock Purchase Agreement, the Put
Agreement was amended to provide that Nextel could exercise its rights
thereunder during the 30 day period commencing on June 30, 1994 (the stated
termination date of the Stock Purchase Agreement), in the event the Stock
Purchase Agreement expired by its terms without the acquisition by Nextel of at
least 51% of the outstanding shares of AMS common stock on a fully diluted basis
(unless such expiration was caused by the failure of Nextel to perform any of
its obligations under the Stock Purchase Agreement). In addition, the Option
Agreement was amended to extend its final expiration date to June 30, 1998 (the
fourth anniversary of the stated termination date of the Stock Purchase
Agreement).
On June 28, 1994, the AMS Board met to consider the continuing fairness of
the terms of the Stock Purchase Agreement to the public stockholders of AMS.
Salomon Brothers gave a presentation concerning its evaluation of the fairness
of the consideration paid and payable by Nextel pursuant to the Stock Purchase
Transaction, and rendered its oral opinion to the AMS Board that, as of June 28,
1994, such consideration was fair to the public stockholders of AMS, from a
financial point of view. Following deliberations the AMS Board confirmed its
earlier approval of the terms of the Stock Purchase Agreement and its
determination that the financial terms of the Stock Purchase Transaction were
fair to the public stockholders of AMS.
On June 29, 1994, AMS and Nextel executed an amendment, dated as of June
14, 1994, to the Stock Purchase Agreement which amended the Stock Purchase
Agreement in the following respects: (i) the expiration date was extended from
June 30 to September 30, 1994; (ii) the Contingent Purchase Process was amended
to provide for the retention of an investment banking firm to value the
Contingent Purchase Process in the event Nextel Common Stock did not trade in
the public market at the time Nextel is required to repurchase Qualifying
Shares; and (iii) the costs incurred by Nextel in connection with (a) the
preparation of financial statements for the Florida SMR Systems and (b) the
design and initial development of a Digital Mobile network in Florida prior to
the Initial Closing (up to a maximum amount of $1,048,939 without the prior
written consent of AMS), were added to the types of transaction costs that would
be included in the aggregate value of the Florida SMR Systems constituting a
portion of the purchase price payable by Nextel at the Initial Closing. The Put
Agreement and the Option Agreement were also amended to reflect the change from
June 30 to September 30, 1994, of the stated termination date of the Stock
Purchase Agreement.
On August 5, 1994, Nextel publicly announced that it had entered into an
agreement with Motorola to acquire all of Motorola's 800 MHz SMR properties in
the United States and that it had entered into an agreement in principle which
contemplated the acquisition of Dial Page by Nextel in a tax-free merger.
Shortly thereafter, discussions were held among Brian McAuley and John Willmoth
of Nextel and Richard Somers and William Wedum of AMS concerning possible delays
in the timing of the Initial Closing due to the announcements made by Nextel on
August 5. The anticipated delays were due to the need of Nextel to file various
disclosure documents with the Commission concerning the proposed Motorola and
Dial Page transactions before a proxy statement/prospectus could be finalized
and mailed to AMS stockholders. Because Motorola and Dial Page have significant
SMR assets and operations in Florida, the parties also discussed a provision in
the Stock Purchase Agreement that would require Nextel, following the Initial
Closing, to negotiate with AMS concerning the terms on which those assets and
operations would be sold to AMS. Under the Stock Purchase Agreement, Nextel was
required to enter into such negotiations for so long as it owned at least 25% of
the outstanding shares of common stock of AMS, on a fully diluted basis. The
Stock Purchase Agreement, as then in effect, further provided that if Nextel and
AMS could not agree on a valuation for such operations and assets and the terms
on which they would be sold to AMS within 30 days after their acquisition by
Nextel, then Nextel would be required to either promptly dispose of such
operations and assets to an unaffiliated third party or dispose of a sufficient
number of shares of AMS common stock to bring it beneath the 25% threshold
referred to above. The representatives of Nextel expressed concern that the
30-day negotiation period to dispose of such operations was insufficient given
the size of the Florida SMR systems of Motorola and Dial Page, and suggested
that such negotiations between Nextel and AMS begin as
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soon as possible. The representatives of AMS stated their desire to close under
the Stock Purchase Agreement as soon as possible, and that such negotiations
should occur, following the Initial Closing, between Nextel and the new Board of
Directors of AMS. They further stated their willingness, however, to consider
any alternative proposal that Nextel might present to the AMS Board.
On August 12, 1994, due to delays anticipated to be incurred as a result of
Nextel's disclosure obligations in connection with the Motorola Transaction and
Dial Page Transaction, AMS and Nextel entered into a letter agreement which
extended the expiration date under the Stock Purchase Agreement from September
30, 1994 to October 31, 1994, and made related changes to the Put Agreement and
the Option Agreement.
On August 29, 1994, Nextel, Comcast and MCI announced that the MCI/Comcast
Letter Agreement, which provided the proposed terms on which MCI would make a
significant equity investment in Nextel, had been terminated but that the
parties were continuing to explore the possibility of a strategic alliance on
different terms. Representatives of Nextel, MCI, Motorola and Comcast
participated in further discussions following the August 29 announcement until
MCI announced, on September 1, 1994, that it had decided to terminate further
discussions regarding such a new agreement.
On September 8, 1994, the AMS Board received a letter from Nextel which
proposed, as an alternative to the Stock Purchase Agreement, a tax-free merger
transaction between AMS and a wholly owned subsidiary of Nextel. Nextel's
proposal contemplated the issuance by Nextel of 3,000,000 shares of Nextel
Common Stock for all of the fully diluted shares of AMS not already owned by
Nextel. Based on Nextel's September 7, 1994 closing price of $24.38 per share,
Nextel valued its offer at $10.80 per share of AMS Common Stock. (The closing
price of the AMS Common Stock on September 7, 1994 was $10.25 per share.) Nextel
stated in its letter that it had made the merger proposal due in part to
uncertainties created by the Stock Purchase Agreement concerning any future
transfer of the Florida SMR operations of Motorola and Dial Page to AMS,
including how a valuation would be derived, the form of consideration to be paid
by AMS, and the impact of such a combination on the ability of AMS to construct
and/or finance a more extensive Digital Mobile network in Florida. Also on
September 8, 1994, AMS issued a press release concerning its receipt of Nextel's
merger proposal.
On September 12, 1994, the AMS Board met to discuss the merger proposal
received from Nextel. Both the Stock Purchase Agreement and the merger proposal
were discussed, and it was determined that AMS should enter into negotiations
with Nextel with respect to the merger proposal in an effort to obtain for AMS
stockholders the best premium-conferring transaction available under the
circumstances.
On September 14, 1994, in an effort to allow discussions of the merger
proposal to proceed in an orderly manner, AMS and Nextel entered into a letter
agreement which further extended the termination date under the Stock Purchase
Agreement to November 30, 1994 and made related changes to the Put Agreement and
the Option Agreement.
Between September 9 and 12, 1994, three purported class action stockholder
lawsuits were filed on behalf of certain AMS stockholders against AMS, the AMS
Board and Nextel in connection with the public announcement on September 8, 1994
that Nextel had made its merger proposal to AMS. See "BUSINESS OF AMS -- Legal
Proceedings."
On September 17, 1994, the full AMS Board met with its counsel and
representatives of Salomon Brothers to discuss Nextel's merger proposal. It was
the consensus of the AMS Board that there should be an increase in the number of
shares to be issued by Nextel in any merger before the AMS Board would be
willing to forego the transactions contemplated by the Stock Purchase Agreement.
The AMS Board then authorized Mr. Somers to negotiate with Nextel in an effort
to obtain a higher exchange ratio for AMS stockholders.
On September 18, 1994, Mr. Somers and Mr. McAuley met and negotiated the
number of shares to be issued by Nextel in any merger transaction between AMS
and Nextel. Mr. McAuley initially offered to increase the shares issued by
Nextel from 3,000,000 to 3,300,000 shares. Mr. Somers countered with a request
for 4,000,000 shares of Nextel Common Stock, which was immediately dismissed by
Mr. McAuley. After further negotiations and counterproposals, Messrs. Somers and
McAuley agreed to discuss with their respective boards of directors an exchange
ratio in which Nextel would issue 3,700,000 shares of Nextel
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Common Stock in exchange for all of the fully diluted shares of AMS Common Stock
not already owned by Nextel.
On September 23, 1994, AMS delivered to Nextel a non-binding letter of
intent wherein AMS proposed a merger of AMS and Nextel in which all of the fully
diluted equity interests of AMS (other than that owned by Nextel) would be
exchanged for 3,700,000 shares of Nextel Common Stock. (The exchange ratio,
which equated to .545 of a share of Nextel Common Stock for each share of AMS
Common Stock, provided a per share value to AMS stockholders, based on the
closing price of Nextel Common Stock on September 22, 1994 of $22 15/16 per
share, or a premium of $1.50 per share over the closing price of the AMS Common
Stock on September 22, 1994 of $12 1/2 per share.) The obligations of the
parties would be subject to the negotiation of a definitive merger agreement,
receipt of approvals from their respective boards of directors and the
stockholders of AMS, receipt by AMS of a favorable fairness opinion from an
investment banking firm and the satisfaction of other customary closing
conditions that would be set forth in the merger agreement. In order to avoid
termination of the Stock Purchase Agreement in the event agreement could not be
reached on the terms of a merger agreement, AMS required that the expiration
date under the Stock Purchase Agreement be extended to the date 90 days
following any agreement of Nextel and AMS to cease further negotiations of a
merger agreement. The letter further provided that upon execution of a merger
agreement, the Stock Purchase Agreement and the Put Agreement would be
terminated. Nextel executed the letter of intent on September 24, 1994,
following which AMS issued a press release announcing the proposed transaction.
Over the next two months representatives of AMS and Nextel and their respective
legal counsel negotiated the terms of a proposed merger agreement.
At a meeting held on November 16, 1994, at which Mr. McAuley, Mr. Willmoth,
Mr. Somers and their respective counsel participated, the remaining handful of
open issues in connection with the merger agreement and related documents were
discussed. One open issue was a requirement of Nextel that the AMS stockholders
not be entitled to appraisal rights under Delaware law in connection with the
proposed merger. Under Delaware law, in the context of a merger, no appraisal
rights are available for shares of any class of stock that is listed on a
national securities exchange or designated a National Market security by the
NASD if such shares are to be exchanged for shares of stock that are also listed
on a national securities exchange or designated a National Market security. This
requirement of Nextel became an issue on October 26, 1994, when a committee of
the NASD determined that AMS was no longer in compliance with the NASD's net
tangible asset requirement for continued designation of the AMS Common Stock as
a National Market security due to the existence of the Put Agreement. (As noted
previously, the Put Agreement provided that if the Initial Closing did not occur
by the termination date of the Stock Purchase Agreement, AMS could be required
by Nextel to repurchase the Initial Shares from Nextel at $7.00 per share, or
for up to $5 million in the aggregate.) On October 27, 1994, the NASD moved the
AMS Common Stock from the Nasdaq NM to the Nasdaq SmallCap Market, resulting in
the availability of appraisal rights to AMS stockholders were AMS and Nextel to
enter into a merger agreement. AMS requested, and was granted, a review of the
decision removing the AMS Common Stock from quotation on the Nasdaq NM by a
hearing review committee of the NASD, at a meeting of that committee to be held
on November 22, 1994. AMS was unwilling to go forward with the merger agreement
for so long as the AMS Common Stock was ineligible for quotation in the Nasdaq
NM, as it viewed Nextel's requirement concerning appraisal rights a significant
and uncontrollable impediment to its ability to consummate a merger agreement
with Nextel.
Another open issue was a request of AMS that the Stock Purchase Agreement
be "reinstated" for submission to AMS stockholders in the event the merger
agreement was not approved by AMS stockholders. Because Nextel had initially
proposed a merger between AMS and Nextel due in part to the uncertainties the
Stock Purchase Agreement created with respect to Nextel's acquisition of the
Florida SMR systems of Motorola and Dial Page, Nextel was unwilling to reinstate
the Stock Purchase Agreement under such circumstances unless that agreement was
amended to increase the period in which Nextel had to negotiate the sale to AMS
of the Florida SMR systems of Motorola and Dial Page after the Initial Closing.
In an effort to remove the $5 million repurchase obligation represented by
the Put Agreement in advance of the NASD hearing review committee meeting on
November 22, 1994, which AMS believed would result in a reversal by that
committee of the NASD's earlier decision removing the AMS Common Stock from
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quotation on the Nasdaq NM, AMS requested that Nextel terminate the Put
Agreement immediately. Nextel was unwilling to terminate the Put Agreement in
advance of the execution of a merger agreement, but subsequently agreed to do so
in return for an amendment to the Stock Purchase Agreement that extended the
30-day period in which Nextel and AMS were to negotiate the value and terms of
sale of the Florida SMR systems of Motorola, Dial Page and Saber Communications,
Inc. ("Saber"). AMS and Nextel agreed that, as consideration for the termination
of the Put Agreement, the 30-day negotiation period would be extended, with
respect to the acquisition by Nextel of each of such Florida SMR systems, to the
earlier to occur of (i) the first anniversary of the acquisition of such Florida
SMR systems by Nextel and (ii) the expiration of the 18-month period commencing
on the date of the Initial Closing. Nextel also agreed that the Stock Purchase
Agreement, as so amended, would be resurrected and submitted to AMS stockholders
in the event the stockholders of AMS did not approve the merger agreement.
AMS agreed to the foregoing amendment in the belief that the termination of
the Put Agreement (i) removed a significant contingent obligation of AMS, (ii)
would result in the AMS Common Stock being returned to the Nasdaq NM and (iii)
would potentially eliminate AMS's concerns with respect to Nextel's requirement
concerning the absence of appraisal rights (if the AMS Common Stock were
returned to the Nasdaq NM) and thereby permit the AMS Board and possibly the AMS
stockholders to consider the merger agreement. In agreeing to the amendment, AMS
also considered the possibility that, due to the brief 30-day negotiation
period, Nextel might sell down its holdings of AMS Common Stock to below 25% of
the outstanding fully diluted common equity of AMS to avoid the requirement that
it dispose of the Motorola, Dial Page and Saber Florida SMR systems to an
unaffiliated third party in the event agreement could not be reached on value
and terms of sale with AMS within such period. Such action by Nextel would also
result in the termination of Nextel's obligation under the Stock Purchase
Agreement (a) to include any Digital Mobile network constructed by AMS or any of
its SMR systems as part of the Digital Mobile networks operated by Nextel in
other jurisdictions and (b) to avail AMS of the opportunity to purchase system
infrastructure and subscriber equipment on the same basic terms as those made
available to Nextel by its vendors.
On November 18, 1994, Nextel terminated the Put Agreement, and the Stock
Purchase Agreement was amended (i) to extend, as described above, the period
during which Nextel would be required to negotiate the value and terms of sale
of the Florida SMR systems of Motorola, Dial Page and Saber to AMS and (ii) to
extend the termination date of the Stock Purchase Agreement (and to make certain
related changes to the Option Agreement and the Short Spacing Agreement) to June
30, 1995. A press release announcing the termination of the Put Agreement and
the foregoing amendment of the Stock Purchase Agreement was issued by AMS the
same day.
On November 22, 1994, a hearing review committee of the NASD met and, based
on the termination of the Put Agreement, caused the AMS Common Stock to be
redesignated a National Market security, effective November 30, 1994. In so
doing, the issue concerning Nextel's requirement regarding the absence of
appraisal rights in connection with the proposed merger was rendered moot.
During the period between the execution of the letter of intent on
September 24 and the finalization of the terms of the merger agreement on or
about November 18, 1994, the per share closing price of the Nextel Common Stock
declined from $22 5/8 to $17, or approximately 25%. As a result of this decline,
Nextel's ability to complete its then pending and proposed transactions,
including the Motorola Transaction, the OneComm Transaction and the Dial Page
Transaction, became subject to uncertainties in light of the Debt incurrence
covenant of the Indentures. See "-- Compliance with Indentures." Based on the
proposed exchange ratio in the merger of .545 of a share of Nextel Common Stock
for each share of AMS Common Stock, the value to be received by AMS stockholders
also declined during this period from $12.33 to $9.27 per share. During the same
period, the per share closing price of AMS Common Stock declined from $11 to
$8 1/4, or approximately 25%. The AMS Board further engaged Salomon Brothers to
provide an assessment to the AMS Board as to the relative attractiveness to
stockholders of the proposed merger versus the transaction contemplated by the
Stock Purchase Agreement. Salomon Brothers was also engaged to render a fairness
opinion on the consideration to be received by AMS or its stockholders in
whichever of the two transactions the AMS Board ultimately determined was more
favorable to the AMS stockholders.
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On December 8, 1994, the AMS Board met with its legal counsel and
representatives of Salomon Brothers to discuss the Stock Purchase Agreement and
the terms of the proposed merger agreement. At this time the Salomon Brothers
representatives made a presentation to the AMS Board on the relative
attractiveness, from a financial point of view, of the two transactions, and
advised the AMS Board that Salomon Brothers' financial analysis suggested that
the value of the consideration to be received by AMS or its stockholders in the
two transactions was approximately equal from a financial point of view. In
addition to the financial presentation made by Salomon Brothers, the AMS Board
considered the following during meetings on December 8 and 9, 1994: (i) the
possibility of further declines in the market value of the Nextel Common Stock;
(ii) the fixed values provided by the Stock Purchase Agreement, which assured to
AMS receipt of not less than $15 million in cash and the Florida SMR Systems;
(iii) the greater liquidity provided by the Nextel Common Stock and the ability
of AMS stockholders to receive such stock in a tax-free transaction; (iv) the
pros and cons of diversification of investment from a company with SMR
operations concentrated in Florida to a company with a nationwide SMR presence;
(v) the possibility that Nextel would sell its holdings of AMS Common Stock to
below 25% of the outstanding fully diluted common equity of AMS to avoid its
obligation (a) to negotiate with AMS the sale of the Florida SMR systems of
Motorola, Dial Page and Saber, (b) to include any Digital Mobile network
constructed by AMS or any of its SMR systems as part of the Digital Mobile
networks operated by Nextel in other jurisdictions or (c) to avail AMS of the
opportunity to purchase system infrastructure and subscriber equipment on the
same basic terms as those made available to Nextel by its vendors; (vi) the
possibility that AMS may be required to compete with the Florida SMR systems of
Motorola, Dial Page and/or Saber in the event those systems were sold by Nextel
to an unaffiliated third party; (vii) whether the MIRS technology then utilized
by Nextel would be competitive with cellular services; (viii) the probability
that Nextel, as an MTA licensee, may be authorized by the FCC to require the
returning of incumbent SMR licensees to frequencies such that Nextel may achieve
contiguous spectrum; (ix) the benefits provided by the Contingent Purchase
Process versus uncertainties as to the tax implications and future value of the
Contingent Purchase Process; (x) the inability of AMS to finance the build out
of a Digital Mobile network in Florida on a stand-alone basis; (xi) possible
dilution that might result to existing AMS stockholders from a sale of the
Florida SMR systems of Motorola, Dial Page and Saber to AMS if the consideration
paid to Nextel was AMS common stock; and (xii) the possibility that Nextel would
not be able to consummate its pending and proposed transactions, including its
proposed transactions with AMS, due to the Debt incurrence covenants of the
Indentures. Based upon the foregoing considerations, the AMS Board determined
that, absent an increase in the exchange ratio for the merger, the transactions
contemplated by the Stock Purchase Agreement were more beneficial to AMS
stockholders than the proposed merger agreement with Nextel. On December 9,
1994, Messrs. Howard and Somers contacted Mr. McAuley of Nextel and discussed
with him the determination of the AMS Board. They further stated that in order
to proceed with the merger, the AMS Board would require that the exchange ratio
for the merger be increased such that AMS stockholders would receive the same
per share value as that which existed on September 18, 1994, the date Mr. Somers
and Mr. McAuley negotiated the exchange ratio of .545 of a share of Nextel
Common Stock for each share of AMS Common Stock (or approximately $13 per share
of AMS Common Stock). Mr. McAuley stated that he would go back to the Nextel
board of directors with their request, but cautioned that he did not believe
AMS' proposal would be acceptable.
On December 14, 1994, Mr. McAuley contacted Mr. Somers and stated that
Nextel would consider an increase of up to 200,000 shares in the number of
shares of Nextel Common Stock that would be issued in the merger, subject to an
equal adjustment downward in the event of an increase in the value of Nextel
Common Stock. Under this proposal, the number of shares issued by Nextel could
decrease or increase by up to 5.4054%, with the midpoint of the range being set
at $20 per share of Nextel Common Stock. The exchange ratio would therefore
increase or decrease by 1% (up to 5.4054%) for each dollar that the Nextel share
price was less than or greater than $20. The proposal was not acceptable to AMS,
and later that day, AMS publicly announced that it had determined to proceed
under the Stock Purchase Agreement rather than proceed with the proposed merger.
Following the decision of the AMS Board to proceed with the Stock Purchase
Agreement, representatives of Nextel and AMS and their respective counsel
updated the proposed proxy statement/prospectus to be circulated to AMS
stockholders in connection with the solicitation of proxies from such
stockholders in
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respect of the Stock Purchase Agreement. Delays were incurred in filing the
proxy statement/prospectus with the Commission due to the need to update certain
financial and other information, as well as issues related to Nextel's other
pending and proposed transactions. On or around February 6, 1994, work on the
proxy statement/prospectus stopped due to, among other things, the need to
obtain audited financial statements from several of the companies with which
Nextel had pending and proposed transactions.
On April 5, 1995, Nextel issued a press release announcing that Craig McCaw
and members of the McCaw family had agreed to invest up to $1.1 billion in
Nextel, and would provide strategic direction to Nextel in focusing on enhanced
two-way radio dispatch services for business users who need integrated wireless
communications. Subsequent to this announcement and a related announcement by
Motorola, the market price of the Nextel Common Stock increased from $13.25 at
the close of business on April 4 to $16.75 at the close of business on April 6,
1995.
On April 13, 1995, during an informal discussion between Mr. McAuley and
Mr. Somers, Mr. McAuley asked if it might be appropriate in light of recent
events and in AMS's interest to reopen merger discussions. Mr. McAuley cautioned
that he had not spoken to his board and that he was not making an offer, but
asked that Mr. Somers consider whether AMS would be interested in discussing a
merger transaction on essentially the same terms as those that were abandoned in
December 1994.
After consulting with Mr. Howard, Mr. Somers subsequently responded to Mr.
McAuley that AMS would be willing to reconsider a merger transaction with Nextel
based on the terms negotiated during the fall of 1994 if the number of shares of
Nextel Common Stock that would be issuable in such a merger were to increase
significantly beyond that offered by Nextel during their previous merger
discussions. Mr. Somers stated that he did not believe the AMS Board would
consider abandoning the transactions contemplated by the Stock Purchase
Agreement unless Nextel issued a number of shares of Nextel Common Stock in a
merger that was in excess of 4,000,000 shares, and that one of AMS' board
members (Mr. Howard) had stated his view that Nextel should issue 4,500,000
shares. In addition, Mr. Somers stressed that he felt that the AMS Board would
not consider a merger transaction if it would result in material additional
delay in AMS's ability to consummate a transaction with Nextel as compared to
the transactions contemplated by the Stock Purchase Agreement, and that any
definitive merger agreement would have to contain a provision that the Stock
Purchase Agreement would be reinstated in the event that an unexpected material
delay in consummating the merger were to occur. Mr. McAuley responded that a
reinstatement of the Stock Purchase Agreement under certain limited
circumstances was acceptable in concept, but that the appropriate number of
shares to be issued in a merger transaction by Nextel was 3,700,000 shares (the
number of shares that were to have been issued in the previous merger
discussions between Nextel and AMS). Subsequently, Messrs. Somers and McAuley
determined that Mr. McAuley should meet with Mr. Howard in person and
concurrently with Mr. Somers by telephone to discuss the number of shares of
Nextel Common Stock that would become issuable in such a merger and the
circumstances under which the Stock Purchase Agreement would be reinstated in
the event the merger was not consummated in a reasonable period of time.
Mr. McAuley and Mr. Willmoth of Nextel met in person with Mr. Howard in
Denver on April 19, 1995, at which time Mr. McAuley initially suggested that he
would be willing to return to the Nextel Board with a merger transaction
pursuant to which Nextel would issue an aggregate of 3,700,000 shares of Nextel
Common Stock. Mr. Howard responded that he believed that AMS stockholders should
receive 4,500,000 shares in any merger transaction between AMS and Nextel.
Messrs. McAuley and Willmoth then discussed with Mr. Howard their respective
views on the merits of their proposals, following which Mr. McAuley asked that
Mr. Howard seek a fairness opinion for the issuance by Nextel of a range of
4,000,000 up to 4,500,000 shares of Nextel Common Stock in a merger transaction.
The request was made by Mr. McAuley to ensure that any transaction brought to
the Nextel Board of Directors would not be subject to any material contingencies
other than receipt of approval from AMS's stockholders. After discussion, Mr.
Howard responded that he would seek the permission of the AMS Board to obtain a
fairness opinion, but reserved the right to determine the number of shares of
Nextel Common Stock for which AMS would request a fairness opinion.
Messrs. Howard, McAuley and Willmoth next discussed possible circumstances
under which the Stock Purchase Agreement would be reinstated in the event the
respective boards of AMS and Nextel were to
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approve the terms of a merger agreement, and the merger contemplated thereby was
not consummated. Mr. McAuley insisted that the Stock Purchase Agreement not be
reinstated in the event that AMS stockholders did not approve the merger. Mr.
Howard stated that he did not view that position as a problem, provided the
Stock Purchase Agreement were reinstated under certain circumstances that were
outside the control of AMS and its stockholders. These circumstances were (i)
the failure of the McCaw Transaction to close within a reasonable period of
time, (ii) the failure of the AMS Board to receive a favorable fairness opinion,
and (iii) the inability of Nextel to consummate a merger with AMS due to the
restrictions of the Nextel Indentures. Messrs. McAuley and Willmoth agreed with
Mr. Howard's "springback" conditions, except that they refused to permit a
reinstatement of the Stock Purchase Agreement upon the failure of AMS to receive
a fairness opinion. Their reasoning was that AMS would receive a fairness
opinion prior to the signing of the merger agreement. While the "bringdown" of
the fairness opinion to the date of this Proxy Statement/Prospectus could be a
condition to the obligation of AMS to proceed with a merger, the failure of such
a bringdown should be at the sole risk of AMS. Mr. Howard, after speaking with
Messrs. Somers and Wedum, agreed with their requirement, subject to a further
condition that the Stock Purchase Agreement be reinstated if the proxy
statement/prospectus relating to the merger were not mailed by June 30, 1995
(thereby reducing the period during which circumstances could change so as to
adversely affect the ability of Salomon Brothers to bring down its opinion).
Messrs. McAuley and Willmoth further stated that Nextel would require that TCI
enter into a voting agreement with Nextel as a condition to Nextel's execution
of a merger agreement with AMS.
On April 20, 1995, Mr. Willmoth and the General Counsel of Nextel, Thomas
Sidman, contacted Mr. Howard and Robert Murray of Baker & Botts, L.L.P., AMS'
outside counsel, to discuss how to proceed. Mr. Sidman stated that Nextel's
management would not request the Nextel Board to consider authorizing and
approving a merger transaction with AMS unless two conditions were met. First,
if AMS wished to indicate to Nextel a number of shares of Nextel Common Stock
that it desired be issued in a merger, then the AMS Board must first obtain a
fairness opinion from its financial advisor with respect to such number of
shares. Second, the form of merger agreement to be signed by Nextel and AMS
would need to be agreed to in advance of the Nextel Board meeting. It was agreed
that if AMS desired to propose a number of shares to be issued by Nextel in a
merger, the AMS Board would first approve the number after receipt of a
favorable fairness opinion from an investment banking firm. It was further
agreed that AMS' and Nextel's lawyers would review the draft of the merger
agreement that had last been circulated before the merger discussions in
December had broken off, with the expectation that minimal changes to its
provisions (apart from the exchange ratio and the "springback" conditions for
the Stock Purchase Agreement) would need to be made in the event the parties
went forward with another merger transaction.
During the evening of April 20, Salomon Brothers was engaged by AMS to
render its opinion to the AMS Board as to the fairness to the public
stockholders of AMS, from a financial point of view, of the exchange in a merger
transaction of 4,200,000 shares of Nextel Common Stock for the outstanding
shares of AMS Common Stock (excluding shares owned by Nextel or held in the
treasury of AMS).
On April 25, 1995, the entire AMS Board met in New York City with AMS'
outside counsel to discuss whether to propose to Nextel a merger transaction on
the same basic terms as those considered by the AMS Board in December 1994,
except with the number of shares of Nextel Common Stock to be issued in the
merger increased from 3,700,000 shares to 4,200,000 shares and the "springback"
conditions for the Stock Purchase Agreement modified to include those discussed
by Mr. Howard with representatives of Nextel. At that time, Salomon Brothers
made a presentation to the AMS Board concerning the fairness, from a financial
point of view, of the consideration to be received by the public holders of the
AMS Common Stock in a merger transaction in which an aggregate of 4,200,000
shares of Nextel Common Stock became issuable to AMS stockholders (other than
Nextel). The AMS Board sought clarification of (i) the methods employed by
Salomon Brothers in deriving comparable public market and private market values,
(ii) the historical relationship of price movements between the Nextel Common
Stock and AMS Common Stock detailed in Salomon's equity trading value analysis,
and (iii) the considerations behind Salomon Brothers's adjustments to AMS's net
POPs in Florida for spectrum and demographic factors. After clarifying the
foregoing for the AMS Board, Salomon Brothers orally advised the AMS Board that,
as of April 25, 1995, the consideration to
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be paid by Nextel in the proposed merger transaction was fair, from a financial
point of view, to the public holders of AMS Common Stock. The representatives of
Salomon Brothers then left the meeting. For a discussion of Salomon Brothers's
presentation and analyses, including without limitation a description of Salomon
Brothers public market and private market analyses, equity trading value
analysis and determination of net POPs, see "Fairness Opinion" below.
The AMS Board next discussed with AMS' counsel the material terms of the
proposed merger agreement negotiated with counsel to Nextel. The AMS directors
noted that the merger agreement was substantially identical to the merger
agreement that had been reviewed by the AMS Board in connection with its merger
deliberations in December 1994. The substantive differences were an increase in
the exchange ratio (which had not yet been proposed to Nextel) and a change in
the conditions under which the merger agreement could be terminated and the
Stock Purchase Agreement reinstated. The first proposed condition permitted AMS
to terminate the merger agreement if Nextel was unable to obtain, by September
15, 1995, any necessary consents from the noteholders under the Nextel
Indentures in order for the proposed merger to be consummated in compliance with
such Indentures. Counsel noted that this condition had been included because the
closing under the Stock Purchase Agreement was not subject to Nextel's receipt
of consents from such noteholders (although it was further noted that it was
doubtful that Nextel would close under the Stock Purchase Agreement in the face
of a potential default under the Nextel Indentures), and that September 15 had
been selected as the "out" date in order to avoid the potential for substantial
delays in closing any merger due to problems encountered by Nextel in obtaining
such noteholder consents. The second proposed condition permitted AMS to
terminate the merger agreement if the McCaw Transaction was not consummated by
September 15, 1995. The AMS directors noted that a primary reason for AMS's
reconsideration of a potential merger with Nextel was the announcement that Mr.
McCaw had agreed, subject to certain conditions, to make a significant
investment in Nextel. In the AMS Board's view, the McCaw investment would
significantly alleviate uncertainties surrounding Nextel's ability to finance
its nation-wide ESMR build out, which perceived uncertainties had occurred
following the withdrawal of MCI from its discussions with Nextel, and would also
provide new strategic direction and a vote of confidence in favor of Nextel's
business prospects. Accordingly, AMS had persuaded Nextel that if the McCaw
Transaction was not consummated within a reasonable period of time (i.e. by
September 15, 1995), AMS should have the ability to terminate the merger
agreement and cause the Stock Purchase Agreement to be reinstated. Finally, the
third proposed condition permitted AMS to terminate the merger agreement if a
proxy statement/prospectus relating to the merger was not mailed to AMS
stockholders by July 31, 1995. This condition was added due to the requirement
of Nextel that the inability of AMS to obtain a "bringdown" of Salomon Brothers'
fairness opinion to the date of the proxy statement/prospectus could not be an
event under which the Stock Purchase Agreement would be reinstated. By requiring
that the proxy statement/prospectus be mailed by July 31, 1995, AMS lessened the
risk that market conditions might change such that Salomon Brothers might be
unable to reissue its fairness opinion for inclusion in the proxy
statement/prospectus.
The AMS Board then discussed whether AMS should enter into the merger
agreement with Nextel, and whether the exchange ratio of 0.62 was fair to, and
in the best interests of, the stockholders of AMS. For the reasons set forth
under "-- Recommendation of the AMS Board; Reasons of AMS for Engaging in the
Merger," the AMS Board determined that a merger with an exchange ratio of 0.62
of a share of Nextel Common Stock for each outstanding share of AMS Common Stock
(subject to certain possible adjustments set forth in the merger agreement) was
fair to, and in the best interest of, the AMS stockholders.
The AMS Board then discussed the likelihood of closing a merger transaction
with Nextel. It was agreed that, given the proposed McCaw Transaction, such a
likelihood was relatively high. The AMS Board also discussed the consequences of
the failure to consummate the transaction contemplated by such merger agreement.
The Board believed that if the Stock Purchase Agreement were reinstated
following a termination of the proposed merger agreement, it was likely that the
AMS Common Stock would continue to trade at approximately 7/22 of the trading
price of the Nextel Common Stock, which was reflective of the 7/22 ratio
provided for in the Contingent Purchase Process. It was noted in this regard
that since the execution of the Stock Purchase Agreement in August 1993, the AMS
Common Stock had traded roughly in this range (with the exception of the period
during the latter half of 1994 when it was public knowledge that AMS and Nextel
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were holding merger discussions). Following discussion, the AMS Board determined
to propose to Nextel that, in the event the Stock Purchase Agreement were
reinstated following a termination of the proposed merger agreement, the 7/22
ratio provided for in the Contingent Purchase Process should thereupon be
adjusted upward to AMS's proposed merger exchange ratio of 0.62 share of Nextel
Common Stock for each share of AMS Common Stock. The AMS Board believed that
such an adjustment might reduce any negative impact on the price of the AMS
Common Stock in the event a merger agreement were entered into with Nextel and
then terminated under circumstances that resulted in a reinstatement of the
Stock Purchase Agreement.
Messrs. Howard and Somers then called Mr. McAuley, who was waiting for
their call in anticipation of a Nextel Board meeting. Mr. Howard stated that the
AMS Board had approved an exchange ratio of 0.62. Mr. McAuley was then advised
of the request of the AMS Board that the 7/22 ratio contained in the Contingent
Purchase Process be adjusted to the 0.62 ratio approved by the AMS Board for the
merger agreement, such adjustment to take effect in the event the Stock Purchase
Agreement were reinstated following a termination of the merger agreement. Mr.
McAuley stated that he would recommend to the Nextel Board that it enter into
the merger agreement at the exchange ratio approved by the AMS Board, but that
he was unwilling to recommend that the Nextel Board approve the proposed
adjustment to the Contingent Purchase Process. Mr. McAuley stated, however, that
he would present AMS's proposed amendment to the Contingent Purchase Process to
the Nextel Board.
Mr. McAuley subsequently called Mr. Howard and advised him that the Nextel
Board had considered and rejected the proposed change to the Contingent Purchase
Process. Mr. Howard stated that the AMS Board would reconvene to discuss whether
it wished to proceed, and that he would advise Mr. McAuley of the outcome. The
AMS Board was then reconvened to consider whether to proceed with the merger
agreement without the proposed adjustment to the Contingent Purchase Process.
After deliberations the AMS Board decided to approve the merger agreement
without the proposed adjustment to the Contingent Purchase Process. Mr. McAuley
was advised of the determination of the AMS Board, and Mr. McAuley responded
that the Nextel Board had approved the merger agreement with an exchange ratio
of 0.62. The Merger Agreement was executed later that evening.
During the entire period described herein, AMS did not formally solicit
offers from parties not otherwise described herein. However, prior to its
negotiations with Nextel with respect to the Letter Agreement, AMS had informal
talks from time to time with other companies in the SMR industry concerning
possible combinations. AMS also held preliminary discussions with a large
telecommunications company with interests in the SMR industry concerning a
possible strategic investment in AMS. Those informal talks and preliminary
discussions proved inconclusive. None of these discussions resulted in the
communication to AMS of any offer or definitive terms for a proposed
transaction.
Except as otherwise noted herein, AMS was not assisted by any third party
in evaluating offers for AMS or shares of AMS Common Stock or in valuing AMS.
REASONS OF NEXTEL FOR ENGAGING IN THE MERGER
In reaching its decision to approve the Merger Agreement and the Merger,
the Nextel Board considered the presentations by Nextel's management and its
legal advisors and other information available to it concerning AMS and
considered the factors discussed below, as well as other factors that the Nextel
Board did not believe to be material in reaching such determinations.
The Nextel Board believes that the ability to offer advanced wireless
communications services in major markets throughout the United States, including
Florida, will be beneficial to obtaining certain key objectives of Nextel's
business plan. One of the objectives of Nextel's business plan is the
establishment of a nationwide standardized wireless communications system
composed of separate Digital Mobile networks, operated by Nextel, located in
various major metropolitan markets across the United States. The Nextel Board
believes that the Merger could assist Nextel in achieving this objective.
The Nextel Board also considered the Merger to be preferable to the Stock
Purchase Agreement because consummation of the Merger would permit Nextel to
plan and construct a Digital Mobile network in Florida
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without facing the risks associated with rationalizing its current and
prospective Florida SMR properties with its equity ownership in AMS. In this
regard, the Nextel Board considered the potential difficulties that could arise
upon the consummation of the Dial Page Transaction and the Motorola Transaction
(and the current ownership by Nextel of Florida SMR properties formerly held by
Saber) as a result of the requirement of the Stock Purchase Agreement that so
long as Nextel held at least 25% of the outstanding common stock of AMS, it
would not, directly or indirectly, own, operate, manage, control or conduct any
Digital Mobile network or other SMR wireless operations in Florida or hold any
FCC licenses relating thereto, other than through its ownership of an equity
interest in AMS. Although Nextel and AMS had agreed, in the context of
amendments made to the Stock Purchase Agreement in connection with the prior
merger transaction proposal, to extend the period of time available to reach
agreement on the terms for combining Nextel's other actual and prospective
Florida SMR properties, Nextel recognized that differences over issues of
valuation, medium of payment and like matters could arise and remain unresolved.
Although a variety of actions could have been taken by Nextel to comply with its
obligations under the Stock Purchase Agreement, including arranging for the
disposition of such other Florida SMR properties or reducing Nextel's equity
interest in AMS below the 25% level, such actions could have been undesirable to
the stockholders of AMS, the stockholders of Nextel, or both groups.
Additionally, causing AMS to comply with the obligations imposed on certain of
Nextel's subsidiaries under the Nextel Indentures, or engaging in intercompany
transactions with AMS if AMS was classified under the Nextel Indentures as not
subject to such obligations, could have presented significant difficulties for
Nextel, AMS and their respective stockholders. Accordingly, the Nextel Board
believed the Merger to be preferable to the Stock Purchase Agreement because,
upon consummation of the Merger, AMS would be a wholly owned subsidiary of
Nextel whose activities and relations with Nextel and its other wholly owned
subsidiaries could be structured and changed with considerably more ease and
flexibility than if AMS were instead only a majority owned subsidiary of Nextel,
as contemplated under the Stock Purchase Agreement. Finally, the Nextel Board
considered the advantages of the Merger in eliminating the potential for ongoing
dealings with or involving the interests of the minority stockholders of AMS as
well as dispensing with certain administrative concerns (e.g., filing of
separate tax returns and reports under the Exchange Act) that would not exist if
AMS were a wholly owned subsidiary of Nextel.
The Nextel Board also believes that the combined SMR frequency positions of
Nextel in Florida after consummation of the Merger, the Motorola Transaction and
the Dial Page Transaction would greatly simplify the build out process and give
Nextel the ability to provide Digital Mobile network services in Florida on a
more expedited basis. The Nextel Board views the Florida market as one of the
most attractive markets for its Digital Mobile network service offering and
believes that time to market is an important consideration. In addition, the
Nextel Board believes that the ability to add significantly to the overall
population covered by Nextel or its subsidiaries' SMR licenses is attractive to
its existing stockholders and justifies the ownership dilution that Nextel
stockholders will incur by reason of the issuance of shares of Nextel Common
Stock in connection with the Merger.
RECOMMENDATION OF THE AMS BOARD; REASONS OF AMS FOR ENGAGING IN THE MERGER
The AMS Board has determined that the Merger is fair to, and in the best
interests of, AMS and its stockholders (other than Nextel). Accordingly, the AMS
Board has unanimously approved and declared advisable the Merger Agreement and
the Merger, and unanimously recommends that holders of AMS Common Stock vote
"FOR" the Merger Proposal.
In reaching its determination that the Merger is fair to, and in the best
interests of, AMS and its stockholders (other than Nextel) and in reaching their
decision to approve the Merger Agreement and recommend the Merger to the holders
of the AMS Common Stock for approval, the AMS Board considered, among other
things, the matters listed below:
(i) The oral opinion of Salomon Brothers, rendered to the AMS Board on
April 25, 1995, that the consideration to be paid by Nextel in the Merger
is fair, from a financial point of view, to the public holders of the AMS
Common Stock. In so doing, the AMS Board considered the presentation given
by Salomon Brothers to the AMS Board on April 25, 1995, in connection with
the delivery of its oral opinion, which included a discussion of the
methodologies used by Salomon Brothers. Salomon Brothers
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has confirmed, as of the date of this Proxy Statement/Prospectus, its oral
opinion by delivering to the AMS Board its written opinion, dated the date
hereof, a copy of which is included in this Proxy Statement/Prospectus as
Appendix B. Holders of AMS Common Stock are urged to review such written
opinion of Salomon Brothers as well as the summary of such opinion set
forth below under the caption "-- Fairness Opinion."
(ii) The AMS Board viewed the proposed McCaw Transaction as a
significant factor in its decision to approve the Merger and to recommend
adoption of the Merger Agreement to AMS stockholders. The AMS Board had
previously ended merger discussions with Nextel in December 1994, due in
part to the falling price of the Nextel Common Stock and uncertainties
surrounding Nextel's ability to continue to finance the build out of its
Digital Mobile networks following the breakoff of its strategic discussions
with MCI in September 1994. The downward movement in Nextel's stock price
had reversed subsequent to the announcement of the McCaw Transaction and,
if consummated, the AMS Board believed the McCaw Transaction would
significantly alleviate the perceived uncertainties surrounding Nextel's
future ability to access necessary financing sources for the completion of
the build out of its Digital Mobile networks. The AMS Board also believed
that the McCaw Transaction sent a positive message to the capital markets
concerning Nextel's business plan and prospects because of Craig McCaw's
status as a major player in wireless communications. The AMS Board also
believed that the McCaw Transaction substantially increased the likelihood
that Nextel would be able to obtain all required consents under the
Indentures from its public noteholders in order to close its pending
transactions, including the Merger, the Motorola Transaction, the OneComm
Transaction and the Dial Page Transaction. Given the importance it placed
on the McCaw Transaction, the AMS Board retained the ability to terminate
its obligations under the Merger Agreement and to reinstate the Stock
Purchase Agreement in the event the McCaw Transaction did not close in a
reasonable period of time.
(iii) The AMS Board and its management believe that AMS' future
competitive position and ability to generate earnings is largely dependent
on its ability to construct and implement a Digital Mobile network in its
Florida markets. The Board recognized that, absent a business transaction
with Nextel, it was highly unlikely that AMS would be able to build out
such a network due to the need for additional channel capacity and the
present inability of AMS to obtain financing for the acquisition of such
channels or the subsequent design and construction of a Digital Mobile
network. In determining to proceed with the Merger, the AMS Board
recognized that most of the competing channel capacity in its Florida
markets was owned by MCF, Motorola or Dial Page. Absent a transaction with
Nextel, AMS would have difficulty in adding to its channel capacity. In
evaluating the Merger versus the Stock Purchase Transaction, the AMS Board
recognized that Nextel would be required under the Stock Purchase Agreement
to negotiate the sale of the Motorola and Dial Page Florida SMR systems
(once they were acquired by Nextel) to AMS within 18 months after the
Initial Closing. If agreement could not be reached on the terms of such a
sale within that period, Nextel would then have the option to either
dispose of those systems or reduce its holdings in AMS to below 25% of the
outstanding shares of AMS Common Stock. If Nextel chose the latter, AMS
would be competing with Nextel, and AMS would no longer have the right to
participate in Nextel's nation-wide roaming arrangements. Consummating the
Merger with Nextel would remove the financial uncertainty to AMS of (i) how
to finance any acquisition of the Motorola and Dial Page Florida SMR
systems from Nextel, if agreement could be reached as to value, and (ii)
the possibility that AMS would be unable to build a Digital Mobile network
and would face competition from Nextel due to a decision by Nextel to
reduce its holdings in AMS to below 25% of the outstanding shares of AMS
Common Stock. The AMS Board also considered the possibility that given the
scope of Nextel's nation-wide build out plans and its sources of financing,
Nextel might focus initially on markets in which it had wholly owned
subsidiaries.
(iv) The AMS Board recognized that there are impediments to the
ability of Nextel to consummate both the Merger and the transactions that
were contemplated by the Stock Purchase Agreement as well as Nextel's
pending transactions with Motorola, OneComm and Dial Page due to the
restrictions contained in the Indentures. See "-- Compliance with
Indentures." However, the AMS Board believes that due to Nextel's existing
Digital Mobile networks and SMR systems, and the pending transactions of
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Nextel, Nextel may be the only significant buyer of large SMR systems for
the foreseeable future. Accordingly, the AMS Board determined that the
Merger presents the AMS stockholders with the best opportunity to receive a
substantial premium, and a fair price, for their shares of AMS Common
Stock. In this regard, the AMS Board recognized that the exchange ratio of
0.62 of a share of Nextel Common Stock for each share of AMS Common Stock
constituted a 104% premium over the closing sale price on the Nasdaq NM of
the AMS Common Stock of $4 3/4 on April 25, 1995 (the date the AMS Board
met to consider and approve the terms of the Merger Agreement), based on
the closing sales price of the Nextel Common Stock on the Nasdaq NM of
$15 5/8 on the same date.
(v) The AMS Board considered the advantages and disadvantages to the
holders of the AMS Common Stock of acquiring an investment in the Nextel
Common Stock in a transaction that is expected to be tax-free to the
current holders of the AMS Common Stock as a result of the Merger as
opposed to maintaining an investment in the AMS Common Stock (whether or
not the transactions contemplated by the Stock Purchase Agreement are
completed) and determined that, based on the Exchange Ratio of 0.62 of a
share of Nextel Common Stock per share of AMS Common Stock provided for by
the Merger Agreement, the Nextel Common Stock likely offered a superior
investment opportunity. In reaching this conclusion, the AMS Board believed
that an investment in the Nextel Common Stock would offer current holders
of AMS Common Stock greater liquidity than a continued investment in the
AMS Common Stock and would effectively diversify the investment of current
AMS stockholders from an entity whose SMR operations are concentrated in
the State of Florida to one whose assets are located virtually throughout
the United States including in all 30 of the top 30 metropolitan
statistical areas in the United States.
(vi) The AMS Board considered that AMS has incurred substantial losses
since its inception and would likely continue to report operating losses
for the foreseeable future. The AMS Board believed that unless AMS
consummated the Merger with Nextel (or the transactions that were
contemplated by the Stock Purchase Agreement), AMS would most likely
default under the KOP Credit Agreement (as defined below), in which case it
would be necessary for AMS to seek to restructure its obligations under the
KOP Credit Agreement (which would further limit its opportunity to obtain
the required financing to construct a Digital Mobile network) and/or seek
financing from a strategic partner. No discussions have been held with KOP
(as defined below) concerning such a restructuring or with any possible
strategic partner. The AMS Board further considered the unwillingness of
TCI to provide further debt or equity financing to AMS. See "AMERICAN
MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and
Capital Resources."
FAIRNESS OPINION
General. AMS has retained Salomon Brothers to render an opinion to the AMS
Board in connection with the Merger. Salomon Brothers rendered its oral opinion
to the Board of Directors of AMS on April 25, 1995 to the effect that, as of
that date, the consideration to be paid by Nextel in the Merger was fair, from a
financial point of view, to the public holders of AMS Common Stock. Salomon
Brothers has confirmed such oral opinion by delivering to the AMS Board a
written opinion dated the date of the Proxy Statement/Prospectus. A copy of
Salomon Brothers' written opinion is included as Appendix B in this Proxy
Statement/Prospectus and sets forth the assumptions made, matters considered and
limits on the review undertaken. The summary of the opinion of Salomon Brothers
set forth in this Proxy Statement/Prospectus is qualified in its entirety by
reference to the full text of the opinion. Holders of AMS Common Stock are urged
to read the opinion in its entirety.
Salomon Brothers' opinion is directed only to the fairness, from a
financial point of view, of the consideration to be received by the public
holders of AMS Common Stock in the Merger and does not constitute a
recommendation as to how any stockholder of AMS should vote with respect to the
Merger or as to any other matter. AMS, the AMS Board and AMS stockholders have
the ultimate responsibility to decide whether it is appropriate and reasonable
to effect the Merger.
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Salomon Brothers is a nationally recognized investment banking firm which
provides economic and financial services in connection with a wide range of
business transactions. As part of its business, Salomon Brothers provides
investment banking and financial advisory services in various matters, including
valuation of companies and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and other
purposes. Salomon Brothers was retained by the AMS Board based on its expertise
in the valuation of companies as well as its familiarity with AMS' business.
Salomon Brothers is not affiliated with AMS, TCI or Nextel. Salomon
Brothers has previously rendered certain investment banking and financial
advisory services to AMS, TCI and Nextel, for which Salomon Brothers received
customary compensation, including prior work for AMS relative to other possible
transactions with Nextel, co-managing six public offerings of securities for TCI
since August 1991, co-managing three public offerings of securities for Nextel
since January 1992 and providing strategic advisory services to Nextel in and
around January 1992 on another transaction. Salomon Brothers is a full service
securities firm and, in the course of its normal trading activities, Salomon
Brothers may from time to time effect transactions and hold positions in the
securities of AMS, TCI and Nextel for its own account and accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
Salomon Brothers was not requested to assist in, and had no role in, the
determination of the consideration to be received by the public stockholders of
AMS in the Merger. Such consideration was determined solely through negotiations
between AMS and Nextel.
Salomon Brothers' opinion to the AMS Board concludes, based upon and
subject to each of the items discussed therein, that the consideration to be
received by the public stockholders of AMS in the Merger is fair, from a
financial point of view. In connection with rendering its opinion, Salomon
Brothers reviewed and analyzed, among other things, the following: (i) the
Merger Agreement and certain of the other documents and agreements relating to
the Merger; (ii) this Proxy Statement/Prospectus; (iii) certain internal
information, primarily financial in nature, including financial forecasts,
prepared by the management of AMS; (iv) the audited financial statements for AMS
for each of the fiscal years ended June 30, 1991, 1992, 1993 and 1994 and the
unaudited interim financial statements and Current Reports on Form 8-K since the
most recent audited financial statements; (v) the audited financial statements
for Nextel for each of the fiscal years ended March 31, 1991, 1992, 1993 and
1994 and the 9-month transition period ended December 31, 1994 and the unaudited
interim financial statements and Current Reports on Form 8-K since the most
recent audited financial statements; (vi) certain publicly available
information, including certain filings made under the Exchange Act and the
Securities Act with respect to AMS, Nextel and certain other companies that
Salomon Brothers believed to be generally comparable to AMS and Nextel and
certain information concerning the trading markets for their respective
securities; (vii) certain publicly available information concerning the nature
and terms of certain other transactions that Salomon Brothers considered
relevant to its inquiry; and (viii) such other information, financial studies,
analyses and financial, economic and market criteria which Salomon Brothers
deemed relevant. Salomon Brothers also met with certain officers and employees
of AMS to discuss the foregoing as well as other matters Salomon Brothers
believed relevant to its inquiry. Salomon Brothers had limited discussions with
members of senior management of Nextel and received limited financial
information from Nextel. Salomon Brothers also considered the anticipated
financial and operating impact on Nextel, on a pro forma basis, of the other
pending transactions described elsewhere in this Proxy Statement/ Prospectus,
including the pending McCaw Transaction. The impact of these pending
transactions is reflected in the equity trading value analysis and public market
value analysis methodologies which were employed by Salomon Brothers.
In its review and analysis and in arriving at its opinion, Salomon Brothers
assumed and relied upon the accuracy and completeness of all of the financial
and other information reviewed by it for the purpose of its opinion. Salomon
Brothers did not assume any responsibility for independent verification of any
of such financial and other information. With respect to the financial
forecasts, Salomon Brothers assumed that they reasonably reflect the best
currently available estimates and judgments of the management of AMS as to the
future financial performance of AMS. Salomon Brothers did not make or obtain any
independent evaluations
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or appraisals of any of the properties or facilities of AMS or Nextel or assume
any responsibility to do so and was not furnished with any such valuations or
appraisals.
In conducting its analysis and arriving at its opinion, Salomon Brothers
also considered such financial and other factors as it deemed appropriate under
the circumstances, including, among others, the following: (i) the historical
and current financial position and results of operations of AMS and Nextel; (ii)
the business prospects of AMS and Nextel; (iii) the historical and current
market for AMS Common Stock and Nextel Common Stock and for other securities of
certain other companies that Salomon Brothers believed to be generally
comparable to AMS and Nextel; and (iv) the nature and terms of certain other
transactions that Salomon Brothers believed to be relevant. Salomon Brothers
also took into its assessment general economic, market and financial conditions
as well as its experience in connection with similar transactions and securities
valuations generally. Salomon Brothers' opinion is necessarily based upon
conditions as they existed and could be evaluated on the date thereof. In
preparing its opinion, Salomon Brothers (i) assumed that none of the debt of
Nextel, or Nextel pro forma for the pending transactions described elsewhere in
this Proxy Statement/ Prospectus, will be in default or accelerated as a result
of the Merger or any of such other pending transactions, and (ii) assumed that
any arrangements among Nextel and the holders of any such debt to permit the
consummation, in compliance with the Indentures, of the Merger, or any of such
pending transactions, will not have a material adverse effect on the value of
the consideration to be received by the stockholders of AMS in connection with
the Merger. In preparing its opinion, Salomon Brothers also assumed that the
Merger would be a tax-free transaction. Salomon Brothers did not provide any
updated analyses to the AMS Board after April 25, 1995.
The following is a summary of significant analyses performed by Salomon
Brothers in connection with rendering its oral opinion to the AMS Board on April
25, 1995 (the "Salomon Brothers Report").
Equity Trading Value Analysis. Salomon Brothers reviewed the history of
the trading prices of AMS Common Stock and Nextel Common Stock in relation to
each other, and the relationship between price movements of AMS Common Stock and
Nextel Common Stock. The Salomon Brothers Report included charts setting forth
historical trading ratios (the closing price of AMS Common Stock divided by the
closing price of Nextel Common Stock) during the period from and including
January 4, 1993, through and including April 21, 1995. The average ratio for
that period was approximately 0.36. During such period, the high of such ratio
was approximately 0.53, and the low was approximately 0.19.
Public Market Analysis. Salomon Brothers reviewed and compared the
financial and market performance of AMS with the following group of three
publicly traded digital SMR companies: Nextel; OneComm; and Dial Page (the
"Comparable Group"). Salomon Brothers examined certain publicly available
financial data of the Comparable Group, including fully diluted equity market
capitalization, firm value (defined as fully diluted equity market
capitalization adjusted by adding long-term debt and subtracting cash,
marketable securities and estimated cash proceeds from the exercise of certain
stock options, less net plant, property and equipment), and net POPs represented
by the interests owned. Salomon Brothers then applied multiples of firm value to
net POPs for the Comparable Group to AMS' estimated net POPs of 1.3 million as
of April 21, 1995, resulting in an equity value reference range per share of AMS
Common Stock of $0.66 to $1.46. When compared with the consideration to be
received in the Merger (based on the closing market price per share of Nextel
Common Stock on April 21, 1995 of $15.50), this equity value reference range
implied an exchange ratio of 0.043 to 0.094.
Private Market Value Analysis. Salomon Brothers also reviewed the
consideration paid or proposed to be paid in other acquisitions that Salomon
Brothers considered to be comparable to the Merger. Specifically, Salomon
Brothers reviewed the following acquiror/target transactions: Dial Page/Transit
and Advanced Mobile Communications; Nextel/QTI-AMI West; Dial Page/Advanced
Radio Communications; Nextel/PowerFone; Nextel/OneComm; and Nextel/Dial Page.
The analysis considered the multiple of firm value to net POPs in each case as
of three specific dates: as of the public announcement date; as of April 21,
1995; and as of the applicable closing date (if the transaction had been
consummated). Salomon Brothers then applied certain of these multiples to AMS'
estimated net POPs of 1.3 million as of April 21, 1995, resulting in an equity
value reference range per share of AMS Common Stock of $0.16 to $1.67. When
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compared with the consideration to be received in the Merger (based on the
closing market price per share of Nextel Common Stock on April 21, 1995 of
$15.50), this equity value reference range implied an exchange ratio of 0.011 to
0.108.
Discounted Cash Flow Analysis. Using a discounted cash flow analysis,
Salomon Brothers estimated the present value of the future cash flows that AMS
could produce over a ten-and-one-half-year period, under various assumptions, if
AMS were to operate on a stand-alone basis, without giving effect to any
operating or other efficiencies pursuant to the Merger, in accordance with
management's forecasts and certain variants thereof. The forecasts provided by
AMS management assumed that, if the Merger is not consummated, AMS will not
implement a Digital Mobile network in its Florida markets. Salomon Brothers set
forth certain equity market value reference ranges for AMS based upon the sum of
(i)(a) the aggregate discounted value (using various discount rates ranging from
10% to 14%) of the ten-and-one-half-year unleveraged free cash flows of AMS,
plus (b) the discounted value (using various discount rates ranging from 10% to
14%) of (1) the final year's projected earnings before interest, taxes,
depreciation and amortization ("EBITDA") multiplied by (2) numbers representing
various terminal or exit multiples (ranging from 5x to 7x), plus (ii) certain
corporate adjustments made by subtracting long-term debt and adding cash and
marketable securities. This analysis resulted in an equity value reference range
per share of AMS Common Stock, as set forth in the Salomon Brothers Report, of
$0.43 to $1.17. When compared with the consideration to be received in the
Merger (based on the closing market price per share of Nextel Common Stock on
April 21, 1995 of $15.50), this equity value reference range implied an exchange
ratio of 0.028 to 0.076.
Determination of Net POPs. For purposes of the foregoing analyses, Salomon
Brothers allocated total persons ("POPs") on a market-by-market basis (defined
as Rural Statistical Areas and Metropolitan Statistical Areas) based on the
relative 800 MHz SMR channel positions for AMS, Nextel, OneComm, Dial Page and
Motorola, adjusted for spectrum and demographic considerations. The analysis
resulted in adjusted POPs for each company in each market ("net POPs").
Other Matters. In arriving at its oral opinion delivered to the Board of
Directors of AMS at its April 25, 1995 meeting and in presenting the Salomon
Brothers Report at that meeting, Salomon Brothers performed certain financial
analyses, the material portions of which are summarized above. In rendering its
written opinion, Salomon Brothers performed updated valuation analyses also
using the methodologies described above, and, although these updated valuation
analyses resulted in different implied equity value references per share of AMS
Common Stock, Salomon Brothers has confirmed, by delivery of its written
opinion, that, as of the date of this Proxy Statement/Prospectus, the
consideration to be paid by Nextel in the Merger is fair, from a financial point
of view, to the holders of AMS Common Stock. In its overall financial analysis,
Salomon Brothers attached the most weight to its equity trading value analysis
and public market value analysis because, in Salomon Brothers' judgment, these
methodologies are most relevant to a stock-for-stock acquisition between two
corporations in this industry. Salomon Brothers used the private market value
analysis to support the range of valuations derived from the equity trading
value and public market value analyses. Salomon Brothers attached least weight
to its discounted cash flow analysis because the AMS financial forecasts assumed
that, if the Merger is not consummated, AMS' SMR systems would continue to be
operated in its Florida markets using traditional analog technology.
The summary set forth above does not purport to be a complete description
of Salomon Brothers' analyses. The preparation of a fairness opinion is not
susceptible to partial analysis or summary descriptions. Salomon Brothers
believes that its analyses and the summary set forth above must be considered as
a whole and that selecting portions of its analyses could create an incomplete
view of the process underlying the analyses set forth in the opinion and the
Salomon Brothers Report. In performing its analyses, Salomon Brothers made
numerous assumptions with respect to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of AMS and Nextel. The historical trading values referenced
in the Salomon Brothers Report do not purport to be indicative of actual future
trading values of AMS Common Stock or Nextel Common Stock, which may be
significantly more or less than historical levels. Actual trading values will
depend upon several factors, including events affecting the digital SMR industry
generally, general economic, market and interest rate conditions and other
factors which generally influence the price of securities. No company or
transaction used in the comparable
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company analysis or comparable acquisition analysis summarized above is
identical to AMS, Nextel or the contemplated Merger. Accordingly, any such
analysis of the value of the Merger involves complex considerations and
judgments concerning differences in the potential financial and operating
characteristics of the comparable companies and other factors in relation to the
trading and acquisition values of the comparable companies and publicly
announced transactions.
As described above, Salomon Brothers' opinion was one of many factors taken
into consideration by the AMS Board in making its determination to recommend the
Merger. The opinion of Salomon Brothers does not address the relative merits of
the Merger as compared to any alternative business strategies that might exist
for AMS or the effect of any other transaction in which AMS might engage.
AMS has agreed to pay Salomon Brothers $150,000 for its investment banking
services in connection with rendering its opinion. AMS has also agreed to
reimburse Salomon Brothers for all reasonable fees and disbursements of Salomon
Brothers' counsel and all of Salomon Brothers' reasonable travel and other
out-of-pocket expenses arising out of Salomon Brothers' engagement. AMS has also
agreed to indemnify Salomon Brothers and its officers, employees and agents
against certain liabilities incurred in connection with its engagement. In
addition, within the past two years, AMS has agreed to pay Salomon Brothers
$675,000 plus all reasonable fees and out-of-pocket expenses for its investment
banking services rendered in connection with two prior engagements involving
potential transactions with Nextel (of which AMS has paid Salomon Brothers
$300,000 plus expenses as of June 20, 1995).
COMPLIANCE WITH INDENTURES
Each of the Nextel Indentures includes substantially identical provisions
that would not permit Nextel to consummate the acquisition of AMS in a merger
transaction such as the Merger if upon completion of the transaction Nextel
would be unable to incur at least $1.00 of additional "Debt" (as defined below),
other than certain permitted Debt, under the Debt incurrence provisions of the
Nextel Indentures. In order to incur Debt (other than permitted Debt), the
obligor, at the time of the incurrence, either (i) must be generating operating
cash flow at an annualized level that meets or exceeds a specified ratio set by
reference to the obligor's consolidated Debt or (ii) must have a ratio of Debt
to its Total Market Capitalization (as defined below), expressed as a
percentage, of not greater than 30%. Historically, Nextel has not generated, nor
is it presently anticipated that at the time of the Merger it would be
generating, operating cash flow at or above the required annualized levels as
set forth in (i) above. Accordingly, in order for the Merger to be permitted
under the terms of the Nextel Indentures, on a pro forma basis taking into
account such Merger, Nextel must have a Debt to Total Market Capitalization
ratio, expressed as a percentage, of not greater than 30%.
The OneComm Indenture and the Dial Call Indentures include substantially
identical provisions that would apply to the Merger if the OneComm Transaction
and/or the Dial Page Transaction, respectively, is consummated prior to the
Merger. It is currently anticipated that the Merger will be effected prior to
the consummation of the Dial Page Transaction.
Under the terms of the Indentures, the terms Debt and Total Market
Capitalization have the following meanings:
"Debt" of an obligor includes (i) all obligations for money borrowed;
(ii) all obligations evidenced by bonds, debentures, notes or other similar
instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses; (iii) all reimbursement
obligations with respect to letters of credit, bankers' acceptances or
similar facilities; (iv) all obligations 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); (v) all
capital lease obligations; (vi) the maximum fixed redemption or repurchase
price of redeemable stock at the time of determination plus accrued but
unpaid dividends; (vii) all obligations under interest rate swap or similar
agreements or foreign currency hedge, exchange or similar agreements;
(viii) vendor financing debt; and (ix) all obligations of the type referred
to in clauses (i) through (viii) of another person and all dividends of
another person the payment of which, in either case, such obligor has
guaranteed or is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise.
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"Total Market Capitalization" of an obligor means, as of any day of
determination, the sum of (i) the consolidated Debt of such obligor and its
subsidiaries that are designated as Restricted Subsidiaries (as defined in
the Indentures) for purposes of the applicable Indenture on such day, plus
(ii) the product of (a) the aggregate number of outstanding primary shares
of common stock of such obligor on such day (not including any options or
warrants for, or securities convertible or exchangeable into, shares of
common stock of such obligor) and (b) the average closing price of such
common stock over the 20 consecutive trading days immediately preceding
such day, plus (iii) the liquidation value of any outstanding shares of
preferred stock of such obligor on such day.
Based on the amount of Debt of Nextel expected to be outstanding and the
number of shares of Nextel Common Stock expected to be outstanding as of an
assumed closing date of the Merger of July 31, 1995 (giving pro forma effect to
the issuance of shares of Nextel Common Stock in the Merger and in the McCaw
Transaction (which is a condition precedent to AMS's obligation to consummate
the Merger) but not in any of Nextel's other pending transactions), the pro
forma Debt to Total Market Capitalization ratio of Nextel immediately upon
consummation of the Merger would be greater than 30% unless the per share
average closing price of Nextel's Common Stock (as calculated in accordance with
the Indentures) for the 20 consecutive trading days immediately prior to the
Effective Time of the Merger (the "20-day average price") is at least $24.63
(which 20-day average price would be reduced to approximately $17.22 assuming
the Motorola Transaction and the OneComm Transaction are completed prior to the
Merger). On June 26, 1995, the 20-day average price of Nextel Common Stock on
the Nasdaq NM was $14.33. If the required Debt to Total Market Capitalization
ratio would not be met at the Effective Time of the Merger, Nextel could not
proceed with the Merger without obtaining the consent of the holders of a
majority of the outstanding principal amount of the notes issued under each of
the Nextel Indentures or Nextel taking other actions to comply with the
requirements of the Nextel Indentures.
Nextel currently anticipates that it will address the requirements of the
Indentures through the solicitation of consents from holders of notes issued
under relevant Indentures to modify or waive the requirements of applicable
provisions of such Indentures. If such consents are not obtained, Nextel may
consider various actions that, if taken, could allow the Merger to proceed
without triggering default under the Indentures. These actions may include
engaging in transactions that have the effect of adjusting the Debt to Total
Market Capitalization ratio to a level below the 30% maximum permitted by the
Indentures. Actions that could have such an effect include, for example,
reducing the outstanding Debt of Nextel and completing transactions that result
in an increase in the Total Market Capitalization. Any solicitation of consents
may be taken separately or in combination with any such other actions.
Based upon (i) the assumptions above regarding the amount of Debt of Nextel
projected to be outstanding as of an assumed July 31, 1995 closing date of the
Merger, (ii) the number of shares of Nextel Common Stock projected to be
outstanding on such date and giving pro forma effect to the Merger and the McCaw
Transaction (but not assuming completion of any of the Motorola Transaction, the
OneComm Transaction and the Dial Page Transaction or any increase in Nextel's
Total Market Capitalization resulting from the related issuances of Nextel
Common Stock or any resulting increase in the number of outstanding shares of
Nextel Common Stock connected with such transactions), and (iii) an assumed
average closing price of Nextel Common Stock of $15.50 per share, it is
estimated that the aggregate amount of Debt reduction necessary to allow the
Merger to be completed in compliance with the Nextel Indentures would be
approximately $382,500,000 (or approximately $130,400,000 assuming the Motorola
Transaction and the OneComm Transaction have also been completed, in each case
prior to the Merger).
Such Debt reduction could be achieved through the repurchase of notes
issued pursuant to the Nextel Indentures in negotiated or open market purchase
transactions for cash or in exchange for equity securities of Nextel (which, in
the case of exchanges for equity securities of Nextel under circumstances that
would result in an increase in the aggregate number of shares of Nextel Common
Stock to be issued in the Merger, would also result in a concurrent increase in
Total Market Capitalization for purposes of the Debt to Total Market
Capitalization ratio) and the repayment of such existing Debt. If Nextel's or
AMS' available cash is utilized (to the extent such cash is contractually
permitted to be so utilized) to achieve such Debt reduction or for other related
purposes, such action would decrease the amount of cash available to Nextel for
use to finance
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the build out of the Digital Mobile networks. If (assuming the consummation of
the Merger) Nextel chose not to or was unable to effectively reverse such Debt
reduction, there would be a corresponding increase in the amount of additional
financing required to be obtained by Nextel to build out its Digital Mobile
networks. See "RISK FACTORS -- Nextel to Require Financing."
Potential transactions involving an increase in Total Market
Capitalization, in addition to the issuance of shares of Class A Preferred Stock
and Class B Preferred Stock in the McCaw Transaction and the issuance of shares
of Nextel Common Stock in the Motorola Transaction, the OneComm Transaction and
the Merger could include, for example, the issuance of additional shares of
Nextel Common Stock upon the exercise of outstanding options or warrants to
acquire Nextel Common Stock, the exercise by Comcast of its right to acquire
shares of Nextel Common Stock pursuant to the Comcast Purchase Right in
connection with the Dial Page Transaction and, possibly, the Merger, and the
issuance of shares of Nextel Common Stock pursuant to the Comcast Transaction.
Any such equity issuances would have the effect of reducing the amount of Debt
reduction required in order to complete the Merger in accordance with the
Indentures.
Consummation of the McCaw Transaction is not subject to compliance with the
Debt incurrence or other related provisions of the Indentures. However, the
obligations of the McCaw Investor to close the transactions contemplated by the
McCaw Securities Purchase Agreement are conditioned upon the prior or
contemporaneous completion of the Motorola Transaction and upon Nextel's receipt
of consents and waivers from holders of notes issued under the Nextel Indentures
necessary to permit the closing of the Merger, the Motorola Transaction, the
OneComm Transaction and the Dial Page Transaction.
The Motorola Transaction, which also contemplates a merger involving
Nextel, would be subject to certain merger provisions, as well as the Debt
incurrence provisions, of the Nextel Indentures (and, if the OneComm and/or the
Dial Page Transaction already has been completed, of the OneComm Indenture and
the Dial Call Indentures, respectively). Based on the assumptions set forth
above, the Debt to Total Market Capitalization ratio as computed pursuant to the
Nextel Indentures as applied to Nextel upon consummation of the Motorola
Transaction would exceed the 30% threshold. In such circumstances, the Motorola
Transaction could not proceed without obtaining the necessary consents of
holders of a majority in principal amount of notes issued under the Nextel
Indentures (and, if the OneComm Transaction and/or the Dial Page Transaction
already has been completed, the requisite consents under the OneComm Indenture
and the Dial Call Indentures, respectively) or Nextel taking other actions to
comply with the requirements of the Nextel Indentures (and, if the OneComm
Transaction and/or the Dial Page Transaction already has been completed, the
OneComm Indenture and the Dial Call Indentures, respectively).
The aggregate of 59,500,000 additional shares anticipated to be issued in
the Motorola Transaction would have the effect of substantially increasing the
number of outstanding shares of Nextel Common Stock (with a corresponding
increase in the relevant Total Market Capitalization) without increasing the
relevant Debt levels (because no Debt is anticipated to be incurred or assumed
in the Motorola Transaction). Similar to the reasoning stated with regard to the
Motorola Transaction, consummation of the McCaw Transaction would substantially
increase the relevant Total Market Capitalization (by an amount equal to the
approximate $300,000,000 liquidation value associated with the shares of Class A
Preferred Stock and Class B Preferred Stock to be issued) without increasing the
relevant Debt levels. Accordingly, assuming the McCaw Transaction or the
Motorola Transaction (or both) were to be consummated prior to the Merger, the
types of actions that could be undertaken by Nextel to adjust the Debt to Total
Market Capitalization ratio, although similar in type to those described above,
would not need to be as significant in degree in order to achieve compliance
with the Nextel Indentures (and, if the OneComm Transaction and/or the Dial Page
Transaction already had been completed, the OneComm Indenture and the Dial Call
Indentures, respectively) by reducing the ratio to a level below the 30%
threshold than if such transaction(s) had not first been consummated.
The issuance of shares of Class A Preferred Stock and Class B Preferred
Stock in the McCaw Transaction will have the effect of substantially reducing
the 20-day average price of Nextel Common Stock required to satisfy the Debt to
Total Market Capitalization ratio and to complete Nextel's other pending
transactions (including the Merger, the OneComm Transaction and the Dial Page
Transaction). Because the
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issuance of Nextel Common Stock in the Motorola Transaction, in combination with
such issuance of shares of Class A Preferred Stock and Class B Preferred Stock
in the McCaw Transaction, will further substantially reduce the 20-day average
price of the Nextel Common Stock required to satisfy the Debt to Total Market
Capitalization ratio as it applies to Nextel's other pending transactions
(including the Merger), it is currently anticipated that the Motorola
Transaction and the McCaw Transaction would be consummated prior to the Merger
if Nextel chooses to proceed with actions that adjust that ratio as the method
of addressing the Indentures' Debt incurrence provisions that are applicable to
the Merger. Assuming the consummation of the McCaw Transaction and the Motorola
Transaction prior to the Merger, it is anticipated that such further actions, if
any, would be less significant in degree (to the extent any further reduction in
the Debt to Total Market Capitalization ratio would be required after giving
effect to the increase in Total Market Capitalization resulting from the
issuance of shares of Class A Preferred Stock and Class B Preferred Stock in the
McCaw Transaction and the issuance of shares of Nextel Common Stock in the
Motorola Transaction) than those required if the respective parties were to
attempt to consummate the Merger absent any prior consummation of the McCaw
Transaction or the Motorola Transaction.
The completion of each of the Merger, the OneComm Transaction and the Dial
Page Transaction is also subject to compliance with the same provisions of the
Nextel Indentures as those applicable to the Motorola Transaction summarized
above. The OneComm Transaction and the Dial Page Transaction are also subject to
similar provisions contained in the OneComm Indenture and the Dial Call
Indentures, respectively. If the Dial Page Transaction is consummated prior to
the OneComm Transaction, the OneComm Transaction will be subject to the
requirements of the Dial Call Indentures. If the OneComm Transaction is
consummated prior to the Dial Page Transaction, the Dial Page Transaction will
be subject to the requirements of the OneComm Indenture. With respect to the
OneComm Indenture, such provisions would have to be complied with or waived by
the holders of a majority in principal amount at stated maturity of the notes
outstanding under the OneComm Indenture, in order to avoid a default under the
OneComm Indenture. With respect to the Dial Call Indentures, such provisions
would have to be complied with or waived by the holders of a majority in
principal amount at stated maturity of the notes outstanding under one of such
Indentures and 66 2/3% of the principal amount at stated maturity of the notes
outstanding under the other of such Indentures, to avoid a default under the
Dial Call Indentures. It is currently anticipated that the OneComm Transaction
will be consummated prior to the Merger and the Dial Page Transaction will be
consummated after the Merger.
Nextel has engaged Donaldson, Lufkin & Jenrette Securities Corporation to
assist Nextel in assessing and developing its options with respect to the
requirements of the Indentures and to assist in discussions with holders of
notes issued pursuant to the Indentures regarding such matters. Nextel has
commenced discussions with certain of such holders with respect to obtaining,
among other things, the consents necessary to consummate the Merger and the
other pending transactions that may require the receipt of such consents. In
order to comply with the provisions of the McCaw Securities Purchase Agreement
(and because Nextel's future ability to meet the Debt to Total Market
Capitalization ratio requirements of the applicable Indentures is uncertain due
to the recent volatility in the market price of Nextel Common Stock), Nextel
currently intends to solicit the waivers of the holders of the notes issued
pursuant to the Nextel Indentures and the holders of the notes issued pursuant
to the OneComm Indenture and the Dial Call Indentures, respectively, relating to
the Merger, the Motorola Transaction, the OneComm Transaction and the Dial Page
Transaction, and the consent of such holders to certain related amendments to
the applicable Indentures primarily in order to reconcile certain conflicts and
inconsistencies among the applicable Indentures and to rationalize the
application of certain of the Indentures' covenants to the significantly
expanded combined business of Nextel following completion of the McCaw
Transaction, the Motorola Transaction, the OneComm Transaction, the Dial Page
Transaction and the Merger. Specifically, Nextel anticipates that it will make a
proposal to the holders of notes issued under the Indentures seeking (i) a
waiver of compliance with the applicable Indentures' Debt incurrence provisions
as such provisions relate to the incurrence of Debt in connection with the
OneComm Transaction and the Dial Page Transaction, (ii) a waiver of compliance
with the Debt incurrence provisions of the Indentures' merger covenants in
connection with the Merger, the Motorola Transaction, the OneComm Transaction
and the Dial Page Transaction, (iii) a waiver of compliance with the covenants
contained in the Indentures that would require Nextel to make an offer to
purchase any notes issued pursuant to the Indentures upon the occurrence of a
Change in Control (as defined in the relevant Indentures)
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to the extent, if any, a Change in Control could be considered to have occurred
as a result of any of the Merger, the Motorola Transaction, the OneComm
Transaction or the Dial Page Transaction (individually or collectively), and
(iv) a waiver of compliance with the Debt incurrence and restricted payments
provisions of the covenants contained in the Indentures relating to the
designation of entities that will become subsidiaries of Nextel in connection
with the Merger, the Motorola Transaction, the OneComm Transaction, the Dial
Page Transaction or as restricted or unrestricted subsidiaries for purposes of
the relevant Indentures. In the course of preliminary discussions with a limited
number of holders who hold a majority in principal amount of the notes issued
pursuant to the Nextel Indentures and the OneComm Indenture and the holders of a
significant principal amount of the notes issued pursuant to the Dial Call
Indentures, Nextel has been advised that such holders support the consummation
of Nextel's pending transactions, including the Merger, and such holders have
expressed their intention to consent to the proposed waivers and amendments
required to consummate the pending transactions, including the Merger. Nextel
currently estimates that the aggregate consideration that will be paid to all
holders of such notes in connection with such waivers and consents (assuming all
such holders deliver valid waivers and consents) would total approximately
$27,192,000. In addition, based on such preliminary discussions, Nextel
currently anticipates that the effectiveness of the waivers of the holders of
the notes issued pursuant to the Indentures required to consummate the Merger
will not be conditioned upon the prior or substantially concurrent closing of
the McCaw Transaction. As of the date hereof, no such waivers and consents have
been received by Nextel, OneComm or Dial Call and no assurances can be given
that any such waivers and consents can be obtained or that the aggregate
consideration to be paid for such waivers and consents will not exceed the
approximate amounts described above.
In connection with such actions that Nextel could undertake as described
above, Nextel may offer from time to time, pursuant to a registration statement
or otherwise, additional equity securities in connection with reducing
outstanding Debt, increasing Nextel's Total Market Capitalization or the
solicitation of consents to the waiver or modification of certain requirements
of the Indentures.
No assurances can be given that the required Debt to Total Market
Capitalization ratio, as it applies to the Merger or to any of Nextel's other
pending transactions as discussed above, will be met, either with or without the
taking of any of the types of actions described above or, if it is not met, that
the necessary waivers and consents of the holders of notes issued pursuant to
the relevant Indentures could be obtained, or that any other conditions to the
Merger or any of such other pending transactions will be satisfied.
The foregoing statements relating to the Indentures are summaries of the
relevant provisions thereof and do not purport to be complete, and where
reference is made to particular provisions of the Indentures, such provisions,
including the definitions of certain terms, are incorporated by reference as a
part of such summaries, which are qualified in their entirety by such reference.
Each of the Indentures has been previously filed with the Commission by Nextel,
OneComm or Dial Page, as appropriate, and each of the Nextel Indentures is
incorporated by reference, and each of the OneComm Indenture and the Dial Call
Indentures has been filed, as an exhibit to the Registration Statement of which
this Proxy Statement/Prospectus is a part.
ANTI-DILUTIVE PURCHASE RIGHTS
Comcast Purchase Right. Pursuant to the Comcast Purchase Right, in the
event of proposed public or private issuances of shares of Nextel Common Stock
other than certain specified exempt issuances (each such issuance, other than
those specified as exempt, a "Covered Issuance"), Comcast, through Comcast FCI,
has the right to purchase such number of shares of Nextel Common Stock (or other
type of security involved in the Covered Issuance) as is necessary to maintain
Comcast's percentage equity interest in Nextel (with such percentage determined
based on measures of both fully diluted equity ownership and actual voting
power) as such interest existed immediately prior to the Covered Issuance.
Although the Comcast Stock Purchase Agreement originally established
procedures for determining the purchase price to be paid by Comcast in the
context of issuances of shares of Nextel Common Stock for non-cash
consideration, as is the case in the Merger Nextel and Comcast have subsequently
agreed upon different terms for determining the per share price for Nextel
Common Stock at which Comcast will be granted the opportunity to exercise the
Comcast Purchase Right with respect to each of those transactions, the manner in
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which such consideration is to be paid, and the procedures to be employed in
exercising such rights and in consummating the related purchases and sales of
shares of Nextel Common Stock.
In January 1995 Nextel and Comcast entered into the Comcast January
Amendment which, among other things, established the terms and conditions
applicable to the potential exercise by Comcast of the Comcast Purchase Right
with respect to certain issuances of shares of Nextel stock during 1995 (the
"1995 Issuances"). Under the terms of the Comcast January Amendment, Comcast
would have been permitted to exercise the Comcast Purchase Right with respect to
the 1995 Issuances at any time prior to December 31, 1995 at a purchase price
equal to the cash price, if any, paid by the purchaser in the underlying
issuance transaction or, if the issuance is not for cash, the "market price" (as
defined in the Comcast Stock Purchase Agreement) over the 30-business-day period
ending on the earlier of the second business day prior to December 31, 1995 or
the date of Comcast's exercise notice. The Comcast January Amendment also
contained provisions establishing accelerated exercise procedures and related
mechanisms to determine per share price amounts, in the event of a 1995 Issuance
(as defined in the Comcast January Amendment) that meets the criteria of a
significant strategic cash purchase, including acquisition of a "controlling"
interest in Nextel.
Nextel and Comcast have subsequently entered into the Comcast April
Amendment, which superseded the Comcast January Amendment in establishing
certain new procedures and terms with respect to the application of the Comcast
Purchase Right to issuances of shares of Nextel Common Stock in connection with
the issuance of Nextel equity securities in certain other pending transactions,
including the McCaw Transaction, the Motorola Transaction, the OneComm
Transaction and the Dial Page Transaction, but excluding the Merger. Any
exercise of the Comcast Purchase Right in connection with the Merger would be
subject to the terms of the Comcast January Amendment.
Comcast may exercise the Comcast Purchase Right with respect to issuances
of Nextel Common Stock in connection with the Merger Agreement (which was
entered into subsequent to, and is not covered by the terms of, the Comcast
April Amendment) under the terms of the Comcast January Amendment at any time
prior to December 31, 1995, assuming the Merger is consummated during 1995. If
the Comcast Purchase Right is exercised with respect to the Merger, Comcast will
be entitled to purchase the appropriate number of shares of Nextel Common Stock
for a cash per share purchase price determined by reference to the average
closing price of one share of Nextel Common Stock on the Nasdaq NM during the
30-trading day period prior to the date of exercise of the Comcast Purchase
Right with respect to shares of Nextel Common Stock issued pursuant to the
Merger. The actual number of shares of Nextel Common Stock purchasable pursuant
to the exercise of the Comcast Purchase Right with respect to the Merger may
vary based upon a number of factors set forth in the Comcast Stock Purchase
Agreement and the Comcast January Amendment. Furthermore there can be no
assurance concerning Comcast's decision with respect to the exercise of the
Comcast Purchase Right with respect to the Merger or any other issuance
transaction to which such rights may attach.
Motorola Purchase Right. Provisions of the Motorola Agreement also grant
to Motorola the Motorola Purchase Right regarding certain securities issuances
by Nextel on substantially identical terms as those applicable to the Comcast
Purchase Right. The exercise of the Motorola Purchase Right is contingent upon
completion of the Motorola Transaction, and such Motorola Purchase Right does
not apply to the issuances of shares of Nextel Common Stock currently
contemplated to occur in the Motorola Transaction or in connection with certain
transactions contemplated at the date of the Motorola Agreement, including the
Dial Page Transaction and the OneComm Transaction. Pursuant to the Motorola
Agreement Amendment entered into in connection with the McCaw Transaction,
Motorola agreed to suspend the Motorola Purchase Right with regard to all
proposed issuances of shares of Nextel Common Stock prior to the closing of the
McCaw Transaction subject to the reinstatement of such right in certain
circumstances. Nextel has obtained a waiver of the Motorola Purchase Right with
respect to the Merger and, if the McCaw Transaction is consummated, the Motorola
Merger Agreement Amendment provides that the Motorola Purchase Right will be
terminated.
McCaw Purchase Right. Provisions of the McCaw Securities Purchase
Agreement also grant to the McCaw Investor the McCaw Purchase Right regarding
certain securities issuances by Nextel on substantially identical terms as those
applicable to the Motorola Purchase Right and the Comcast Purchase Right. The
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exercise of the McCaw Purchase Right by the McCaw Investor is contingent upon
completion of the McCaw Transaction. Nextel has requested a waiver of the McCaw
Purchase Right with respect to the Merger, and the McCaw Investor has indicated
that it will grant the waiver (although the waiver has not been obtained as of
the date of this Proxy Statement/Prospectus).
STOCKHOLDER VOTING AGREEMENT
In connection with the Merger Agreement, TCI, the largest single
stockholder of AMS, and Nextel have entered into the Voting Agreement, a copy of
which is attached hereto as Appendix C, pursuant to which TCI has agreed, among
other things, (i) not to dispose of its AMS Common Stock prior to the
consummation of the Merger, except in certain limited circumstances and (ii) to
vote (or grant a proxy to Nextel to vote) its shares of AMS Common Stock in
favor of the Merger. In addition, pursuant to the consummation of the Merger
Agreement Nextel has agreed not to dispose of its shares of AMS Common Stock
prior to the Merger and to vote its shares of AMS Common Stock in favor of the
Merger. As of the Record Date, TCI and Nextel together beneficially owned
approximately 46% of the outstanding shares of AMS Common Stock. See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF AMS."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the Record Date, Mr. Richard G. Somers, the President and Chief
Executive Officer of AMS and a member of the AMS Board and Chairman thereof,
held AMS Options to purchase 75,000 shares of AMS Common Stock, which upon
consummation of the Merger, will be exercisable for shares of Nextel Common
Stock for up to two years after the consummation of the Merger. Mark S. Hull,
Vice President and General Manager of AMS also held vested AMS Options to
purchase 6,666 shares of AMS Common Stock and unvested AMS Options to purchase
3,337 shares of AMS Common Stock, all of which AMS Options, upon consummation of
the Merger, shall be exercisable for shares of Nextel Common Stock for up to two
years after the consummation of the Merger, assuming his employment with AMS is
terminated upon such consummation. Such AMS Options, plus all other vested and
unvested AMS Options that remain outstanding and unexercised as of the Effective
Time of the Merger, will be assumed by Nextel and modified and adjusted, as
described in the Merger Agreement, to become exercisable for shares of Nextel
Common Stock. See "THE MERGER AGREEMENT -- Options and Warrants." Salary
payments to Mr. Somers under his employment agreement with AMS will become
accelerated upon the consummation of the Merger. See "CERTAIN INFORMATION
REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS OF AMS -- Employment
Arrangements." In addition, under the Merger Agreement, the officers and
directors of AMS are entitled to continue to be indemnified by the Surviving
Corporation after the Effective Time of the Merger with respect to liabilities
arising out of or pertaining to matters existing or occurring at or prior to the
Effect Time of the Merger. See "THE MERGER AGREEMENT -- Indemnification of
Directors and Officers of AMS."
NO DISSENTERS' RIGHT OF APPRAISAL
Under the DGCL, no appraisal rights are available in connection with a
transaction such as the Merger for the shares of any class of stock which, at
the record date fixed to determine the stockholders entitled to receive notice
of and to vote at a meeting of stockholders to act upon a proposed agreement of
merger, is designated as a National Market security by the NASD. Because the AMS
Common Stock was designated as a National Market security by the NASD as of the
Record Date, holders of shares of AMS Common Stock (in their capacity as such)
will not have rights as dissenting stockholders under the DGCL by reason of the
Merger, or by any vote or abstention on the Merger Proposal, nor will they
otherwise be entitled to receive any cash payment in respect of such shares of
AMS Common Stock in lieu of the consideration provided for by the Merger
Agreement. It is a condition to Nextel's obligations under the Merger Agreement
that no holder of shares of AMS Common Stock will be entitled to assert any
appraisal rights in connection with the Merger.
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ACCOUNTING TREATMENT
The Merger is expected to be accounted for under the purchase method of
accounting in accordance with generally accepted accounting principles. Deloitte
& Touche LLP, independent auditors for Nextel, have concurred with the
accounting treatment for this business combination. Under the purchase method,
the acquiring company determines the fair value of assets acquired and
liabilities assumed and any premium paid over fair value is reflected on the
buyer's balance sheet as an intangible asset.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The obligation of each of Nextel and AMS to consummate the Merger is
subject to the receipt by such party of an opinion of its legal counsel, based
on customary representation and warranties and in form and substance reasonably
satisfactory to such party, with respect to the tax consequences of the Merger
set forth below:
(i) as to AMS, an opinion of its special counsel, Baker & Botts,
L.L.P., to the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), and no gain or loss will be recognized by the
holders of AMS Common Stock upon the exchange of their shares of AMS Common
Stock for shares of Nextel Common Stock pursuant to the Merger (except to
the extent of any cash received in lieu of fractional shares); and
(ii) as to Nextel, an opinion of its counsel, Jones, Day, Reavis &
Pogue, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code and no gain or loss will
be recognized by AMS, Nextel or MCF by reason of the Merger.
These legal opinions will be conditioned upon the receipt of certain
customary representations and warranties referred to in the opinion letters and
will be expressly contingent upon satisfaction of the "continuity of interest"
requirement of the regulations promulgated pursuant to the Code. In general, the
"continuity of interest" requirement is considered satisfied if 50% or more of
the capital stock issued in a merger is held by the recipient stockholders of
the acquired entity following the merger other than under a plan or intent to
dispose of such shares. This requirement must be satisfied in order for the
Merger to be treated as a tax-free reorganization under Section 368(a) of the
Code. If such representations and warranties prove inaccurate or if the
"continuity of interest" requirement is otherwise not satisfied, all the holders
of shares of AMS Common Stock may be subject to tax on the difference between
the fair market value of shares of Nextel Common Stock received in the Merger
and the adjusted tax basis of such persons in the shares of AMS Common Stock
surrendered in the Merger. Nextel has no obligation to monitor compliance with
any representations delivered by former holders of shares of AMS Common Stock or
the management of AMS with regard to the continuity of interest requirement.
No ruling will be requested from any federal, state, local or other taxing
authority, including the Internal Revenue Service, with respect to the tax
consequences of the Merger. However, whether or not the Merger constitutes a
reorganization under Section 368(a) of the Code, no gain or loss should be
recognized by holders of shares of Nextel Common Stock (in their capacity as
such prior to the Merger) as a result of the consummation of the Merger.
Providing that the Merger constitutes a tax-free reorganization, the
adjusted tax basis of the shares of Nextel Common Stock received (and any
fractional share interests deemed received if cash is distributed in lieu of
fractional shares) by a stockholder of AMS pursuant to the Merger will be the
same as the adjusted tax basis of the shares of AMS Common Stock surrendered in
exchange therefor. The holding period of the Nextel Common Stock received (and
any fractional share interests deemed received) by a stockholder of AMS as a
result of the Merger will include the holding period of the shares of AMS Common
Stock surrendered in exchange therefor, provided that such AMS Common Stock is
held as a capital asset by the AMS stockholder at the time of the Merger. In
addition, a stockholder of AMS who receives cash in lieu of a fractional
interest in Nextel Common Stock will be treated as if the fractional share were
distributed in the Merger and then as having received a cash distribution in
redemption of such fractional share, resulting in gain or loss upon receipt of
such cash taxed as provided in Section 302 of the Code.
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The foregoing may not be applicable to a holder of shares of AMS Common
Stock who received shares of AMS Common Stock as employee compensation or
pursuant to the exercise of an AMS Option.
The Merger and/or the issuance of shares of Nextel Common Stock and Nextel
Common Stock equivalents in Nextel's pending transactions are likely to trigger
the application of Section 382 of the Code with respect to the net operating
loss carry-forwards (the "NOLs") of AMS and could trigger the application of
Section 382 with respect to the NOLs of Nextel. If Section 382 is triggered, it
permits utilization of only a specific amount of the NOLs that arose before the
triggering event in taxable periods subsequent to that event. If Section 382 is
triggered with regard to the NOLs of AMS or Nextel as a result of the Merger or
such other transactions, the ability of AMS, as the Surviving Corporation in the
Merger, and Nextel to utilize such NOLs to offset future taxable income could be
adversely affected. No assurance can currently be given with regard to the
future utilization of the NOLs of either AMS or Nextel following the Merger.
THE FOREGOING IS A SUMMARY DESCRIPTION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER WITHOUT CONSIDERATION OF THE PARTICULAR FACTS AND
CIRCUMSTANCES OF ANY HOLDER OF SHARES OF AMS COMMON STOCK OR AMS OPTIONS. EACH
HOLDER OF SHARES OF, AND HOLDER OF OPTIONS TO ACQUIRE SHARES OF, AMS COMMON
STOCK IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER TO HIM OR HER, AND ALSO AS TO ANY STATE, LOCAL,
FOREIGN OR OTHER TAX CONSEQUENCES. NEITHER NEXTEL NOR AMS CAN PROVIDE ANY
ASSURANCE THAT THE TAX TREATMENT DESCRIBED ABOVE WILL BE OBTAINED BY HOLDERS OF
SHARES OF AMS COMMON STOCK OR HOLDERS OF AMS OPTIONS.
THE MERGER AGREEMENT
THE FOLLOWING IS A SUMMARY OF CERTAIN OF THE TERMS AND CONDITIONS OF THE
MERGER AGREEMENT, A COPY OF WHICH (AS WELL AS THE ANNEXES THERETO, BUT EXCLUDING
THE EXHIBITS AND SCHEDULES THERETO) IS ATTACHED HERETO AS APPENDIX A AND
INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE TERMS AND PROVISIONS OF THE
MERGER AGREEMENT AND SUCH ANNEXES INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT AND THE
APPLICABLE ANNEXES THERETO.
GENERAL; EFFECTIVE TIME
Nextel and AMS entered into the Merger Agreement on April 25, 1995. As soon
as practicable after the satisfaction or, if permissible, waiver of all of the
conditions to the Merger (including the approval of the Merger Proposal by the
holders of the AMS Common Stock), Nextel and AMS will cause a certificate of
merger to be executed and filed with the Secretary of State of the State of
Delaware in accordance with applicable law, and MCF, a wholly owned subsidiary
of Nextel, will merge with and into AMS, with AMS as the Surviving Corporation,
and AMS will become a wholly owned subsidiary of Nextel. For a more detailed
discussion of the events leading to execution of the Merger Agreement and the
factors considered by the AMS Board in approving the same, see "THE
MERGER -- Background of the Merger" and "THE MERGER -- Recommendation of the AMS
Board; Reasons of AMS for Engaging in the Merger."
CONSIDERATION TO BE RECEIVED IN THE MERGER
Exchange Ratio. As a result of the Merger each issued and outstanding
share of AMS Common Stock (other than the Excluded Shares) will be converted
into the right to receive 0.62 of a share of Nextel Common Stock, subject to
certain adjustments described below under the caption "-- Adjustments."
Fractional Shares. No fractional shares of Nextel Common Stock will be
issued as a result of the conversion of shares of AMS Common Stock into shares
of Nextel Common Stock in the Merger. In lieu of issuing such fractional shares,
Nextel may either (i) make a cash payment in the amount of the value of any such
fraction of a share that would otherwise be issuable to former holders of AMS
Common Stock (based on the closing price of the Nextel Common Stock on the
Nasdaq NM on the last trading day prior to the
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Effective Time of the Merger) or (ii) deliver to each holder otherwise entitled
to receive such a fractional share a number of whole shares determined by
rounding up such fractional share to the next whole share. Arrangements will be
made with the Exchange Agent (as defined below) pursuant to which holders of
shares of AMS Common Stock otherwise entitled to such fractional interests will
receive such cash payments or rounded-up whole shares, as Nextel may determine.
Adjustments. The Exchange Ratio of 0.62 of a share of Nextel Common Stock
per share of AMS Common Stock is based on the assumption that there will be no
more than 6,775,721 shares of AMS Common Stock outstanding on a fully diluted
basis (other than the Excluded Shares) at the Effective Time of the Merger,
resulting in a maximum of 4,200,948 shares of Nextel Common Stock becoming
issuable in connection with the Merger. To the extent the number of such shares
of AMS Common Stock exceeds such amount at the Effective Time of the Merger, the
Exchange Ratio will be adjusted proportionately downward to reflect such excess.
The Exchange Ratio, as so adjusted, will be calculated by dividing 4,200,948 by
the number of shares of AMS Common Stock outstanding on a fully diluted basis
(other than the Excluded Shares) at the Effective Time of the Merger (rounding
to the nearest one-thousandth (.001) of a share of Nextel Common Stock). For
purposes of calculating the number of shares of AMS Common Stock outstanding on
a fully diluted basis, all options, warrants, rights and other securities of AMS
(other than the Option), which upon exchange, exercise, conversion or
substitution would result in the issuance of shares of AMS Common Stock will be
considered issued and outstanding shares of AMS Common Stock. As of the Record
Date, there were 6,775,721 shares of AMS Common Stock outstanding on a fully
diluted basis (other than the Excluded Shares). AMS does not currently expect or
intend to cause any issuances of shares or otherwise take any action to cause
the number of shares of AMS Common Stock outstanding on a fully diluted basis to
increase. As a result, AMS expects that the Exchange Ratio that will be applied
pursuant to the Merger Agreement will be 0.62 of a share of Nextel Common Stock
per share of AMS Common Stock.
Although it is not anticipated that the Exchange Ratio will change, if for
any reason the Exchange Ratio is adjusted downward to less than 0.62 of a share
of Nextel Common Stock for each share of AMS Common Stock, proxies seeking
approval of the Merger Agreement will be resolicited from AMS stockholders.
OPTIONS AND WARRANTS
All unexercised AMS Options outstanding will be assumed by Nextel at the
Effective Time of the Merger. Pursuant to the Merger Agreement, each outstanding
AMS Option will be converted into an option to purchase a number of shares of
Nextel Common Stock equal to the product arrived at by multiplying the Exchange
Ratio by the number of shares of AMS Common Stock subject to such AMS Option
immediately prior to the Effective Time of the Merger, and the exercise price
per share of Nextel Common Stock at which each such AMS Option will be
exercisable shall be the amount arrived at by dividing the exercise price per
share of AMS Common Stock at which such AMS Option was exercisable immediately
prior to the Effective Time of the Merger by the Exchange Ratio. In addition,
following the Merger, Nextel and the compensation committee of the Nextel Board
will be substituted for AMS and the compensation committee of the AMS Board in
administering the AMS Option Plan.
It is a condition to Nextel's obligation to consummate the Merger that
prior to the Effective Time of the Merger all unexercised options and warrants
to purchase shares of AMS Common Stock or any other securities of AMS (other
than the AMS Options), if any, will either have been exercised, expired by their
terms or otherwise been cancelled. Other than the AMS Options, and the Option
held by Nextel the only outstanding option, warrant or other right to acquire
shares of AMS Common Stock is a warrant to purchase 160,000 shares of AMS Common
Stock issued to KOP in connection with the KOP Credit Agreement. KOP has agreed
to exercise its warrant prior to the Merger.
EXCHANGE OF CERTIFICATES
Prior to the Effective Time of the Merger, Nextel will make appropriate
arrangements for the exchange of AMS Stock Certificates for Nextel Stock
Certificates with a bank or other financial institution designated
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by it to act as exchange agent in the Merger (the "Exchange Agent"). Promptly
after the Effective Time of the Merger, transmittal forms will be mailed to each
holder of record of shares of AMS Common Stock as of the Effective Time of the
Merger to be used in forwarding his or her AMS Stock Certificates for surrender
and exchange for Nextel Stock Certificates representing the number of whole
shares of Nextel Common Stock to which he or she has become entitled in the
Merger and, if applicable, cash in lieu of a fractional share of Nextel Common
Stock. After receipt of such transmittal form, each holder of AMS Stock
Certificates should surrender such certificates to the Exchange Agent in
accordance with the instructions accompanying such transmittal form, and such
holder will receive in exchange therefor Nextel Stock Certificates evidencing
the number of whole shares of Nextel Common Stock to which he or she has become
entitled in the Merger and, if applicable, cash in lieu of a fractional share of
Nextel Common Stock. Such transmittal forms will be accompanied by instructions
specifying other required procedures to be followed and other matters to be
considered in connection with such exchange.
Pending such surrender and exchange, following the Effective Time of the
Merger each AMS Stock Certificate shall be deemed for all purposes to represent
only the number of whole shares of Nextel Common Stock into which the shares of
AMS Common Stock formerly represented by such AMS Stock Certificate shall have
been so converted in the Merger and the right to receive any cash or additional
whole shares of Nextel Common Stock for any fractional interest resulting from
such conversion. In addition, no dividend (cash or stock) or other distribution
payable to holders of record of shares of Nextel Common Stock as of any date
subsequent to the Effective Time of the Merger will be paid to the holder of an
AMS Stock Certificate unless and until such AMS Stock Certificate is
surrendered. However, upon such surrender the record holder of the Nextel Stock
Certificate issued in exchange for such certificate will be paid the amount of
any such dividends, but without interest, with respect to the number of whole
shares of Nextel Common Stock represented by the Nextel Stock Certificate issued
upon such exchange.
STOCKHOLDERS SHOULD NOT SEND IN THEIR AMS STOCK CERTIFICATES UNTIL THEY
RECEIVE THE PROPER TRANSMITTAL MATERIALS.
RESTRICTIONS ON TRANSFERABILITY
All shares of Nextel Common Stock to be issued in the Merger will be
registered under the Securities Act and will be freely transferable, except that
those shares of Nextel Common Stock received by certain persons deemed to be
"affiliates" of AMS prior to the Merger may be publicly resold by them only in
transactions permitted by the resale provisions set forth in Rule 145 under the
Securities Act. In accordance with Rule 145 under the Securities Act, an
affiliate of AMS receiving Nextel Common Stock in the Merger may not publicly
sell such shares except pursuant to the volume and manner of sale limitations
and other requirements specified therein or pursuant to an effective
registration statement under the Securities Act. The Merger Agreement provides
that AMS will use its reasonable best efforts to cause each AMS director and
executive officer and each holder of more than 5% of the outstanding shares of
AMS Common Stock on a fully diluted basis to enter into an agreement with Nextel
providing that such person will not sell or otherwise dispose of the shares of
Nextel Common Stock received by such person as a result of the Merger other than
in compliance with Rule 145 or pursuant to an effective registration statement
under the Securities Act (or pursuant to any other exemption from the
registration requirements of the Securities Act).
CONDITIONS TO THE MERGER
In addition to those conditions discussed elsewhere in this Proxy
Statement/Prospectus, the obligations of each of Nextel and AMS to consummate
the Merger are subject to the satisfaction or, if permissible, waiver of, among
others, the following conditions: (i) the approval of the Merger Proposal by the
requisite affirmative vote of the holders of the AMS Common Stock; (ii) the
receipt of all required governmental and other third party approvals for the
consummation of the Merger, including any approvals or consents required under
the Indentures; (iii) the absence of any order, decree, statute, rule or
regulation, or any pending or certain threatened complaints seeking an order or
decree, in any case to restrain, enjoin or prohibit the consummation
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of the Merger or to nullify or render ineffective the Merger Agreement or to
take any other action which would result in the prohibition of or material
change to the terms of or applicable to the Merger (subject to certain
exceptions relating to the Purported Class Action (as defined below)); and (iv)
the shares of Nextel Common Stock that are to become issuable in the Merger
shall have been listed or approved for listing upon notice of issuance on the
Nasdaq NM. For information regarding certain additional conditions to the
Merger, see "THE MERGER -- Compliance with Indentures;" "THE MERGER -- No
Dissenters' Right of Appraisal;" "THE MERGER -- Certain Federal Income Tax
Consequences;" and "-- Regulatory Approvals."
The obligation of Nextel to consummate the Merger is also subject to the
satisfaction or, if permissible, waiver of, among others, the following
additional conditions (in addition to those conditions discussed elsewhere in
this Proxy Statement/Prospectus): (i) the material accuracy of the
representations and warranties and the performance in all material respects of
the covenants and agreements made by AMS in the Merger Agreement; (ii) the
receipt of certain officers' certificates and legal opinions from AMS and its
legal counsel; (iii) all options and warrants to acquire AMS Common Stock or any
other securities of AMS (other than the AMS Options) being exercised, or having
expired by their terms, prior to the Effective Time of the Merger; and (iv) the
terms of any Debt of AMS outstanding immediately prior to the closing under the
Merger Agreement permitting the payment in full without prepayment penalties or
similar charges or any third party consents that have not been obtained (subject
to certain exceptions).
The obligation of AMS to consummate the Merger is also subject to the
satisfaction or, if permissible, waiver of, among others, the following
additional conditions (in addition to the conditions discussed elsewhere in this
Proxy Statement/Prospectus): (i) the material accuracy of the representations
and warranties and the performance in all material respects of the covenants and
agreements made by Nextel in the Merger Agreement and (ii) the receipt of
certain officers' certificates and legal opinions from Nextel and its legal
counsel.
The McCaw Transaction. The obligations of each of Nextel and AMS to
consummate the Merger are subject to the consummation of the McCaw Transaction.
See "SUMMARY -- B. THE PARTIES TO THE MERGER -- Nextel -- Pending
Transactions -- McCaw Transaction." In addition, in the event that the McCaw
Transaction is not consummated on or prior to September 15, 1995, AMS has the
right to terminate the Merger Agreement and to cause the Stock Purchase
Agreement to be reinstated to full force and effect. See "-- Termination" below.
As of the date hereof, Nextel has no reason to believe that the McCaw
Transaction will not be consummated on or before September 15, 1995. However,
consummation of the McCaw Transaction is subject to the satisfaction of certain
conditions that have not been satisfied as of the date hereof, and no assurances
can be given that Nextel will be able to consummate the McCaw Transaction on or
prior to September 15, 1995.
Compliance with Indentures. The consummation of the Merger is subject to
compliance with the applicable terms of the Indentures, including the OneComm
Indenture and the Dial Call Indentures, respectively, if the OneComm Transaction
and the Dial Page Transaction are consummated prior to the Effective Time of the
Merger. As described in greater detail in "THE MERGER -- Compliance with
Indentures," all of the Indentures include substantially identical provisions
that would not permit Nextel to consummate the Merger if, upon consummation of
the Merger, Nextel would be unable to incur at least $1.00 of additional Debt,
other than certain permitted Debt, under the restrictive covenant regarding Debt
incurrence in such Indentures. In addition, in the event that any consents
required under the Indentures in connection with the Merger are not obtained on
or before September 15, 1995, then either AMS or Nextel has the right to
terminate the Merger Agreement and to cause the Stock Purchase Agreement to be
reinstated to full force and effect. See "-- Termination".
REGULATORY APPROVALS
Hart-Scott-Rodino. The obligations of each of Nextel and AMS to consummate
the Merger are also subject to satisfaction of the requirements of the H-S-R
Act, which provides that certain acquisition
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transactions (such as the Merger) may not be consummated until certain
information has been furnished to the Antitrust Division and the Federal Trade
Commission (the "FTC") and certain waiting period requirements have been
satisfied. Each of TCI, as the "ultimate parent entity" of AMS, and Nextel has
previously filed the required notification and report forms under the H-S-R Act
with the Antitrust Division and the FTC with respect to the Stock Purchase
Transaction. Following compliance with the requests by the Antitrust Division
for the provision of certain additional information and documents, the waiting
period applicable to the consummation of the Stock Purchase Transaction
initially terminated on February 3, 1994. Pursuant to regulations promulgated by
the FTC, the period during which the parties were permitted to consummate the
previously contemplated Stock Purchase Transaction without refiling under the
H-S-R Act expired on February 3, 1995, one year after the termination of such
waiting period. The parties refiled the necessary forms and requested early
termination of the applicable waiting period under the H-S-R Act on February 23,
1995. On March 3, 1995 the FTC granted the parties' request for early
termination of the applicable waiting period under the H-S-R Act. Because each
of the Stock Purchase Transaction and the Merger involves the acquisition by
Nextel of more than fifty percent of the outstanding voting securities of AMS,
the termination of the applicable waiting period as to the Stock Purchase
Transaction also effectively constitutes the termination of any waiting period
under the H-S-R Act applicable to the Merger. However, termination of such
waiting period does not preclude the Antitrust Division or the FTC or any other
person either before or after the consummation of the Merger from challenging
the Merger on antitrust or other grounds.
Any holder of shares of AMS Common Stock whose shares will be converted
pursuant to the Merger into shares of Nextel Common Stock having a value of more
than $15,000,000 or a value which, when aggregated with the value of shares of
Nextel Common Stock owned by such holder prior to the Merger, exceeds
$15,000,000, may individually be subject to the notification and waiting period
requirements of the H-S-R Act. Absent compliance with such requirements, such a
holder may be unable to take possession of (and consequently, may be required to
divest all or a portion of) the shares of Nextel Common Stock into which the
shares of AMS Common Stock of such holder are to be so converted.
Federal Communications Commission. The transfer of control of the SMR
licenses held by AMS is subject to prior FCC approval pursuant to the
requirements of the Communications Act and the rules and regulations promulgated
thereunder. Such approval is a condition to the Merger. The FCC previously
approved the change of control of AMS to Nextel potentially resulting from the
Stock Purchase Transaction. Such approval also constitutes approval of the
transfer of control of AMS to Nextel as a result of the Merger.
CERTAIN COVENANTS
Conduct of AMS' Business Pending the Merger. Pursuant to the Merger
Agreement, AMS has agreed that prior to the Effective Time of the Merger,
subject to certain exceptions, each of AMS and its subsidiary will conduct its
business only in the ordinary course on an arms' length basis and in accordance
in all material respects with all applicable laws, rules or regulations and,
except as expressly contemplated by the Merger Agreement or to the extent
consented to in writing by Nextel, each of AMS and its subsidiary will not,
among other things, take any of the following actions: (i) issue or sell any
additional shares of, or any options, warrants, conversion privileges or rights
of any kind to acquire additional shares of, its capital stock; (ii) sell,
assign, transfer or subject to certain liens any of its SMR licenses or any
other assets with an aggregate fair market value in excess of $50,000 except
with respect to assets other than SMR licenses; (iii) amend or propose to amend
the AMS Charter or the AMS By-laws; (iv) split, combine or reclassify any
outstanding shares of its capital stock, or declare, set aside or pay any
dividend or other distribution with respect to any of its capital stock; (v)
redeem, purchase or acquire or offer to acquire any shares of its capital stock;
(vi) acquire any corporation, partnership, joint venture or other business
organization or material assets, or any additional SMR systems or related
operations, rights, assets or properties located in Florida (including by way of
merger, exchange, consolidation, acquisition of stock or assets or otherwise);
or (vii) borrow money or incur or become subject to any material liability,
except liabilities (other than for borrowed money) incurred in the ordinary
course of business. AMS has also agreed that each of AMS and its subsidiary will
not, among
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other things: (a) enter into or modify any employment, severance or similar
arrangement with, or grant any bonuses, wage, salary or compensation increases,
severance or termination pay to any director, officer or employee who earns more
than $50,000 per annum, except in the ordinary course of business and consistent
with past practice; (b) adopt or amend any employee benefit plan, contract or
arrangement, except as required by law; (c) enter into any settlement or similar
agreement with respect to any action, suit, proceeding, order or investigation
against AMS or such subsidiary (including the Purported Class Action) for an
amount in excess of $50,000; (d) fail to use all reasonable efforts to preserve
intact its business organization and good will, keep available the services of
its officers and employees as a group and preserve intact advantageous business
relationships and material agreements of AMS; and (e) take certain actions which
it knows would result in, or refrain from taking certain actions that would
prevent, the loss of any FCC license or take any action with respect to its
wide-area application to the FCC, without Nextel's prior approval (which
approval will not be unreasonably withheld or delayed). In addition, AMS has
agreed to use its reasonable best efforts to cause its subsidiary, American
Mobile Services Incorporated, to be dissolved or merged into AMS prior to the
Merger.
Restraint on Solicitation by AMS. AMS has also agreed that from the date
of the Merger Agreement until the Effective Time of the Merger, neither AMS nor
its subsidiary will, directly or indirectly, encourage, solicit, initiate,
participate in any way in any discussion or negotiations, or provide
information, or afford any access to the properties, books or records of AMS or
its subsidiary in connection with any merger, consolidation, business
combination, liquidation, reorganization, sale of substantial assets (other than
radio inventories), sale of shares of capital stock or similar transactions
involving AMS or its subsidiary, provided that in the event a party expresses in
writing a bona fide intention to make an offer to AMS involving any merger,
consolidation, business consideration, liquidation, reorganization, sale of
substantial assets, sale of shares of capital stock or similar transactions, AMS
may participate in discussions or negotiations, or provide information, or
afford access to the properties, books or records of AMS or its subsidiary, if
to fail to do so would, in the reasonable judgment of the AMS Board (after
obtaining and considering the advice of independent counsel), conflict with the
proper discharge of the fiduciary duties of the AMS Board under applicable law.
AMS has agreed that it will promptly notify Nextel of any request it receives
regarding any such information or any such negotiations or discussions.
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF AMS
The Merger Agreement provides that for a period of ten years after the
Effective Time of the Merger (and indefinitely with respect to certain existing
claims) AMS, as the Surviving Corporation of the Merger, will continue to
indemnify and hold harmless (and advance expenses to) each present and former
director and officer of AMS (the "Indemnified Parties") against any costs or
expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages or liabilities incurred in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring at
or prior to the Effective Time of the Merger, whether asserted or claimed prior
to, at or after the Effective Time of the Merger to the fullest extent that AMS
would have been permitted under Delaware law, the AMS Charter and the AMS
By-laws as in effect on the date of the Merger Agreement. The Merger Agreement
places certain restrictions on the right of Nextel to dispose of more than 20%
of the assets of the Surviving Corporation for other than fair value without
putting into place indemnification provisions reasonably satisfactory to the
Indemnified Parties. In addition, the Merger Agreement also contains certain
provisions relating to the conduct of the defense of certain existing litigation
involving AMS, including the Purported Class Action.
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time of the Merger (whether before or after adoption and
approval of the Merger Proposal by the holders of shares of AMS Common Stock) by
(i) the mutual written consent of Nextel and AMS, or (ii) written notice from
either party to the other party if (a) there is a material breach of any
representation, warranty, covenant or agreement of the other party, or if a
representation or warranty of the other party is untrue in any material
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respect, unless such breach is curable by the breaching party through the
exercise of its reasonable best efforts, in which event the Merger Agreement may
not be terminated for a 30-day period so long as the breaching party uses such
reasonable best efforts to cure such breach, (b) any governmental or regulatory
consent or approval required for consummation of the transactions contemplated
by the Merger Agreement is denied by or in a final order or other final action
issued or taken by the appropriate governmental or regulatory authority, agency
or similar body, (c) consummation of any of the transactions contemplated by the
Merger Agreement is enjoined, prohibited or otherwise restrained by the terms of
a final, non-appealable order of judgment of a court of competent jurisdiction,
(d) the Merger has not been consummated by September 30, 1995, (e) the Merger
Proposal is not approved by the requisite vote of AMS stockholders at the
Special Meeting, or (f) any consent required to be obtained under the Indentures
to consummate the Merger has not been obtained on or before September 15, 1995.
Additionally, (i) Nextel may terminate the Merger Agreement if the Record Date
(as originally set or changed) is a date on which the AMS Common Stock is not
designated as a National Market security by the NASD and (ii) AMS may terminate
the Merger Agreement if the McCaw Transaction has not been consummated on or
prior to September 15, 1995.
Upon the execution of the Merger Agreement, the Stock Purchase Agreement
was terminated and superseded, subject to the Stock Purchase Agreement being
returned automatically to full force and effect and becoming a binding agreement
of both AMS and Nextel if the Merger Agreement is terminated because, among
other things, (i) the McCaw Transaction is not consummated on or before
September 15, 1995, (ii) Nextel is unable to obtain the requisite consents under
the Indentures to consummate the Merger on or before September 15, 1995, or
(iii) the record date for the Special Meeting is reset to a date that the AMS
Common Stock is not designated a National Market security by the NASD. Upon
returning to full force and effect, the Stock Purchase Agreement would be deemed
to be amended to reflect certain limited changes primarily relating to the
extension of this applicable termination date of the Stock Purchase Agreement.
Consummation of the Stock Purchase Transaction, however, would be subject to,
among other things, approval of the Stock Purchase Agreement and various changes
to the AMS Charter by the requisite vote of the holders of AMS Common Stock.
EXPENSES
The Merger Agreement provides that each of AMS and Nextel will pay its own
expenses incurred in connection with the negotiation, preparation, execution,
delivery, performance or other activity connected with the Merger Agreement.
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COMPARISON OF RIGHTS OF HOLDERS OF SHARES OF EACH OF
NEXTEL COMMON STOCK AND AMS COMMON STOCK
INTRODUCTION
AMS and Nextel are each incorporated under the laws of the state of
Delaware. The holders of shares of AMS Common Stock, whose rights as
stockholders are currently governed by Delaware law, the AMS Charter, and the
AMS By-laws, will, upon the exchange of their shares of AMS Common Stock for
shares of Nextel Common Stock pursuant to the Merger, become holders of shares
of Nextel Common Stock, and their rights as such will be governed by Delaware
law, the Nextel Charter and the Nextel By-laws. The material differences between
the rights of holders of shares of AMS Common Stock and of the rights of holders
of shares of Nextel Common Stock resulting from differences in their governing
documents and the application of the Delaware law thereto are summarized below.
Nextel and holders of shares of its capital stock have entered into certain
agreements that may affect the rights of holders of shares of Nextel Common
Stock under the Nextel Charter, the Nextel By-laws and Delaware law. Pursuant to
such agreements, certain significant holders have under certain circumstances
certain rights to designate nominees to be elected to the Nextel Board. See
"-- Election of Board of Directors." In addition, the equity securities proposed
to be issued to the McCaw Investor in the McCaw Transaction, and the agreements
relating to the McCaw Transaction, grant to the McCaw Investor certain rights
generally relating to corporate governance topics, including rights to designate
a number of directors to the Nextel Board and rights of such directors to
representation on a newly created Operations Committee of the Nextel Board,
which will have the authority to formulate key aspects of Nextel's strategy. See
"-- Proposed Terms of Nextel New Preferred Stock" and "SUMMARY -- B. THE PARTIES
TO THE MERGER -- Nextel -- Pending Transactions."
The following summary does not purport to be a complete statement of the
rights of holders of shares of Nextel Common Stock under applicable Delaware
law, the Nextel Charter and the Nextel By-laws or a comprehensive comparison of
such rights with the rights of the holders of shares of AMS Common Stock under
applicable Delaware law, the AMS Charter and the AMS By-laws, or a complete
description of the specific provisions referred to herein. The identification of
specific differences is not meant to indicate that other equally or more
significant differences do not exist. This summary is qualified in its entirety
by reference to the DGCL and the governing corporate instruments of Nextel and
AMS (including, in the case of Nextel, the pending amendments to such
instruments contemplated to be effected in connection with the McCaw
Transaction), to which holders of shares of AMS Common Stock are referred.
AUTHORIZED CAPITAL
The DGCL requires that a corporation's certificate of incorporation set
forth the total number of shares of all classes of stock which the corporation
has authority to issue and a statement of the designations and the powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof. The AMS Charter provides that AMS has authority to issue 25,000,000
shares of capital stock divided into 5,000,000 shares of preferred stock, par
value $1.00 per share (the "AMS Preferred Stock"), and 20,000,000 shares of AMS
Common Stock. The Nextel Charter provides that Nextel has authority to issue
260,000,000 shares of capital stock divided into three classes as follows: (i)
230,000,000 shares of Nextel Common Stock; (ii) 20,000,000 shares of Nextel
Class B Non-Voting Common Stock, par value $.001 per share (the "Nextel
Non-Voting Common Stock"); and (iii) 10,000,000 shares of Preferred Stock, par
value $.01 per share (the "Nextel Undesignated Preferred Stock"). If both the
Motorola Transaction and the McCaw Transaction are approved and completed, the
authorized number of shares of Nextel capital stock will be increased to
613,883,948 shares, consisting of 515,000,000 shares of Nextel Common Stock,
35,000,000 shares of Nextel Non-Voting Common Stock, 26,941,933 shares of Class
A Convertible Redeemable Preferred Stock ("Class A Preferred Stock"), 82 shares
of Class B Convertible Redeemable Preferred Stock ("Class B Preferred Stock"),
26,941,933 shares of Class C Convertible Redeemable Preferred Stock ("Class C
Preferred Stock") which shall have, among others, the rights, preferences,
privileges and restrictions
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summarized in "-- Proposed Terms of Nextel New Preferred Stock", and 10,000,000
shares of Nextel Undesignated Preferred Stock.
BOARD OR STOCKHOLDER APPROVED PREFERRED STOCK
The DGCL permits a corporation's certificate of incorporation to allow its
board of directors to issue, without stockholder approval, series of preferred
or preference stock and to designate their rights, preferences, privileges and
restrictions. Although the Nextel Charter grants such power to the Nextel Board
and the AMS Charter also grants such power to the AMS Board, there are at
present no shares of Nextel Undesignated Preferred Stock or AMS Preferred Stock
outstanding or subject to any issuance commitment.
PROPOSED TERMS OF NEXTEL NEW PREFERRED STOCK
Pursuant to the terms of the McCaw Securities Purchase Agreement, Nextel
has agreed, subject to the terms and conditions set forth therein, to issue to
the McCaw Investor 8,163,265 shares of newly created Class A Convertible
Redeemable Preferred Stock ("Class A Preferred Stock"), each with a stated value
of $36.75 per share, which shares are convertible into an equal number of shares
of Class C Convertible Redeemable Preferred Stock ("Class C Preferred Stock")
(such shares of Class A Preferred Stock and any shares of Class C Preferred
Stock issued upon conversion thereof being convertible into approximately
24,500,000 shares of Nextel Common Stock in the aggregate), and 82 shares of
newly created Class B Convertible Redeemable Preferred Stock ("Class B Preferred
Stock"), convertible into an equal number of shares of Nextel Common Stock.
Certain of the significant terms of such newly created classes of preferred
stock are summarized below.
Class A Preferred Stock. The Class A Preferred Stock is the primary
mechanism for providing the McCaw Investor with the economic benefits and
corporate governance rights contemplated by the McCaw Securities Purchase
Agreement. Holders of Class A Preferred Stock, voting separately as a class,
will be entitled to elect three members of the Nextel Board or, if greater than
three, that number of directors (rounded up to the nearest whole number) equal
to 25% of the entire Nextel Board (the "Class A Directors"), subject to the
termination of such rights if the McCaw Investors's equity interest in Nextel
falls below specified levels. For so long as the Operations Committee
contemplated by the McCaw Transaction is in existence, a majority of the members
of the Operations Committee will be Class A Directors or directors designated by
the McCaw Investor pursuant to the terms of the Class B Preferred Stock or the
McCaw Securities Purchase Agreement. See "SUMMARY -- B. THE PARTIES TO THE
MERGER -- Nextel -- Pending Transactions -- McCaw Transaction." With respect to
matters other than the election of directors, shares of Class A Preferred Stock
vote together as a class with shares of Nextel Common Stock and each such share
of Class A Preferred Stock is entitled to a number of votes equal to the number
of shares of Nextel Common Stock into which such share is convertible.
Each share of Class A Preferred Stock is convertible at the election of the
holder thereof into three shares of Nextel Common Stock, subject to certain
adjustments. Upon the occurrence of certain events, the shares of Class A
Preferred Stock are automatically converted into shares of Nextel Common Stock.
In addition, shares of Class A Preferred Stock are automatically converted into
shares of Class C Preferred Stock on a one-for-one basis upon the occurrence of
certain events, including certain reductions in the McCaw Investor's ownership
interest below specified levels and foreclosure by a secured party upon shares
of Class A Preferred Stock pledged to such secured party. Shares of Class A
Preferred Stock are also redeemable at the option of Nextel upon the occurrence
of certain events constituting a Change in Control of Nextel (as defined in the
terms of the Nextel Charter creating and authorizing issuance of the Class A
Preferred Stock) at a redemption price equal to the stated value of the Class A
Preferred Stock plus the amount of any accrued or declared but unpaid dividends
thereon.
At the time of closing of the McCaw Transaction, an Operations Committee
will be created consisting of five members, three of whom will be selected from
among the McCaw Investor's representatives on the Nextel Board as described
above. The Operations Committee will have the authority to formulate key aspects
of Nextel's business strategy, including decisions relating to the technology
used by Nextel (subject to existing equipment purchase agreements),
acquisitions, the creation and approval of operating and capital budgets, and
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marketing and strategic plans, approval of financing plans, endorsement of
nominees to the Nextel Board and committees thereof and nomination and oversight
of certain executive officers. The full Nextel Board may effectively nullify
actions taken or proposed by the Operations Committee or terminate the
Operations Committee, although in certain circumstances those outcomes would
give rise to a $25,000,000 liquidated damages payment to the McCaw Investor, the
commencement of accrual of a 12% dividend payable on the stated value of all
outstanding shares of Class A Preferred Stock (initially an aggregate of
approximately $300,000,000) and the immediate vesting of the Incentive Options.
The Nextel Charter also will delineate a number of circumstances in which the
Operations Committee could be terminated but such liquidated damages payment,
dividend accrual and vesting of the Incentive Options would not be required.
Except for the accrual of the 12% dividend in the circumstances described above,
shares of Class A Preferred Stock are entitled to dividends only to the extent
declared or paid with respect to Nextel Common Stock in amounts equal to the
amounts that would be received had the Class A Preferred Stock been converted
into Nextel Common Stock. Upon liquidation, dissolution or winding-up of Nextel,
the holders of Class A Preferred Stock are entitled to receive a liquidation
preference equal to the stated value of the Class A Preferred Stock plus any
accrued but unpaid dividends thereon.
Class B Preferred Stock. The purpose of the Class B Preferred Stock is to
provide a protection for the McCaw Investor's right to proportionate
representation on the Nextel Board (to the extent not provided by the McCaw
Investor's ownership of Class A Preferred Stock) and to establish a mechanism
for the payment of the liquidated damages payment contemplated by the McCaw
Securities Purchase Agreement in the event that the Nextel Board takes certain
actions with respect to the Operations Committee that give rise to such payment.
Shares of Class B Common Stock are automatically converted on a one-for-one
basis to shares of Nextel Common Stock if the McCaw Investor's equity interest
in Nextel falls below specified levels or if certain transfers of Class B
Preferred Stock occur.
Class C Preferred Stock. The purpose of the Class C Preferred Stock is to
protect the economic attributes of the Class A Preferred Stock in the event that
certain events resulting in the termination of the corporate governance rights
associated with the Class A Preferred Stock occur. The terms of the Class C
Preferred Stock are substantially the same as the terms of the Class A Preferred
Stock except that holders of Class C Preferred Stock have no special voting
rights in the election of directors (including the appointment of directors to
the Operations Committee) and are not entitled to the 12% dividend in the
circumstances in which shares of Class A Preferred Stock would be entitled to
such dividend.
VOTING RIGHTS
The DGCL states that, unless the DGCL, a corporation's certificate of
incorporation or its by-laws specifies otherwise, (i) each share of its capital
stock is entitled to one vote, (ii) a majority of voting power of the shares
entitled to vote, present in person or represented by proxy, shall constitute a
quorum at a stockholders meeting, and (iii) in all matters other than the
election of directors, the affirmative vote of the majority of the voting power
of shares, present in person or represented by proxy at the meeting and entitled
to vote on the subject matter, shall be the act of the stockholders.
Although no shares of Preferred Stock have been issued, the AMS Charter
provides that, except as otherwise required by law, the AMS Board shall have the
power to fix by resolution the voting rights of the holders of Preferred Stock.
Subject to the foregoing, holders of shares of AMS Common Stock are entitled to
one vote per share on all matters to be voted on by holders of shares of AMS
capital stock.
As described in "-- Proposed Terms of Nextel New Preferred Stock," holders
of shares of Nextel Class A Preferred Stock and Nextel Class B Preferred Stock
proposed to be issued in the McCaw Transaction will be entitled to designate a
number of directors to the Nextel Board.
Except as required by law with respect to shares of each of the Class A
Preferred Stock, Class B Preferred Stock and Class C Preferred Stock, and except
with respect to matters as to which shares of Class A Preferred Stock and Class
B Preferred Stock proposed to be issued will vote separately as a class, the
holders of shares of Nextel Common Stock are entitled to one vote per share on
all matters to be voted on by the stockholders of Nextel. The holders of shares
of Nextel Non-Voting Common Stock have no right to vote on
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any matters to be voted on by the stockholders of Nextel, except that the
holders of shares of Nextel Non-Voting Common Stock have the right to vote, as a
separate class (with each share having one vote), on any merger, consolidation,
reorganization or reclassification of Nextel or its shares of capital stock, any
amendment to the Nextel Charter or any liquidation, dissolution or winding up of
Nextel (each such event being a "Fundamental Change"), but only if shares of
Nextel Non-Voting Common Stock would be treated differently than shares of
Nextel Common Stock. Holders of Nextel Non-Voting Common Stock are not entitled
to such a class vote with regard to a Fundamental Change in which the only
difference in such treatment is that the holders of shares of Nextel Common
Stock would be entitled to receive equity securities with full voting rights and
the holders of shares of Nextel Non-Voting Common Stock would be entitled to
receive equity securities which have voting rights substantially identical to
the voting rights of shares of Nextel Non-Voting Common Stock and which are
convertible upon any Voting Conversion Event (as defined below), on a share for
share basis, into the voting securities to which the holders of the shares of
Nextel Common Stock are entitled, but which are otherwise identical to such
voting securities.
Shares of Nextel Non-Voting Common Stock (none of which is currently
outstanding) can be converted into shares of Nextel Common Stock if such shares
are being or have been distributed, disposed of or sold (or are expected to be
distributed, disposed of or sold) in a transaction that constitutes a Voting
Conversion Event. A "Voting Conversion Event" is defined as (i) any public
offering or public sale of securities of Nextel (including a public offering
registered under the Securities Act and a public sale pursuant to Rule 144 or
any similar rule then in force), (ii) any sale of securities of Nextel to a
person or group of persons (as used here and subsequently in this paragraph,
within the meaning of the Exchange Act) if, after such sale, such person or
group of persons in the aggregate would own or control securities which
securities possess in the aggregate the ordinary voting power to elect a
majority of the members of the Nextel Board if such sale had been approved by
the Nextel Board or a committee thereof, (iii) any sale of securities of Nextel
to a person or group of persons if, after such sale, such person or group of
persons in the aggregate would own or control securities of Nextel (excluding
any shares of Nextel Non-Voting Common Stock being converted and disposed of in
connection with such Voting Conversion Event) which securities possess in the
aggregate the ordinary voting power to elect a majority of the members of the
Nextel Board, (iv) any sale of securities of Nextel to a person or group of
persons if, after such sale, such person or group of persons would not, in the
aggregate, own, control or have the right to acquire more than two percent (2%)
of the outstanding securities of any class of voting securities of Nextel, and
(v) any distribution, disposition or sale of any securities of Nextel to a
person or group of persons in connection with a merger, consolidation or similar
transaction if, after such transaction, such person or group of persons would
own or control securities which securities constitute in the aggregate the
ordinary voting power to elect a majority of the surviving corporation's
directors, provided the transaction had been approved by the Nextel Board or a
committee thereof. If any shares of Nextel Non-Voting Common Stock are converted
into shares of Nextel Common Stock in connection with a Voting Conversion Event
and any such shares of Nextel Common Stock are not actually distributed,
disposed of or sold pursuant to such Voting Conversion Event, such shares of
Nextel Common Stock that were not so distributed, disposed of or sold shall be
promptly converted back into the same number of shares of Nextel Non-Voting
Common Stock.
ELECTION OF BOARD OF DIRECTORS
The DGCL provides that a corporation's directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at a meeting and entitled to vote on the election of directors. Upon
consummation of the McCaw Transaction, shares of Class A Preferred Stock and
Class B Preferred Stock will have certain rights to vote separately as a class
to elect members of the Nextel Board. See "-- Proposed Terms of Nextel New
Preferred Stock." Under the DGCL, stockholders of a corporation cannot elect
directors by cumulative voting unless the corporation's certificate of
incorporation so provides. Neither the AMS Charter nor the Nextel Charter
provides for cumulative voting. See "-- Voting Rights." For information
regarding certain rights of TCI and Nextel to designate members of the AMS
Board, see "CERTAIN INFORMATION REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS
OF AMS -- Indentification of Directors and Officers; Business
Experience -- Arrangements Regarding Selection of Directors and Officers."
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Nextel has entered into agreements with certain stockholders that permit
such stockholders to designate nominees to be elected to the Nextel Board and
certain employment agreements with its key executives that contemplate the
election of such executives to the Nextel Board. Pursuant to the Stock Purchase
Agreement, dated as of December 9, 1991, by and between Nextel and Matsushita
(the "Matsushita Stock Purchase Agreement"), Nextel agreed that Matsushita would
be entitled to designate one member of the Nextel Board if at the time of such
appointment Matsushita or its affiliates own more than 1,500,000 shares of
Nextel Common Stock. In addition, although Comcast currently has no
representatives on the Nextel Board, the Comcast Stock Purchase Agreement
provides that, based on the commitments of the Comcast group to acquire shares
of Nextel Common Stock as contemplated therein, Comcast FCI is entitled to
designate up to two individuals to become members of the Nextel Board.
Furthermore, Comcast FCI is entitled to designate additional members of the
Nextel Board so that the number of designees by the Comcast group taken as a
percentage of the Nextel Board is at least equal to Comcast's percentage
ownership interest in Nextel, but if at any time such percentage of the Comcast
group is less than 8%, Comcast will be entitled to designate only one member of
the Nextel Board. Pursuant to the Stockholders' Voting Agreement, entered into
as of September 14, 1992, by and among Comcast FCI and certain stockholders of
Nextel (including Morgan O'Brien, Brian McAuley, Robert Cooper, Gene L. Clothier
and certain affiliates of Capital Corporation of Chicago), such stockholders
agreed to vote all of their respective shares of Nextel Common Stock and other
voting securities of Nextel in favor of each person designated by Comcast FCI to
be a Nextel Board member pursuant to the Comcast Stock Purchase Agreement.
Pursuant to the Stock Purchase Agreement dated as of April 4, 1994 by and
between Nextel and NTT, NTT is entitled to designate one person to serve on the
Nextel Board. Each of the Matsushita Stock Purchase Agreement, the Comcast Stock
Purchase Agreement and the Stock Purchase Agreement dated as of January 20, 1994
between Nextel and NTT (the "NTT Stock Purchase Agreement"), respectively,
provide that Nextel will, among other things (i) include the person(s)
designated to become a Nextel Board member under the terms of such agreement
(the "Designees") to the slate of nominees proposed to Nextel's stockholders for
election to the Nextel Board, and recommend to the stockholders the Designees'
election to the Nextel Board and (ii) during any period prior to such election
(and, under the terms of the Comcast Stock Purchase Agreement, prior to the
Nextel Board taking any other actions after Comcast FCI becomes entitled to
designate a director), increase the size of the Nextel Board to create a vacancy
for such Designees and promptly appoint such Designees to the Nextel Board.
Additionally, in connection with the McCaw Investor's initial purchase of shares
of Nextel Common Stock pursuant to the McCaw Securities Purchase Agreement on
April 5, 1995, the McCaw Investor is entitled to nominate a single designee for
appointment to the Nextel Board until the earlier of the closing of the McCaw
Transaction or the termination of the McCaw Securities Purchase Agreement.
Finally, the employment agreements between Nextel and each of Messrs. O'Brien,
McAuley and Wayland R. Hicks contemplate that such executives will serve as
members of the Nextel Board.
The Nextel Board currently consists of eight members; one of which, Mr.
Torimoto, was a nominee designated by Matsushita; one of which, Dr. Hayashi, was
a nominee designated by NTT; and one of which, Mr. Jarvis, was the initial
nominee designated by the McCaw Investor. Until their resignations in May, 1995,
Julian A. Brodsky and Donald A. Harris served as Comcast FCI's designees on the
Nextel Board. While Comcast FCI has not designated any replacements to serve on
the Nextel Board, Comcast FCI's contractual rights to representation on the
Nextel Board remain in effect. Upon completion of all of the pending
transactions, the Nextel Board will also include two nominees designated by
Motorola, one nominee designated by each of OneComm and Dial Page and a number
of nominees designated by the McCaw Investor in order to bring its total
representation on the Nextel Board to 25% (currently expected to be a total of
four). The terms of each of the Motorola Agreement and the Comcast Stock
Purchase Agreement contemplate that Motorola and Comcast may grant to certain
transferees acquiring shares of Nextel Common Stock from each of them,
respectively, the right to designate not more than one additional nominee to the
Nextel Board pursuant to each such agreement.
The DGCL permits, but does not require, the adoption of a "classified"
board of directors with staggered terms under which part of the board of
directors is elected each year for a maximum term of three years. In general,
under the DGCL, any or all of the directors of a corporation may be removed,
with or without cause, by vote of the holders of a majority of the shares then
entitled to vote at an election of directors, except that
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the DGCL authorizes removal of a member of a classified board by the
stockholders only for cause (unless otherwise provided in the applicable
certificate of incorporation).
The AMS Charter and AMS By-laws do not provide for such a "classified"
board. The Nextel Charter divides the members of the Nextel Board into three
classes, as nearly equal in number as possible, and does not provide for the
removal of members by the stockholders without cause. Each class of directors is
elected for staggered three-year terms to the Nextel Board. Pursuant to the
Comcast Stock Purchase Agreement, at any time that the Comcast group's Voting
Power Ownership Percentage (as defined in the Comcast Stock Purchase Agreement)
equals or exceeds 30%, Nextel is required, upon Comcast FCI's request, to submit
to its stockholders, at its next annual meeting of stockholders, a proposal to
amend the Nextel Charter to eliminate the "classified" Nextel Board so that all
directors would serve one-year terms. Currently, the Comcast group's Voting
Power Ownership Percentage is below 30%. Upon consummation of the McCaw
Transaction, the McCaw Investor would have the right, as holder of all
outstanding shares of Class A Preferred Stock, to elect 25% of the total number
of members of the Nextel Board (currently expected to be a total of four), and
thereafter to vote to remove, replace or re-elect any such director. It is
contemplated that such directors would be allocated among the three classes of
Nextel directors as evenly as is possible.
SPECIAL MEETINGS OF STOCKHOLDERS
Under the DGCL, special stockholder meetings of a corporation may be called
by its board of directors and by any person or persons authorized to do so by
its certificate of incorporation or by-laws. Under the AMS By-laws, special
meetings of the stockholders may be called by the Chairman, the President, the
AMS Board, or by the holders of not less than one-quarter of all shares entitled
to vote at the special meeting.
Under the Nextel By-laws, special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the Nextel
Charter, may be called by the President and shall be called by the President or
Secretary at the request in writing of a majority of the Nextel Board or at the
request in writing of stockholders owning a majority of the capital stock of
Nextel issued and outstanding and entitled to vote. Such request shall state the
purpose or purposes of the proposed meeting.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Under the DGCL, any action by a corporation's stockholders must be taken at
a meeting of such stockholders, unless a consent in writing setting forth the
action so taken is signed by the stockholders having not less than the minimum
number of votes necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Actions by written
consent, however, may not be taken if otherwise provided in the certificate of
incorporation. The AMS Charter does not prohibit stockholders from acting by
written consent and any action required or permitted to be taken by AMS
stockholders may be effected by such written consent. The Nextel Charter
provides that, subject to certain rights granted to any class or series of stock
having a preference over shares of Nextel Common Stock and Nextel Non-Voting
Common Stock, any action required or permitted to be taken by Nextel
stockholders must be effected at a duly called annual or special meeting of such
stockholders and may not be effected by any consent in writing of such
stockholders. In addition, the shares of Nextel Class A Preferred Stock, Class B
Preferred Stock and Class C Preferred Stock to be issued upon or in connection
with the consummation of the McCaw Transaction would have the right, as to
matters upon which they are entitled to vote separately as a class, to take such
action by written consent in lieu of a meeting.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BY-LAWS
The DGCL allows amendment of a corporation's certificate of incorporation
if its board of directors adopts a resolution setting forth the amendment
proposed and declaring its advisability, and the stockholders thereafter approve
such proposed amendment either at a special meeting called by the board for the
purpose of approval of such amendment by the stockholders or, if so directed by
the board, at the next annual stockholders' meeting. At any such meeting, the
proposed amendment generally must be approved by a majority of the outstanding
shares entitled to vote. The holders of the outstanding shares of a class are
entitled
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to vote as a separate class upon a proposed amendment, whether or not entitled
to vote thereon by the certificate of incorporation, if the amendment would
increase or decrease the aggregate number of authorized shares of such class,
increase or decrease the par value of the shares of such class, or alter or
change the powers, preferences, or special rights of the shares of such class so
as to affect them adversely. If any proposed amendment would alter or change the
powers, preferences, or special rights of one or more series of any class so as
to affect them adversely, but not affect the entire class, then only the shares
of the series so affected by the amendment will be considered a separate class
for the purposes of a vote on the amendment. Under the DGCL, a corporation's
certificate of incorporation also may require, for action by the board or by the
holders of any class or series of voting securities, the vote of a greater
number or proportion than is required by the DGCL and the provision of the
certificate of incorporation requiring such greater vote cannot be altered,
amended or repealed except by such greater vote.
Neither the Nextel Charter nor the AMS Charter contains provisions
requiring a vote greater than that specified in the DGCL to amend the Nextel
Charter or the AMS Charter, respectively.
Under the DGCL, the power to adopt, amend or repeal a corporation's by-laws
resides with the stockholders entitled to vote thereon, and with the directors
of such corporation if such power is conferred upon the board of directors by
the certificate of incorporation. Each of the Nextel Charter and the AMS Charter
authorize the Nextel Board and the AMS Board, respectively, to make, alter,
amend or repeal the respective corporation's by-laws without any action on the
part of the stockholders.
With respect to the amendments proposed to be effected to certain
provisions of the Nextel Charter and the Nextel By-laws upon consummation of the
McCaw Transaction, any future actions proposed to be taken in the nature of
modifications to or affecting such provisions may require the consent, approval
or vote of the McCaw Investor and/or its affiliates, in addition to any other
required Nextel stockholder or Nextel Board action.
VOTE ON MERGER, CONSOLIDATION OR SALE OF SUBSTANTIALLY ALL ASSETS
The DGCL requires approval of any merger, consolidation or sale of
substantially all the assets of a corporation at a meeting of stockholders by
vote of the holders of a majority of all outstanding shares of the corporation
entitled to vote thereon. The certificate of incorporation may provide for a
greater voting requirement. Neither the AMS Charter nor the Nextel Charter
contains a greater voting requirement.
DELAWARE ANTI-TAKEOVER STATUTE
Section 203 of the DGCL, in general, prohibits a "business combination"
between a corporation and an "interested stockholder" within three years of the
date such stockholder became an "interested stockholder", unless (i) prior to
such date the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, exclusive of shares owned by
directors who are also officers and by certain employee stock plans, or (iii)
after such date, the business combination is approved by the board of directors
and authorized by the affirmative vote at a stockholders' meeting of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. The term "business combination" is defined to include, among other
transactions between the interested stockholder and the corporation or any
direct or indirect majority-owned subsidiary thereof, a merger or consolidation;
a sale, pledge, transfer or other disposition (including as part of a
dissolution) of assets having an aggregate market value equal to 10% or more of
either the aggregate market value of all assets of the corporation on a
consolidated basis or the aggregate market value of all the outstanding stock of
the corporation; certain transactions that would increase the interested
stockholder's proportionate share ownership of the stock of any class or series
of the corporation or such subsidiary; and any receipt by the interested
stockholder of the benefit of any loans, advances, guarantees, pledges or other
financial benefits provided by or through the corporation or any such
subsidiary. In general, and subject to certain exceptions, an "interested
stockholder" is any person who is the owner of 15% or more of the
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outstanding voting stock (or, in the case of a corporation with classes of
voting stock with disparate voting power, 15% or more of the voting power of the
outstanding voting stock) of the corporation, and the affiliates and associates
of such person. The term "owner" is broadly defined to include any person that
individually or with or through his or its affiliates or associates, among other
things, beneficially owns such stock, or has the right to acquire such stock
(whether such right is exercisable immediately or only after the passage of
time) pursuant to any agreement or understanding or upon the exercise of
warrants or options or otherwise or has the right to vote such stock pursuant to
any agreement or understanding, or has an agreement or understanding with the
beneficial owner of such stock for the purpose of acquiring, holding, voting or
disposing of such stock. The restrictions of DGCL Section 203 do not apply to
corporations that have elected, in the manner provided therein, not to be
subject to such section or which do not have a class of voting stock that is
listed on a national securities exchange or authorized for quotation on an
interdealer quotation system of a registered national securities association or
held of record by more than 2,000 stockholders.
The AMS Charter and the Nextel Charter do not contain any provision "opting
out" of the application of DGCL Section 203 and neither AMS or Nextel have taken
any of the actions necessary for it to "opt out" of such provision. As a result,
the provisions of Section 203 are applicable to transactions between AMS or
Nextel and any of their respective "interested stockholders." AMS has previously
approved Nextel becoming an interested stockholder of AMS in connection with the
Stock Purchase Transaction. As a result, Section 203 does not apply to Nextel's
acquisition of the entire equity interest in AMS by means of the Merger.
PREEMPTIVE RIGHTS
The DGCL permits a corporation to grant preemptive rights to its
stockholders by a statement to that effect in such corporation's certificate of
incorporation. Neither the AMS Charter nor the Nextel Charter grant preemptive
rights to such corporation's stockholders. However, Nextel has entered into
agreements with various of its stockholders and has, pursuant to certain of such
agreements, granted anti-dilutive rights to such stockholders. See
"SUMMARY -- B. THE PARTIES TO THE MERGER -- Nextel -- Pending Transactions" and
"-- Recent Developments"; and "THE MERGER -- Anti-Dilutive Purchase Rights."
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The DGCL provides that a corporation may limit or eliminate a director's
personal liability for monetary damages to the corporation or its stockholders,
except for liability (i) for any breach of the director's duty of loyalty to
such 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) for paying a dividend or approving a stock repurchase in violation of
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. Both the Nextel Charter and the AMS
Charter provide that, to the full extent provided by law, a director will not be
personally liable for monetary damages to such corporation or its stockholders
for or with respect to any acts or omissions in the performance of his or her
duties as a director of such corporation.
Under the DGCL, directors and officers as well as other employees and
individuals may be indemnified against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation as a
derivative action) if they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interest of the corporation, and,
with respect to any criminal action or proceeding, if they had no reasonable
cause to believe their conduct was unlawful. The AMS Charter, as well as the
Nextel Charter and the Nextel By-laws, provide to directors and officers
indemnification to the full extent provided by law, thereby affording the
directors and officers of AMS and Nextel the protections available to directors
and officers of Delaware corporations. Article VII of the Nextel By-laws also
provides that expenses incurred by a person in defending a civil or criminal
action, suit or proceeding by reason of the fact that he or she is or was a
director or officer shall be paid in advance of the final disposition of such
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall ultimately be
determined that he or she is not entitled to be
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indemnified by Nextel as authorized by relevant Delaware law. The AMS Charter
does not contain any similar provision for advancement for expenses.
PAYMENT OF DIVIDENDS
The DGCL permits the payment of dividends and the redemption of shares out
of paid-in, earned or other surplus. Under the DGCL, if a dividend is paid out
of capital surplus, stockholders need not be so notified, and dividends may also
be paid out of net profits for the fiscal year in which declared or out of net
profits for the preceding fiscal year, even if the corporation surplus accounts
show a deficit.
Holders of AMS Common Stock are entitled to receive dividends out of funds
legally available therefor, when, as and if declared by the AMS Board. AMS has
not paid any dividends on its Common Stock in the past and has no plan to pay
any dividends on such stock for the foreseeable future. Additionally, both the
Merger Agreement and the KOP Credit Agreement prohibit AMS from paying cash
dividends. See "AMS COMMON STOCK HISTORICAL TRADING AND DIVIDEND
INFORMATION -- Dividend Information."
Although Nextel has no shares of Nextel Preferred Stock outstanding, shares
of Nextel Preferred Stock are subject to issuance as provided in the McCaw
Securities Purchase Agreement, and such shares shall be entitled to the dividend
rights and preferences summarized above under the heading "-- Proposed Terms of
Nextel New Preferred Stock." In addition (but subject to such preferred stock
dividend rights and preferences), the Nextel Charter provides that the Nextel
Board may declare and pay dividends on shares of Nextel Common Stock and Nextel
Non-Voting Common Stock (collectively, the "Nextel Capital Stock"), payable in
cash, or otherwise, only after payment in full of, or the setting apart for
payment in full of, dividends declared upon shares of Nextel Preferred Stock at
the time outstanding, to the extent of any preference to which such stock is
entitled, for all present and past dividend periods, and after compliance with
the provisions for any sinking or purchase fund or funds for any shares of any
series of Nextel Preferred Stock. The holders of shares of Nextel Preferred
Stock will not be entitled to share in such dividends paid to holders of shares
of Nextel Capital Stock, subject to the provisions of the resolution or
resolutions creating any series of Nextel Preferred Stock. If dividends are
declared on the shares of Nextel Capital Stock which are payable in shares of
Nextel Capital Stock, dividends will be declared which are payable at the same
rate on shares of both classes of Nextel Capital Stock. However, such dividends
payable in shares of Nextel Common Stock will be payable only to holders of
shares of Nextel Common Stock and such dividends payable in shares of Nextel
Non-Voting Common Stock will be payable only to holders of shares of Nextel
Non-Voting Common Stock.
DISTRIBUTIONS UPON LIQUIDATION
The Nextel Charter provides that in the event of any liquidation,
dissolution, or winding up of Nextel or upon the distribution of the assets of
Nextel, all assets and funds of Nextel remaining, after the payment to the
holders of shares of Nextel Preferred Stock of the full preferential amounts to
which they shall be entitled pursuant to the Nextel Charter and/or the
resolution or resolutions creating any series thereof, shall be divided and
distributed among the holders of shares of Nextel Capital Stock ratably, except
as may otherwise be provided in any such resolution or resolutions.
Under the AMS Charter, all shares of AMS Common Stock share equally, on a
pro rata basis, upon any liquidation, dissolution, or winding up of AMS, after
required payments to creditors and holders of preferred stock, if any, at the
time.
ELECTION OF DIRECTORS OF AMS
The AMS Board has nominated Gary S. Howard and William L. Wedum to serve as
directors of AMS, each to serve for a term expiring upon the consummation of the
Merger or, in the event the Merger is not consummated, until their respective
successors are duly elected and qualified or such persons resign or are removed.
Each of the foregoing nominees is currently a member of the AMS Board. See
"CERTAIN INFORMATION REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS OF AMS" for
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information regarding Messrs. Howard and Wedum. Mr. Richard G. Somers, who is
currently President and Chief Executive Officer of AMS and a member of the AMS
Board and Chairman thereof, has determined for personal reasons not to seek
reelection to the AMS Board, but is expected to continue to serve as President
and Chief Executive Officer of AMS until the consummation of the Merger. If
Messrs. Howard and Wedum are reelected to the AMS Board and the Merger Proposal
is approved and the transactions contemplated by the Merger Agreement are
consummated, Messrs. Howard and Wedum will resign from the AMS Board.
In accordance with the DGCL, a stockholder entitled to vote for the
election of directors can withhold authority to vote for all nominees for
director or can withhold authority to vote for certain nominees for director.
AMS has no reason to believe that any of the nominees will not serve if elected,
but if any nominee should subsequently become unavailable to serve as a
director, the persons named as proxies may, in their discretion, vote for a
substitute nominee designated by the AMS Board, or, alternatively, the AMS Board
may reduce the number of directors to be elected.
THE AMS BOARD RECOMMENDS A VOTE "FOR" THE REELECTION OF MESSRS. HOWARD AND
WEDUM TO THE AMS BOARD.
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BUSINESS OF AMS
GENERAL
AMS is a Delaware corporation incorporated in New Jersey in 1982 and
reincorporated in Delaware in 1987. AMS' principal executive offices are located
at 20920-C Warner Center Lane, Woodland Hills, California 91367, and its
telephone number at that address is (818) 593-3000. AMS also does business under
the names "Autotel Communications Network" and "Star Communications Network."
AMS is engaged in the SMR wireless communications business. SMR services
provided by AMS, through its network of repeater stations located principally
throughout major metropolitan areas of Southeast Florida and on Florida's Gulf
Coast, permit AMS' customers to dispatch fleets of vehicles and place calls
using their two-way mobile radios to or from any telephone in North America
through interconnection with the public switched telephone network. AMS also
sells and rents two-way mobile radio equipment and provides installation, repair
and maintenance services through its wholly owned subsidiary American Mobile
Services Incorporated.
RECENT MATERIAL ACQUISITIONS AND DIVESTITURES
For a discussion of recent transactions with Nextel, see "THE
MERGER -- Background of the Merger."
In December 1994, AMS entered into various agreements with PowerSpectrum of
Miami, Inc. ("PowerSpectrum") by which AMS expects to sell a ten-channel 900 MHz
SMR system located in Miami, Florida to PowerSpectrum for a purchase price of
$300,000. AMS has already received $270,000 of such purchase price in connection
with the sale of the SMR system to PowerSpectrum, and such funds are only
required to be returned by AMS in certain limited circumstances. Also in
December 1994, AMS entered into various agreements with Frank DiRico and a
company which he controls by which AMS expects to sell a ten-channel 900 MHz SMR
system located in Miami, Florida for a purchase price of $400,000. AMS has
already received $80,000 of such purchase price in connection with the sale of
such SMR system, and such funds are only required to be returned by AMS in
certain limited circumstances. Both of the aforementioned sales are contingent
upon FCC approval.
In fiscal 1994, AMS sold its interests in two five-channel trunked 900 MHz
SMR systems in Houston, Texas for a net consideration of $341,000.
On October 6, 1992, AMS entered into an Asset Purchase Agreement (the
"Philadelphia Purchase Agreement") providing for the sale of AMS'
Philadelphia-area SMR business to Philadelphia Mobile Communications, Inc.
("Philadelphia Mobile") for an aggregate consideration of $3,500,000 in cash. A
closing under the Philadelphia Purchase Agreement with respect to most of the
licenses and related assets occurred on February 23, 1993, and the remainder of
the licenses and assets were transferred to Philadelphia Mobile on July 11,
1994.
Pursuant to an Asset Purchase and Sale Agreement, dated July 15, 1993 (the
"RESCO/AMS Agreement"), by and among RESCO/AMS Communications (a joint venture
partnership which is 50% owned by AMS and 50% owned by RESCO, Inc.)
("RESCO/AMS") and Dial Call, Inc., RESCO/AMS agreed to sell all of its 800 MHz
SMR systems and related assets in South Carolina and Georgia for an aggregate
consideration of $1,700,000. A closing under the RESCO/AMS Agreement occurred on
June 10, 1994. Also on June 10, AMS completed the acquisition of RESCO's 50%
interest in RESCO/AMS' SMR systems in Jacksonville, Florida for approximately
$800,000 and RESCO acquired AMS' 50% interest in RESCO/AMS' 450 MHz repeater
business for approximately $100,000. In December 1994, AMS and RESCO, Inc.
agreed to dissolve RESCO/AMS. All remaining assets of RESCO/AMS have been
distributed to its partners in accordance with the RESCO/AMS Agreement.
Pursuant to two Asset Exchange and Purchase Agreements (the "Exchange
Agreements"), each dated as of August 1, 1991, between AMS and JCC, AMS agreed
to exchange its SMR businesses in Atlanta, Georgia and Orlando, Florida for
JCC's SMR sales, SMR service and 450 MHz repeater businesses in Miami and Tampa,
Florida. The transactions were structured as tax deferred exchanges under
Section 1031 of the
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Code. The value assigned for the Tampa business was $3,116,000 and for the Miami
business was $1,534,000. The net book value of the Atlanta business was $300,000
and the Orlando business was $1,679,000. To the extent the values assigned did
not offset, the difference was paid or payable in cash at the closing. The
parties have closed on a majority of the SMR licenses involved in the exchange,
and are operating most of the remaining SMR licenses pursuant to management
agreements pending approval of certain license transfers from the FCC. As of
June 23, 1995, AMS had not received licenses for thirty 900 MHz channels in
Tampa, Florida from JCC, and a dispute currently exists concerning this matter.
The Exchange Agreements provide for liquidated damages in the amount of $40,000
for each channel not delivered, which may result in a claim by AMS against JCC
in the amount of $1,200,000 if the dispute is not amicably resolved. See Note 3
of American Mobile Systems Incorporated and Subsidiary Notes to Consolidated
Financial Statements included elsewhere in this Proxy Statement/Prospectus.
SMR SERVICES
General. Companies authorized by the FCC to provide for-profit two-way
mobile communications services to business and individual users using radio
spectrum in the 800/900 MHz bands are classified as Specialized Mobile Radio
operators. SMR operators are authorized to provide mobile communications
services to business and individual users including base-to-vehicle and
vehicle-to-vehicle two-way radio communications ("dispatch services") as well as
interconnection of customers with the public switched telephone network ("mobile
telephone services").
Traditional technology employed by SMR operators utilizes FM (analog)
transmission, which employs single and multiple site, high power transmitters.
This technology precludes the use of a given frequency by more than one user at
a time within the high power operating area. An SMR system generally consists of
between five and 20 SMR channels which are trunked together to permit the system
to automatically route calls to the first open channel available. Although an
SMR operator typically has exclusive use of the channels used on its system
within its transmitting area, an SMR operator may also use channels that are
shared by other users and which may or may not be trunked. Systems using
non-trunked channels require a user to wait until the channel for which his
radio is programmed becomes available for use.
In order to obtain the greatest usage of channels, most SMR operators in
urban areas emphasize two-way fleet dispatch service, which generally involves
less airtime than mobile telephone service and permits greater customer usage of
a system's channels. Dispatch customers generally are companies that employ
fleets of delivery, service and similar vehicles, and which need to provide
their employees with the ability to communicate rapidly with one another. Mobile
telephone service is usually provided as an added feature to a fleet-dispatch
customer, rather than as a stand-alone service.
The signal emitted by a high power SMR repeater station transmitter will
generally cover a radius of approximately 20 to 35 miles from the transmitter
site. The exact distance is dependent upon the topography of the service area,
with terrain obstacles such as buildings and hills having an adverse effect on
signal strength. If a customer's operations span more than one SMR coverage
area, the customer may elect to have its units programmed to operate with
multiple stations in order to provide a broader service area. Multiple station
capability permits a customer to manually switch to another transmitter as the
user moves between different stations. Customers may obtain additional channel
capacity from the same SMR operator or from multiple operators in the same or
adjacent service areas.
Nextel obtained the first FCC rule waiver in February 1991 to allow a
five-year implementation plan to replace its traditional analog SMR networks in
six major markets with Digital Mobile networks. Nextel commenced activation of
its first Digital Mobile network in Los Angeles on August 31, 1993. See "RISK
FACTORS -- Risks of Implementation of Digital Mobile Networks." On September 13,
1993, the FCC granted AMS' waiver request and most of its associated
applications to implement a Digital Mobile network in southern Florida,
including the Tampa/St. Petersburg, West Palm Beach, Fort Lauderdale and Miami
markets. See "-- ESMR Digital Mobile Network Application" below. The FCC has
granted additional waiver applications to other large SMR operators, which will
permit those operators to implement Digital Mobile or other advanced technology,
wide-coverage area networks in their markets over a period of three to
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five years including in markets where AMS competes. AMS currently does not have
sufficient financing to construct a Digital Mobile network in its Florida
markets if neither the Merger nor the Stock Purchase Transaction is consummated.
In the event that neither of such transactions with Nextel is consummated, AMS
currently expects that it would seek to pursue a substantial equity financing or
other strategic transaction in order to provide AMS with the funds and
additional channel capacity required to construct a Digital Mobile network in
its Florida markets, although there can be no assurance that such financing or
additional channel capacity would be available or that such financing or other
transaction could be completed on terms and conditions acceptable to AMS. In
addition, in the event that the Merger is not consummated, all amounts
outstanding under the KOP Credit Agreement may become due and payable. See "THE
MERGER -- Recommendation of the AMS Board; Reasons of AMS for Engaging in the
Merger" and "AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources -- The KOP Credit Agreement."
Digital Mobile networks will employ TDMA technology, which is currently
expected to result in an approximately six-fold improvement in the capacity of
each channel employed, in addition to further increased capacity through the use
of low power, channel re-use (cellular) methodology. It is anticipated that the
most efficient digital networks will employ low-power, multi-site transmitter
configurations that would permit frequency re-use. Each site would be connected
by microwave, fiber optic or conventional telephone lines to a switching center
that would control the automatic switching of transmissions as a mobile unit
travels from one transmitter service area to another. Digital Mobile networks
are also expected to offer users improved services, including enhanced two-way
radio dispatch, data, paging and mobile telephone communications services,
although the performance of digital technology with respect to voice quality and
voice transmission differs in certain respects from that experienced with
traditional analog cellular systems. Digital Mobile network providers have
experienced some difficulties with system reliability, system access and voice
quality, and resolution of these difficulties will determine, in part, customer
acceptance and the competitive viability of Digital Mobile service. Small SMR
operators are expected to convert to digital technology in the future but
without utilizing a cellular channel re-use configuration. Such operations are
expected to achieve increased dispatch capacity but will be at a competitive
disadvantage in providing mobile telephone service. See "RISK
FACTORS -- Implementation of Digital Mobile Networks Subject to Risks of
Developing Technology."
AMS' SMR Operations. AMS operates SMR systems in various markets
principally in Florida. These systems currently provide service to approximately
25,000 total subscriber units. Most of AMS' SMR systems in these markets utilize
trunked channels with the remainder using conventional channels.
AMS terminated its joint marketing agreement with an SMR operator in New
Orleans from which AMS received no income during fiscal 1994, and is also in the
process of disposing of its interest in an SMR system in Boston for a net
consideration of $75,000. In fiscal 1994, AMS sold small SMR systems in San
Antonio and Austin, Texas, which it operated through a joint venture with a
third party.
AMS' operations located in Southeast Florida and on Florida's Gulf Coast
accounted for approximately 95% of AMS' revenue in fiscal 1994. AMS believes
that it is one of the largest providers of SMR services in Southeast Florida and
on Florida's Gulf Coast, in terms of subscriber units and frequencies in these
areas. AMS is pursuing a strategy of concentrating its operations in Florida,
where AMS has historically had its greatest concentration of SMR systems.
Management Arrangements. In addition to SMR systems for which AMS holds
the applicable FCC licenses (see "-- Government Regulation"), AMS operates SMR
systems under management and related agreements with the holders of the licenses
for the channels used by those systems. Under AMS' agreements and current FCC
policy, the licensee of each managed SMR system retains control of the system
and an interest in the transmitting equipment utilized in the system. AMS bills
the customers of the systems it manages, collects all of the revenue and is
responsible for all expenses associated with the managed SMR systems. The
licensee is paid an annual fee by AMS.
AMS' management and related agreements are typically for a term of ten
years and, in most cases, AMS has received a purchase option or a right of first
refusal on the managed system. Certain of AMS' managed
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licensees have the right to "put" the managed system to AMS at an agreed-upon
price upon the occurrence of certain events. AMS' aggregate liability under all
outstanding put agreements was approximately $50,000 on June 23, 1995.
The FCC has notified four licensees of SMR systems, who collectively have
eighteen channels located in the vicinity of Homestead, Florida and are subject
to management agreements with AMS, that their licenses were cancelled for
failure to timely construct their SMR systems. AMS has advised the FCC that AMS
timely constructed the licensees' SMR systems on their behalf. The licensees
filed petitions with the FCC for reconsideration, which petitions were
subsequently denied. The licensees are currently appealing the FCC's decision in
this matter. AMS intends to continue to assist these licensees in vigorously
pursuing reinstatement of their licenses.
COMMUNITY REPEATER SERVICE
AMS provides community repeater service to fleet dispatch users in the
major markets it serves, utilizing approximately 55 repeater stations. (A
community repeater consists of a single channel that is shared by various end
users, each of whom is licensed by the FCC to transmit on the channel.) These
stations provide comparable coverage to AMS' SMR systems, but do not afford the
users certain privacy features and interconnection with the public switched
telephone network. Most of AMS' community repeater stations operate in the 450
MHz band.
ANTENNA TOWER OPERATIONS
AMS owns and operates five antenna towers and underlying real estate in the
State of Florida, each with a height of between 500 to 650 feet. AMS operates
these towers in connection with the provision of its SMR services and rents
space on the towers to other radio communications users.
MARKETING
AMS markets its SMR and community repeater services primarily to businesses
that employ fleets of vehicles which require two-way radio dispatch capability.
AMS also markets its SMR services, to a more limited extent, to subscribers who
require a combination of dispatch and mobile telephone service. AMS' marketing
and sales and service agreements with RESCO were terminated on August 31, 1992,
and those functions are now performed through AMS' wholly owned subsidiary,
American Mobile Services Incorporated. AMS has agreed in the Merger Agreement to
use its reasonable best efforts to cause such subsidiary to be dissolved prior
to the Effective Time of the Merger.
In addition to its internal marketing staff, AMS has marketing agreements
with independent sales representatives. Pursuant to these agreements as
currently in effect, a sales representative that places a customer on an SMR
system of AMS is paid a one-time activation commission.
AMS also markets radio equipment, installation and repair services to its
customers and to other users of two-way radios. Subscriber units that are sold
to customers of AMS' SMR systems are typically installed and maintained by AMS'
service staff.
EQUIPMENT
AMS purchases radio equipment and dispatch radios and related equipment
from E.F. Johnson Company, Inc. ("E.F. Johnson"), Motorola, Uniden Corporation
("Uniden") and Standard Communications, Inc., which it sells and rents to its
customers and others. Two-way mobile units used in conjunction with dispatch
services may be fitted to provide mobile telephone capability. AMS offers its
customers a varied line of mobile telephone and two-way radio products with a
variety of functions and features.
A majority of AMS' SMR and community repeater station equipment has been
supplied by E.F. Johnson. The E.F. Johnson switching format is one of three
major trunking formats available for SMR systems. At least three other suppliers
provide competitive equipment compatible with the E.F. Johnson
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trunked channel switching format. The remaining SMR stations operated by AMS
employ Motorola equipment, which is not compatible with the E.F. Johnson
switching format.
AMS is not currently dependent on any single supplier for radio equipment
and dispatch radios or for its repeater station equipment, except that AMS'
Motorola trunked repeater station equipment can only be obtained from Motorola
or from other SMR operators. At the present time, Motorola is the only
manufacturer of TDMA digital repeater station equipment.
EMPLOYEES
AMS employed 59 persons as of June 23, 1995. None of AMS' employees are
represented by a union. AMS believes that its relationship with its employees is
good.
AMS also utilizes the services of independent dealers, who are paid on a
commission basis. See "-- Marketing" above.
GOVERNMENT REGULATION
The construction, operation and transfer of control of SMR systems
(including Digital Mobile networks) are regulated by the FCC under the
Communications Act. The FCC has allocated a specific number of frequencies in
the 800 and 900 MHz radio spectrum bands for use by SMR systems, and issues
licenses to the extent there are available frequencies.
An SMR licensee whose SMR license was granted prior to January 2, 1995 is
normally required to construct and place an SMR system in operation within one
year from the date of the license grant. A conventional system granted prior to
that date must be constructed and placed in operation within eight months from
the date of the license grant. Failure to meet these requirements results in
automatic license cancellation. A request for waiver of the normal construction
period will be considered by the FCC only in extraordinary circumstances,
including where licensees propose to employ advanced, highly efficient
technologies in the construction of their system, such as Digital Mobile
networks.
Prior to January 2, 1995, an SMR operator of trunked channels licensed
before June 1, 1993, whose five-year license grant expired before January 3,
1995, had to meet certain "loading" requirements. Each channel on such an SMR
system was required to be loaded with a minimum of 70 mobile units per channel
within five years of the initial license grant. 900 MHz SMR operators have been
given an initial two-year extension to meet this loading requirement. If a given
SMR system was not loaded with 70 mobile units per channel within the applicable
period, the authorization could be superseded to reduce the number of channels
to one per each 100 mobile units, or fraction thereof, being served. AMS and the
licensees it manages historically have met the loading requirement for most of
their licenses and have retained ownership of over 90% of the trunked channels
utilized by their SMR systems. Effective January 2, 1995, the FCC eliminated the
five-year loading requirement for all 800 MHz trunked SMR systems but retained
the requirement for all non-SMR trunked 800 MHz systems and all 900 trunked MHz
systems (SMR and non-SMR).
Prior to January 2, 1995, an SMR licensee was prohibited from acquiring
additional channels within a forty-mile radius until all its previously
authorized channels were loaded. If a licensee met the loading requirements, it
could apply to the FCC for additional SMR frequencies or, if no more frequencies
were available for assignment in the licensee's geographic area, the licensee
could apply for admission to a waiting list for SMR frequencies recovered for
failure to construct, for permanent discontinuance of operation or for failure
to load the frequencies. The FCC gave preference to those licensees on a waiting
list who were operating an SMR system in the relevant geographic area and who
had achieved loading of 70 units per channel on that system, as opposed to new
applicants who had not yet been authorized for an SMR system in the relevant
geographic area. The FCC permitted an SMR licensee to operate, pursuant to
management arrangements that did not conflict with FCC rules and policies,
additional SMR systems within a forty-mile radius of unloaded channels owned by
such licensee. Effective January 2, 1995, the FCC eliminated its forty-mile
rule. SMRs may now acquire additional frequencies within forty miles if all
authorized frequencies have been constructed.
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An 800 MHz SMR licensee is initially granted the use of up to five trunked
channels, and may obtain additional channels, if available, once its initial
channels are constructed and placed in operation. There are no regulatory
restrictions on the number of mobile units that may be served on SMR trunked
systems, or on the number of channels that may be trunked together.
FCC regulations protect licensees from co-channel interference by other
licensees through equipment power limitations, antenna height restrictions and
minimum mileage separation requirements. In general, minimum co-channel
separation is 70 miles, although closer spacing ("short spacing") is permitted
under FCC regulations where the FCC has determined that minimal co-channel
interference will result. A trunked SMR license entitles the holder to exclusive
use of the channels covered thereby (subject to any permitted short spacing) for
a five-year term, subject to compliance with FCC rules. Assuming compliance with
those rules, a license may be renewed for additional five-year terms. Any SMR
license may be revoked by the FCC for cause, subject to the right of a licensee
to a hearing.
The FCC eliminated, with certain exceptions, a longstanding requirement
that subscribers of SMR systems be separately licensed by the FCC. Subscribers
now operate under a blanket license granted to the SMR system licensee. SMR
licensees are responsible for exercising operational responsibility over all
mobile units that they authorize to use their SMR systems, including assuring
compliance with applicable FCC rules.
The Communications Act and FCC rules and policy grant SMR operators the
right to provide their customers interconnection with public switched telephone
network services provided by common carriers. AMS has been able to obtain
satisfactory interconnection arrangements with telephone companies in the
markets in which it currently operates.
Prior to the 1993 amendments to the Communications Act, SMR operators had
been classified under the Communications Act as private carriers, rather than as
common carriers. As such, unlike common carriers such as cellular providers, SMR
operators did not file tariffs, could refuse service to anyone and could
negotiate individually with each customer with respect to the charges and
conditions under which service may be provided. The Communications Act expressly
preempted state and local government rate and entry regulation of SMR operators.
Community repeater operators were also eligible to be licensed as private
carriers or to require each of their customers to obtain its own license for the
repeater stations utilized.
The Communications Act was amended in August 1993, to create a new category
of land mobile service, CMRS, which encompasses a significant number of
commercial, interconnected land mobile systems which provide service to the
public generally or to large categories of the public. All such systems will be
considered common carriers.
In an Order adopted on February 3, 1994 (the "February 3, 1994 Order"), the
FCC completed its first stage of implementing these statutory changes by
adopting rules which reclassified a variety of heretofore private land mobile
services as CMRS. This Order defined trunked and conventional SMRs at both 800
MHz and 900 MHz, as well as private carriers below 800 MHz, as CMRS if the
systems are interconnected with the public switched telephone network. The Order
also reclassified cellular carriers, paging services and presumably PCS
providers as CMRS.
The February 3, 1994 Order also incorporated the statutorily-mandated
three-year transition period for the conversion of previously private systems to
CMRS status. Licensees authorized systems in a reclassified service prior to
August 10, 1993, are eligible for this transition period which will expire on
August 10, 1996. Such licensees may modify their authorizations and acquire
additional systems in the same service, and still retain transition eligibility.
Thus, the systems operated or managed by AMS have been reclassified as CMRS if
they are interconnected with the public switched telephone network, but will not
become subject to CMRS obligations, including the obligation imposed under Title
II of the Communications Act, until the end of the prescribed period, unless the
FCC reclassifies particular types of operations as a "new service" not entitled
to the transition period.
The February 3, 1994 Order was issued by the FCC pursuant to the FCC's
authority under the Budget Act, to forbear from imposing certain common carrier
statutory provisions on newly created CMRS providers. The Order did impose,
among other requirements, the requirement that service be provided on a non-
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discriminatory basis and at just and reasonable rates. However, the FCC forbore
from imposing the requirement that CMRS providers be required to file tariffs,
having concluded that the market will be sufficiently competitive to ensure
consumer protection.
The Order postponed resolution of several issues to subsequent FCC
proceedings. The FCC has initiated or will initiate proceedings on the following
topics: (i) addressing whether CMRS providers should be required to provide
interconnection to other CMRS providers; (ii) determining whether equal access
obligations should be imposed upon all CMRS providers; (iii) modifying and
combining the rules and regulations currently applicable to common and private
carriers to ensure that the licensing and other requirements are the same for
all CMRS providers; (iv) determining whether and to what extent local exchange
carriers will be required to file interconnection tariffs; (v) monitoring
cellular licensees and the competitiveness of cellular markets; (vi) determining
whether the FCC should further forbear for certain classes of CMRS providers;
(vii) investigating whether cellular providers should be permitted to provide
dispatch services; and (viii) determining whether wireline companies should be
allowed into the SMR business.
On May 20, 1994, the FCC released an NPRM to rewrite the technical,
operational and licensing rules as they apply to Part 90 licensees, such as AMS,
that are being reclassified as CMRS. The rule making sought industry comment on
whether Digital Mobile networks should be licensed and operated on a basis
similar to that of cellular systems. The NPRM also proposed to place a spectrum
cap on all CMRS providers, limiting them to 40 MHz of CMRS spectrum.
On September 23, 1994, the FCC released its Third Report and Order which
imposed a 45 MHz CMRS spectrum cap on all broadband CMRS providers, including
cellular, PCS and wide-area SMRs (with a limit of 10 MHz on the amount of SMR
spectrum that can be attributed to a single entity). In the Third Report and
Order, the FCC concluded that regulatory parity requires that wide-area SMRs be
licensed on a geographic basis similar to cellular and PCS. Although tentatively
concluding that these licenses should be based on MTA's, the FCC also stated
that the specific implementation of such wide-area licenses should be determined
in a FNPRM. While awaiting the outcome of that rule making, the FCC suspended
the acceptance of applications proposing new or modified stations on any of
two-hundred-eighty 800 MHz SMR channels. Only those applicants who can show that
their application (i) affects only channels on which such applicant is already
permanently licensed and (ii) impacts coverage only within the applicant's
geographic coverage area, will be permitted to file applications requesting
waivers of that application freeze. While the Third Report and Order provides
for the licensing of the wide-area SMR systems underlying the Digital Mobile
networks, there can be no assurance that further revisions to the 800 MHz
wide-area SMR licensing rules and the licensing freeze will not have an adverse
effect on the development of a Digital Mobile network by AMS.
The FCC released its FNPRM for the licensing of wide-area SMRs on November
4, 1994. In the FNPRM, the FCC tentatively concluded that the upper 200 SMR
Channels in the 800 MHz SMR band should be auctioned in blocks of 50 channels,
but further permitted any licensee to accumulate all four blocks in a single
market. The block licensee would then have the ability to use all available
spectrum within the MTA, including the ability to add, subtract or move stations
within the MTA, subject to providing co-channel interference protection for the
incumbent licensees or negotiating with those incumbents to acquire their SMR
Licenses. The FCC tentatively concluded that the MTA licensee would not be
permitted to require the retuning of incumbent SMR systems in their block to
frequencies in other portions of the 800 MHz band. In this FNPRM, the FCC
proposed to require all MTA licensees to construct their wide-area systems
within five years and provide service to one-third of the MTA population within
three years and two-thirds of the MTA population within five years. These
proposals were the subject of industry comments on January 5, 1995. Reply
comments were due March 1, 1995. The FCC has given no indication of a time for a
final decision.
On May 4, 1994, the FCC issued an NPRM seeking comment on whether to
further forbear from the remaining Title II provisions for all or only certain
CMRS providers. On July 1, 1994, the FCC released an NPRM and Notice of Inquiry
on the equal access and interconnection issues, tentatively concluding that
equal access should be imposed upon all cellular and possibly some other CMRS
providers. The FCC sought
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comment on whether it should require the local exchange carriers to offer
interconnection to CMRS providers under tariff or whether it should retain its
current system of individually negotiated agreements. In addition, the FCC
sought comment on whether CMRS providers should be required to offer
interconnection to resellers of CMRS and whether to impose resale obligations on
any additional class of CMRS providers. The Commission subsequently adopted a
second notice of proposed rule making in this proceeding on April 5, 1995 in
which it tentatively determined not to mandate CMRS interconnection or roaming
at this time, but to require CMRS resale. Comments were filed by several parties
on June 14, 1995. On March 7, 1995, the FCC issued a Report and Order
eliminating the wireline restriction on SMR ownership and the prohibition
against the provision of dispatch service by Cellular and other common carrier
operators. The changes were made effective immediately upon the effective date
of such report and order. Additionally, on May 5, 1995, the FCC adopted an NPRM
to allow interactive video and data service licenses to provide mobile service
to subscribers on an ancillary basis. Finally the FCC has proposed to expand the
CMRS spectrum cap to include PMRS systems as well. Comments on this proposal
were filed in June 5, 1995 and reply comments are due on June 26, 1995.
AMS anticipates that these rule makings, each of which is still pending at
the FCC, will significantly affect the development, implementation, and
operation of its SMR systems. Further, the FCC may decide to impose certain
obligations on CMRS providers, such as the provision of equal access to
long-distance providers, that also could adversely impact AMS' competitive
advantage.
From time to time, proposals seeking the allocation of additional spectrum
for land mobile radio and other similar uses have been introduced before the FCC
and Congress. AMS cannot predict whether or when such proposals may be adopted
and, if adopted, the extent to which any future allocation of additional
spectrum would affect the operation of AMS' SMR systems.
On September 23, 1993, the FCC adopted rules which will permit the
licensing of up to seven PCS systems in broad geographic areas. This decision
was modified on reconsideration on June 9, 1994, and the number of licenses was
reduced to six. Each of these licensees will be authorized for between 10 MHz
and 30 MHz of spectrum in the 1.8 GHz to 2.2 GHz bands. Licensees will be
selected by a competitive bidding (auction) process. The initial round of these
auctions has been held and two 30 MHz PCS licenses have been granted in each MTA
in the United States. The entities awarded a substantial portion of the 30 MHz
PCS licenses in the first round included a number of current cellular
communications service providers and joint ventures of current and potential
wireless communications service providers, many of which have financial
resources greater than those of AMS and Nextel. The next PCS auction round,
which is limited to entities that meet specific size and ownership limitations,
is currently scheduled to begin on August 29, 1995. That auction will assign
BTA-based licenses. However, since that auction includes special provisions for
female and minority owned businesses that date could be postponed in light of
the Supreme Court's June 12, 1995 decision in Adarand Constructors Inc. v. Pena,
in which the Supreme Court determined that federal racial classifications must
serve a compelling public interest, be narrowly tailored to further that
interest and be subjected to "strict scrutiny".
COMPETITION
AMS' principal competitors for the provision of dispatch and mobile
telephone service in the markets it serves are cellular, community repeater and
other SMR operators. AMS is one of the leading providers of SMR and community
repeater services in Southeast Florida and on Florida's Gulf Coast. The cellular
competitors are BellSouth Mobility Inc., McCaw and GTE Mobilnet. The largest SMR
competitors of AMS in these markets are Nextel, Motorola and Dial Page; however,
Nextel has agreed to acquire such competing SMR businesses of Motorola and Dial
Page pursuant to the Motorola Transaction and the Dial Page Transaction. See
"SUMMARY -- B. THE PARTIES TO THE MERGER -- Nextel -- Pending
Transactions -- Motorola Transaction" and "-- Dial Page Transaction." Motorola
is both a manufacturer of customer equipment as well as the largest operator of
SMR and community repeater systems in the United States. See "RISK
FACTORS -- Reliance on One Principal Supplier in Implementation of Digital
Mobile Networks." Each of Nextel and Dial Page has obtained FCC authorization to
construct an advanced technology, wide-area coverage SMR Digital Mobile network
in certain of the markets in which AMS has competing systems.
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<PAGE> 141
There are numerous providers of 450 MHz, 800 MHz and 900 MHz community
repeater service in each of the markets AMS serves. These operators provide a
less sophisticated, and generally less expensive, dispatch repeater service
chiefly used by fleets that do not require service interconnected with the
public switched telephone network.
Many prospective customers of AMS choose less expensive radio paging
service to satisfy their need to communicate with vehicles and persons in the
field. AMS does not currently provide radio paging service.
AMS believes that competition for customers of its communications service
is largely based on price, quality of transmission, channel availability and
size of coverage area. The technology employed in cellular communications
systems is generally viewed as offering higher capacity and superior quality
mobile telephone service than that which is available from AMS. However,
cellular systems are not authorized to provide dispatch service, which
constitutes AMS' primary revenue source. AMS anticipates that its competitive
position for the provision of mobile telephone service will be strengthened with
cellular providers for mobile telephone service if and when it is able to
convert its current analog SMR systems to digital technology. See "-- ESMR
Digital Mobile Network Application."
AMS has numerous competitors in the sale and service of mobile radios and
other SMR communications equipment. In addition to other SMR and community
repeater operators in its markets, AMS also competes with equipment
manufacturers, such as Motorola, Uniden and E.F. Johnson, and with independent
dealers. Equipment manufacturers and their independent dealer networks will
often place customers on the manufacturer's SMR or community repeater systems,
and may place customers on AMS' systems or a competing independent SMR or
community repeater operator's systems. AMS believes that the principal
competitive factors in the sales and service business are the pricing and
quality of equipment and available features, warranty and service.
AMS may also face competition from additional services and technologies
that are introduced in the future, such as PCS.
ESMR DIGITAL MOBILE NETWORK APPLICATION
On December 10, 1992, AMS commenced the filing of applications
(collectively, the "ESMR Application") with the FCC to permit AMS to integrate
its current analog frequency modulation SMR systems in Southeast Florida and on
Florida's Gulf Coast into a single wide-area digital mobile network. Those
systems currently operate on an approximate total of 500 channels. A five year
construction and implementation period was requested, which required a waiver of
the FCC's normal one year construction period for trunked systems. On September
13, 1993, the FCC completed its approval of the ESMR Application, deleting some
channels which could not meet the FCC's most recent co-channel interference
criteria.
The ESMR Application proposed the use of 113 sites along the east coast of
Florida, across the southern portion of the state and along Florida's Gulf
Coast. Each site, as currently proposed, would employ low-power frequency reuse
techniques (similar to those used in cellular systems) and digital transmitters.
If AMS is able to obtain the requisite financing to construct its proposed
Digital Mobile network, management currently expects to utilize equipment which
will employ TDMA technology. Through the use of this technology, AMS expects to
achieve a substantial increase in its subscriber capacity, due to an anticipated
six-fold increase in the number of calls that may be carried on each channel
within AMS' Digital Mobile network, and an estimated fifteen-fold increase in
system capacity due to frequency reuse. See "RISK FACTORS -- Implementation of
Digital Mobile Networks Subject to Risk of Developing Technology."
AMS expects that the use of digital technology would permit AMS to offer
additional services, including fixed and mobile data, paging, vehicle location,
facsimile and electronic mail services, as well as portable telephone and
enhanced mobile telephone services. AMS anticipates that if it is able to
convert its SMR systems in Florida to Digital Mobile networks, AMS' ability to
offer mobile and portable telephone service within these areas competitive to
that of cellular operators will depend on a number of factors, including
customer acceptance of voice quality and voice transmission as experienced by
users of digital technology; resolution of current difficulties with Digital
Mobile network system reliability, system access and voice
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<PAGE> 142
quality; and the development of alternate technologies at a later date. See
"RISK FACTORS -- Risks of Implementation of Digital Mobile Networks" and
"-- Implementation of Digital Mobile Networks Subject to Risk of Developing
Technology."
In connection with the negotiations relating to the Stock Purchase
Agreement, AMS and Nextel entered into an agreement, dated as of June 4, 1993,
as amended (the "Short Spacing Agreement"), pursuant to which AMS and Nextel
have agreed to consent, and to use their best efforts to arrange for the consent
of any AMS-managed or Nextel-managed, as appropriate, licensees, to the "short
spacing" of certain of AMS' or Nextel's and such licensee's 800 MHz SMR licenses
by stations to be included in the wide-area SMR filing of AMS or MCF, as
applicable. The Short Spacing Agreement provides that if AMS and Nextel have not
consummated the Stock Purchase Agreement by its termination date (only in the
event that the Stock Purchase Agreement returns to full force and effect), then
Nextel or AMS, as applicable, will, or will cause its subsidiary to: (i) request
FCC modification of any license issued to a party pursuant to its wide-area SMR
filing to delete or relocate any frequency obtained solely by virtue of the
Short Spacing Agreement; (ii) amend any pending wide-area application of a party
to delete or relocate any frequencies obtainable solely by virtue of the Short
Spacing Agreement; and (iii) with respect to consents from AMS-managed or
Nextel-managed, as appropriate, licensees, otherwise modify such licenses and
amend such applications as may be necessary to adjust for the withdrawal of
consents granted pursuant to the Short Spacing Agreement. The Short Spacing
Agreement facilitates the construction of a Digital Mobile network in Florida
using the SMR systems of AMS and MCF, while protecting the regulatory status of
AMS' or Nextel's SMR systems in the event the Stock Purchase Agreement is
returned to full force and effect and that the transactions contemplated by the
Stock Purchase Agreement are not consummated.
PROPERTIES
AMS leases approximately 3,900 square feet of office space at 20920-C
Warner Center Lane, Woodland Hills, California. The lease for this space expires
on October 30, 1995.
AMS leases industrial facilities and space on building rooftops and
broadcast towers in Florida in connection with its SMR operations and sales and
service business in that state.
AMS owns five antenna towers, which are located in Bradenton, Brooksville,
Lecanto and Hudson, Florida. See "-- Antenna Tower Operations".
The properties owned and leased by AMS are, in the opinion of AMS
management, suitable and adequate for AMS' current operations.
LEGAL PROCEEDINGS
On or about March 26, 1992, Frank and Kathleen Seidman (together, the
"Plaintiff") filed a complaint (the "Seidman Complaint") in the United States
District Court for the Eastern District of Pennsylvania, Civil Action No.
92-1782, against AMS and William J. Young, AMS' former Director, President,
Chief Executive Officer and Chief Financial Officer (the "Seidman Action"). The
Seidman Complaint was filed as a class action on behalf of a putative class
consisting of all persons who purchased AMS Common Stock during the period
commencing April 9, 1991 and ending March 24, 1992 and who claimed to have
suffered damages as a result thereof.
The Plaintiff asserts claims against AMS and Mr. Young for violations of
Federal securities laws, including Section 10(b) of the Exchange Act and Rule
10b-5 promulgated by the Commission thereunder. In substance, the Plaintiff
alleges that Mr. Young, in his capacity as President and Chief Executive Officer
of AMS, directed and approved the unauthorized transfer of $4.1 million from the
accounts of AMS, and that AMS did not properly account for the unauthorized
transfers in its financial statements, which resulted in those statements
materially misrepresenting AMS' financial condition.
On March 16, 1993, AMS timely answered the Seidman Complaint, denying all
allegations of wrongdoing and specifically denying that AMS violated Section
10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.
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<PAGE> 143
On March 24, 1993, the Plaintiff filed a complaint (the "Deloitte
Complaint") in the United States District Court for the Eastern District of
Pennsylvania, Civil Action No. 93-1564, against Deloitte & Touche, the
accounting firm formerly responsible for performing audit services for AMS (the
"Deloitte Action"). The Deloitte Complaint was filed as a class action on behalf
of a putative class consisting of all persons who purchased AMS Common Stock
during the period commencing July 1, 1990 and ending March 24, 1992 and who
claimed to have suffered damages as a result thereof. The Deloitte Complaint
asserts claims against Deloitte & Touche for violations of Federal securities
laws, including Section 10(b) of the Exchange Act and Rule 10b-5, in connection
with the same events as those described in the Seidman Complaint.
On July 26, 1993, the Seidman Action and the Deloitte Action were
consolidated under Civil Action No. 92-1782.
On August 5, 1993, the Plaintiff filed a consolidated complaint in the
United States District Court for the Eastern District of Pennsylvania, Civil
Action No. 92-1782, against AMS, William J. Young, and Deloitte & Touche (the
"Consolidated Complaint"). The Consolidated Complaint was filed as a class
action on behalf of a putative class consisting of all persons who purchased
AMS' common stock during the period commencing July 1, 1990 and ending March 24,
1992 and who claimed to have suffered damages as a result thereof. The
Consolidated Complaint reasserted the claims against AMS, Mr. Young, and
Deloitte & Touche for violations of Federal securities laws, including Section
10(b) of the Exchange Act and Rule 10b-5.
On August 20, 1993, AMS timely answered the Consolidated Complaint, once
again denying all allegations of wrongdoing and specifically denying that AMS
violated Section 10(b) of the Exchange Act and Rule 10b-5.
On September 30, 1994, the United States District Court for the Eastern
District of Pennsylvania, Civil Action No. 91-1782, granted the Plaintiff's
motion for class certification in the Consolidated Complaint and certified the
class to consist of all persons who purchased or acquired the AMS Common Stock
during the period from July 1, 1990 until March 24, 1992 and who were injured as
a result thereof. Additionally, the Plaintiff was certified as the
representative of the class.
AMS intends to continue to defend itself vigorously against the class
action lawsuit.
Three purported class action lawsuits (the "Purported Class Action") were
filed by certain AMS stockholders on September 9, and 12, 1994 in the Delaware
Court of Chancery against AMS, its directors (Richard G. Somers, Gary S. Howard
and William L. Wedum) and Nextel in connection with Nextel's previously
announced proposal to acquire AMS in a tax-free merger in which AMS'
stockholders would receive 3,000,000 shares of Nextel Common Stock. The
complaints in the three actions allege that AMS' directors, who allegedly were
aided and abetted by Nextel, breached their fiduciary duties to AMS'
stockholders by supposedly failing to seek the highest available price in
connection with the proposed sale of AMS. On November 15, 1994, the Delaware
Chancery Court entered an order consolidating the three lawsuits for all
purposes in an action styled as In re: American Mobile Systems Incorporated
Stockholders Litig.; Consol. C.A. No. 13731. The consolidated order also
provides that plaintiffs in the consolidated action will file an amended and
supplemental complaint as soon as possible. To date, no complaint has been filed
in the consolidated action.
AMS believes the complaints are without merit and intends to vigorously
defend against them.
The Commission has conducted a formal investigation (In the Matter of
American Mobile Systems Incorporated, HO-2624) concerning events surrounding the
unauthorized transfers of funds from the accounts of AMS by William J. Young.
AMS voluntarily cooperated with an informal investigation by the Commission and
has continued its cooperation during the formal investigation by the Commission.
AMS has offered a settlement to the Commission, which has been accepted, whereby
AMS would consent to the entry of an administrative order which specifies that
AMS shall cease and desist from committing or causing any violation, and
committing or causing any future violation, of Sections 13(a) and 13(b)(2)(B) of
the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
There are no other material pending legal proceedings, other than ordinary
routine litigation incidental to the business of AMS, to which AMS is a party or
to which any of its properties is subject.
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AMS COMMON STOCK HISTORICAL TRADING AND DIVIDEND INFORMATION
HISTORICAL TRADING PRICE OF THE AMS COMMON STOCK
AMS Common Stock has been listed on the Nasdaq NM since February 18, 1992,
except for the period of October 28, 1994 to November 29, 1994, when AMS Common
Stock was deemed to be ineligible for quotation on the Nasdaq NM and traded on
the Nasdaq SmallCap Market. See "THE MERGER -- Background of the Merger." AMS
Common Stock trades under the symbol "AMSE." As of June 23, 1995, there were 211
holders of record of AMS Common Stock. The transfer agent for AMS Common Stock
is American Stock Transfer & Trust Company, 40 Wall Street, 46th Floor, New
York, New York 10005, telephone: (718) 921-8200.
The following table sets forth for each fiscal quarter (or portion
thereof), during the periods indicated the range of high and low sales prices
for AMS Common Stock on the Nasdaq NM (except as noted in footnote (1)), as
furnished by the Nasdaq NM. The information does not include retail mark-ups,
mark-downs or commissions. AMS has a fiscal year which ends on June 30.
<TABLE>
<CAPTION>
NASDAQ NM HIGH SALES LOW SALES
- ----------------------------------------------------------------------- ---------- ---------
<S> <C> <C>
FOR THE PERIOD JULY 1, 1992 THROUGH JUNE 30, 1993:
First Quarter.......................................................... $4 1/8 $ 3 1/4
Second Quarter......................................................... 4 2 1/4
Third Quarter.......................................................... 7 1/4 3
Fourth Quarter......................................................... 8 5 1/2
FOR THE PERIOD JULY 1, 1993 THROUGH JUNE 30, 1994:
First Quarter.......................................................... 20 1/4 6
Second Quarter......................................................... 26 3/4 13 1/4
Third Quarter.......................................................... 18 1/4 12
Fourth Quarter......................................................... 14 9 1/2
FOR THE PERIOD JULY 1, 1994 THROUGH JUNE 26, 1995:
First Quarter.......................................................... 14 9 3/4
Second Quarter(1)...................................................... 10 1/2 4 1/4
Third Quarter.......................................................... 5 1/2 2 3/4
Fourth Quarter (through June 26, 1995)................................. 9 3/4 3 3/4
</TABLE>
- ---------------
(1) For the period October 28, 1994 to November 29, 1994, reflects the range of
high and low sales prices for AMS Common Stock on the Nasdaq SmallCap
Market, as furnished by the Nasdaq SmallCap Market. Such information does
not include retail mark-ups, mark-downs or commissions.
On April 25, 1995, the last full trading day preceding the public
announcement of the signing of the Merger Agreement, AMS Common Stock had a high
sales price of $5 per share and a low sales price of $4 3/4 per share. On June
26, 1995, the last full trading day prior to the date of this Proxy
Statement/Prospectus, AMS Common Stock had a high sales price of $8 3/8 and a
low sales price of $8 3/8 per share.
Upon consummation of the Merger, AMS will be a wholly owned subsidiary of
Nextel and each share of AMS Common Stock will represent the right to receive
0.62 of a share of Nextel Common Stock (subject to certain possible
adjustments). See "THE MERGER AGREEMENT."
DIVIDEND INFORMATION
AMS has paid no cash dividends to date. AMS anticipates that in the
foreseeable future its earnings, if any, will be retained for use in its
business and that no cash dividends will be paid on AMS Common Stock. Payment of
future cash dividends, if any, will be determined by the AMS Board based upon
the conditions then prevailing, including AMS' profitability, capital
requirements, business outlook and other factors. Since AMS has no surplus and
has incurred a net loss since its inception, it is currently prohibited from
paying cash dividends under the DGCL. Additionally, both the Merger Agreement
and the KOP Credit Agreement prohibit AMS from paying cash dividends.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF AMS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of June 23, 1995, the beneficial
ownership of the AMS Common Stock by each person (including any "group" as that
term is used in Section 13(d)(3) of the Exchange Act) who is known to AMS to be
the beneficial owner of more than 5% of the outstanding shares of AMS Common
Stock as of that date. To AMS' knowledge, all such persons except for TCI and
Nextel have sole voting and investment power with respect to the shares
indicated as beneficially owned by them. As described under "THE
MERGER -- Stockholder Voting Agreement," TCI's shares are subject to the Voting
Agreement with Nextel, and Nextel has agreed in the Merger Agreement to vote its
shares of AMS Common Stock in favor of the Merger Proposal and not to dispose of
any of such shares prior to the Merger.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP(1) CLASS(2)
- ----------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Tele-Communications Inc.(3)
Terrance Tower II
5619 DTC Parkway
Englewood, Colorado 80111...................................... 2,668,734 36.8%
NEXTEL Communications, Inc.
201 Route 17 North
Rutherford, New Jersey 07070................................... 2,514,286(4) 27.8%
</TABLE>
- ---------------
(1) As of June 23, 1995, there were 7,243,006 shares of AMS Common Stock issued
and outstanding. The number of shares of AMS Common Stock which would be
issued and outstanding if all warrants and options to purchase shares of AMS
Common Stock (which were exercisable or became exercisable within 60 days
following June 23, 1995) were exercised is 9,323,823.
(2) Pursuant to Rule 13d-3(d)(1) under the Exchange Act, each percentage is
calculated assuming that the named stockholder had converted or exercised
all of such stockholder's securities, if any, convertible into or
exercisable for shares of AMS Common Stock within 60 days of June 23, 1995,
and that no other stockholder did so, irrespective of the conversion or
exercise price thereof.
(3) TCI beneficially owns these shares through United Artists Investments, Inc.
("UAI"), an indirect wholly owned subsidiary. For information with respect
to UAI's representation on the AMS Board, see "CERTAIN INFORMATION REGARDING
THE DIRECTORS AND EXECUTIVE OFFICERS OF AMS."
(4) Consists of 714,286 shares of AMS Common Stock (the Initial Shares)
previously issued to Nextel by AMS on April 7, 1993 and 1,800,000 shares
subject to the Option as of June 23, 1995. As of June 23, 1995, Nextel had
not exercised the Option in whole or in part. Unless previously exercised,
the Option is currently scheduled to expire on June 30, 1995, unless the
Stock Purchase Agreement is reinstated. See "THE MERGER
AGREEMENT -- Termination."
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth, as of June 23, 1995, the beneficial
ownership of the outstanding shares of AMS Common Stock by each of AMS' current
directors and executive officers and by all such directors and executive
officers as a group. To AMS' knowledge and except as indicated otherwise in the
footnotes to the
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table, all the persons named in the table have sole voting and investment power
with respect to the shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(2)
- -------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Richard G. Somers................................................... 85,941(3) 1.2
Gary S. Howard...................................................... --(4) --
William L. Wedum.................................................... --(5) --
Alice L. Cheung..................................................... 3,000 *
Mark S. Hull........................................................ 6,666(6) *
All current directors and executive officers as a group (5
individuals)...................................................... 95,607(7) 1.3
</TABLE>
- ---------------
* Less than 1%
(1) As of June 23, 1995, there were 7,243,006 shares of AMS Common Stock issued
and outstanding. The number of shares of AMS Common Stock which would be
issued and outstanding if all warrants and options to purchase shares of AMS
Common Stock (which were exercisable or became exercisable within 60 days
following June 23, 1995) were exercised is 9,323,823.
(2) Pursuant to Rule 13d-3(d)(1) under the Exchange Act, each percentage is
calculated assuming that the named stockholder had converted or exercised
all of such stockholder's securities, if any, convertible into or
exercisable for shares of AMS Common Stock within 60 days of June 23, 1995,
and that no other stockholder did so, irrespective of the conversion or
exercise price thereof.
(3) Includes options to purchase 75,000 shares of AMS Common Stock at $5.50 per
share, all of which are presently vested and exercisable.
(4) Mr. Howard does not beneficially own any shares of AMS Common Stock.
However, because Mr. Howard is Vice President -- Corporate Development of
TCI, the corporate parent of UAI, and serves as a designee of UAI on the AMS
Board, he may be deemed to share beneficial ownership of the shares
beneficially owned by UAI. See "Security Ownership of Certain Beneficial
Owners" above. Mr. Howard disclaims beneficial ownership of the shares
beneficially owned by TCI. The shares beneficially owned by TCI are subject
to the terms of the Voting Agreement. See "THE MERGER -- Stockholder Voting
Agreement." For information regarding UAI's right to designate members of
the AMS Board, see "CERTAIN INFORMATION REGARDING THE DIRECTORS AND
EXECUTIVE OFFICERS OF AMS."
(5) Mr. Wedum does not beneficially own any shares of AMS Common Stock. However,
because Mr. Wedum serves as a designee of UAI on the AMS Board he may be
deemed to share beneficial ownership of the shares beneficially owned by
TCI. See "Security Ownership of Certain Beneficial Owners" above. Mr. Wedum
disclaims beneficial ownership of the shares beneficially owned by TCI. The
shares beneficially owned by TCI are subject to the terms of the Voting
Agreement. See "THE MERGER -- Stockholder Voting Agreement." For information
regarding UAI's right to designate members of the AMS Board, see "CERTAIN
INFORMATION REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS OF AMS."
(6) Consists of options to purchase 6,666 shares of AMS Common Stock, all of
which are presently vested and exercisable.
(7) See footnotes (3), (4), (5) and (6) above.
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CERTAIN INFORMATION REGARDING THE DIRECTORS
AND EXECUTIVE OFFICERS OF AMS
IDENTIFICATION OF DIRECTORS AND OFFICERS; BUSINESS EXPERIENCE
The following table sets forth certain information concerning the nominees
for election to the AMS Board and the current executive officers of AMS.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) CURRENTLY HELD
- ----------------------------- ---- -------------------------------------------------------------
<S> <C> <C>
Richard G. Somers............ 57 Chairman of the Board, President and Chief Executive Officer
William L. Wedum............. 44 Director
Gary S. Howard............... 44 Director
Alice L. Cheung.............. 37 Chief Financial Officer, Controller, Treasurer and Secretary
Mark S. Hull................. 34 Vice President and General Manager
</TABLE>
Set forth below are descriptions concerning the business experience during
the past five years of the nominees for election to the AMS Board and the
current executive officers of AMS. Generally, each member of the AMS Board is
elected annually to serve for a term of one year and until such member's
successor is elected and qualified. See "ELECTION OF DIRECTORS OF AMS." Officers
of AMS serve at the pleasure of the AMS Board and hold office until their
successors are chosen and qualified.
Richard G. Somers has been a director of AMS since February 1988, when AMS
acquired the assets of Autotel Communications Network ("ACN"). Mr. Somers is the
sole stockholder of one of the two former general partners of ACN. Mr. Somers
has been Chairman of the Board, President and Chief Executive Officer of AMS
since May 18, 1992. At the request of the AMS Board, Mr. Somers served as acting
President and Chief Executive Officer up to that time from March 26, 1992. From
February 1990 to March 1992, Mr. Somers served AMS as an executive officer in a
part-time capacity, except for temporarily serving as AMS' Chief Operating
Officer from July 1990 to January 1991 while AMS sought a replacement for that
position. Mr. Somers was responsible for providing assistance in strategic
planning during the period he served AMS in a part-time capacity, during which
period he was permitted to devote a substantial amount of his time to other
business activities and investments, and his agreement with AMS required only
that he be reasonably available by telephone. From October 1988 to February
1990, Mr. Somers served as Vice Chairman of the Board of Directors and as an
executive officer responsible for strategic planning. From the acquisition of
ACN by AMS in February 1988 until October 1988, Mr. Somers was President and
Chief Operating Officer of AMS. From 1982 to 1990, Mr. Somers was President of
Communications Repeater Corp., which was a partner in Sigma Telecommunications,
a California partnership engaged principally in the SMR business in southern
California. He was also a co-founder of ACN, which AMS acquired in February
1988. From 1974 to 1986, he was the proprietor of Communications Sales and
Leasing Co., which engaged in the sale and leasing of radio communications
equipment. See "-- Employment Arrangements" below. Mr. Somers is not a candidate
for reelection to the AMS Board.
William L. Wedum was elected a director of AMS (as a designee of UAI, see
"Arrangements Regarding Selection of Directors and Officers" below) by the AMS
Board in February 1993 to replace Brendan R. Clouston, who tendered his
resignation on such date. Mr. Wedum has served as an attorney in the legal
department of TCI since June 1992. TCI is principally engaged in the
acquisition, development and operation of cable television systems, and is the
largest provider of basic cable television services in the United States. TCI is
the ultimate parent of UAI, which is the beneficial owner of approximately 36.8%
of the outstanding AMS Common Stock. See "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF AMS." Prior to his employment with TCI, Mr.
Wedum engaged in the private practice of law as a solo practitioner from June
1991 to June 1992. From October 1986 to June 1991, Mr. Wedum was an Executive
Vice President and General Counsel of Boettcher & Company, an investment bank
and securities broker/dealer located in Denver, Colorado. Mr. Wedum is seeking
reelection to the AMS Board.
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<PAGE> 148
Gary S. Howard has been a director of AMS (as a designee of UAI, see
"-- Arrangements Regarding Selection of Directors and Officers" below) since
June 6, 1991. Mr. Howard served as Vice President -- Corporate Development of
TCI from December 1991 to August 1994, and has served as Senior Vice
President -- Mergers and Acquisitions of TCI Communications, Inc. (a wholly
owned subsidiary of TCI that owns and operates TCI's cable television systems)
since August 1994. Mr. Howard has also served as Vice President of UAI since
October 1992. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF AMS." Prior to the merger of United Artists Entertainment Company
("UAE") with a subsidiary of TCI in December 1991, Mr. Howard served as Senior
Vice President -- Acquisitions and Chief Administrative Officer of UAE from
September 1990 to December 1991, and as Treasurer and Senior Vice President of
UAE from May 1989 to September 1990. From May 1984 to May 1989, Mr. Howard was
Vice President and Treasurer of United Cable Television Corporation ("UCTC"), an
owner and operator of cable television systems. UCTC was acquired by UAE in May
1989. Mr. Howard also serves as a director of Interactive Network, Inc. Mr.
Howard is seeking reelection to the AMS Board.
Alice L. Cheung is the Chief Financial Officer of AMS, and has been
Controller of AMS since February 1988, and Secretary and Treasurer of AMS since
July 1989. Ms. Cheung, a certified public accountant, was an auditor with Roth,
Bookstein and Zaslow, C.P.A.s, from December 1983 to January 1988.
Mark S. Hull has been Vice President and General Manager of both AMS and
American Mobile Services Incorporated, a wholly owned subsidiary of AMS, since
March 1993. From June 1988 until March 1993, Mr. Hull was Vice President and
General Manager of Advanced Radio Communications Services of Florida, Inc. (an
SMR company) and General Manager of its affiliate, Air Space Radio Systems.
Arrangements Regarding Selection of Directors and Officers. UAI is an
indirect wholly owned subsidiary of TCI. Pursuant to a Subscription Agreement,
dated February 3, 1988 (the "Subscription Agreement"), UAI has the right to
designate a total of five persons to the AMS Board. The Subscription Agreement
provides that AMS, upon the written request of UAI, shall use its best efforts
to cause up to three additional persons designated by UAI to be elected to the
AMS Board (at the time the Subscription Agreement was signed, two designees of
UAI were serving as directors of AMS). Pursuant to the Subscription Agreement,
the number of individuals which UAI may designate is to be reduced if UAI
beneficially owns less than 2,500,000 shares of AMS Common Stock, by one
individual for each whole or fractional multiple of 500,000 shares less than
2,500,000 shares so beneficially owned by UAI. As of June 23, 1995, TCI, through
UAI, beneficially owned 2,668,734 shares of AMS Common Stock. See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF AMS." Currently,
Messrs. Howard and Wedum serve as designees of UAI on the AMS Board. TCI,
through UAI, has advised AMS that it does not presently intend to increase its
representation on the AMS Board. The Subscription Agreement will be terminated
upon the consummation of the Merger.
In connection with Nextel's purchase of the Initial Shares, AMS has agreed
to use its best efforts to cause the AMS Board to include one member designated
by Nextel, if Nextel so requests. As of the date of this Proxy
Statement/Prospectus, Nextel has not requested that a designee be placed on the
AMS Board, and Nextel has advised AMS that it does not intend to exercise its
right to designate a director of AMS prior to the consummation of the Merger.
If the Merger Proposal is approved at the Special Meeting and the
transactions contemplated by the Merger Agreement are consummated, AMS will
become a wholly owned subsidiary of Nextel and all of the members of the AMS
Board immediately prior to the Effective Time of the Merger will resign.
ATTENDANCE OF DIRECTORS AT MEETINGS
The total number of meetings (including regularly scheduled and special
meetings) of the AMS Board which were held during AMS' fiscal year ended June
30, 1994 was four. No incumbent director attended fewer than 75% of the total
number of meetings of the AMS Board during such period.
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<PAGE> 149
EXECUTIVE COMPENSATION
The following tables and discussion summarize the compensation of the Chief
Executive Officer of AMS and all executive officers of AMS for the fiscal year
ended June 30, 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
AWARDS
-------------------- PAYOUTS
ANNUAL COMPENSATION OTHER RESTRICTED ----------------------
--------------------------- ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARD SARS(3) PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($)(2) (#) ($) ($)
- -------------------------------------- ------ ------- ------ ------------ ---------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard G. Somers,.................... 1994 175,000 -- -- -- -- -- --
Chairman of the Board, President and 1993 167,708 -- -- -- 75,000 -- --
Chief Executive Officer(1) 1992 83,600 -- -- -- -- -- --
Alice L. Cheung,...................... 1994 97,381 -- -- -- -- -- 6,125(4)
Chief Financial Officer, Treasurer, 1993 93,251 9,000(5) -- 9,000(5) -- -- --
Controller and Secretary 1992 87,500 -- -- -- -- -- --
Mark S. Hull,......................... 1994 83,750 15,101 -- -- -- -- 6,000(6)
Vice President and General Manager 1993 25,000(7) -- -- -- 10,000 -- --
1992 -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) See "-- Employment Arrangements" below for more information concerning the
terms of employment of Richard G. Somers.
(2) Values of the Restricted Stock Awards shown in the Summary Compensation
Table are calculated by multiplying the closing market price of AMS'
unrestricted AMS Common Stock on the date of grant by the number of shares
awarded. Dividends, if declared, may be paid on the restricted stock
reported in this column.
(3) The term "SARs" refers to stock appreciation rights and other similar rights
relating to the increase in the value of the common equity securities of
AMS.
(4) Represents accrued vacation time which was purchased by AMS. AMS' policy is
to purchase accrued vacation time as long as the employee in question has at
least 80 hours of accrued vacation remaining after such purchase.
(5) Represents a restricted stock bonus of 3,000 shares of AMS Common Stock
issued on November 9, 1992 (with a fair market value of $9,000 at the time
of issuance) as a performance bonus for the fourth quarter of 1992 and the
first quarter of fiscal 1993.
(6) Mr. Hull has an automobile allowance of $500.00 per month pursuant to his
employment contract.
(7) Mr. Hull became an officer of AMS on March 22, 1993.
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<PAGE> 150
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No options to purchase AMS Common Stock were issued in fiscal 1994.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth information with respect to the individuals
named in the Summary Compensation Table concerning the exercise of options
during the fiscal year 1994 and unexercised options and SARs held as of June 30,
1994 (the end of the 1994 fiscal year):
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
($)(1) SHARES AND SARS AT FY-END(#) AND SARS AT FY-END($)
- ------------------------ ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard G. Somers
Options............... -- -- 75,000 -- 562,500 --
SARs.................. -- -- -- -- -- --
Alice L. Cheung
Options............... -- -- 3,333(2) -- 3,333(2) --
SARs.................. -- -- -- -- -- --
Mark S. Hull
Options............... -- -- 3,333(3) 6,667(3) 23,331 45,669
SARs.................. -- -- -- -- -- --
</TABLE>
- ---------------
(1) The dollar values have been calculated by determining the difference between
the fair market value of the securities underlying the options or SARs and
the exercise or base price of the options or SARs at exercise or fiscal
year-end, respectively. The closing price for AMS Common Stock was $13.00
per share on June 30, 1994.
(2) The option for 3,333 shares, which was exercisable as of June 30, 1994 at
$12.00 per share, was granted on July 11, 1989 and expired unexercised on
July 11, 1994.
(3) As of June 23, 1995 6,666 shares were presently exercisable and 3,334 shares
were unexercisable.
COMPENSATION OF DIRECTORS
Directors of AMS are not compensated for their services as directors.
Further, it is the policy of AMS not to pay its directors for attending meetings
of the AMS Board; however, AMS reimburses directors for travel expenses incurred
in attending such meetings.
EMPLOYMENT ARRANGEMENTS
AMS and Richard G. Somers, the Chairman of the Board, President and Chief
Executive Officer of AMS, have entered into an Employment Agreement, dated as of
March 30, 1995, which agreement terminates on March 31, 1996 (the "Employment
Agreement"). Under the Employment Agreement, Mr. Somers receives an annual
salary of $184,000 and may receive a discretionary bonus. Mr. Somers is also
entitled to receive additional consideration upon the consummation of the Merger
(or the Stock Purchase Transaction) or upon the presentation to the Board of
Directors of a realistic alternative operational contingency plan for AMS.
Additionally, salary payments to Mr. Somers under his employment agreement with
AMS will be accelerated upon the consummation of the Merger. Mr. Somers can
terminate the Employment Agreement on 30 days' notice to AMS for any reason and
at any time if AMS does not cause him to remain a member of the AMS Board and a
member of the Executive Committee, if any, of the AMS Board, or if AMS does not
cause him to continue to be Chairman of the Board, President and Chief Executive
Officer of AMS (if Mr. Somers desires to be elected to each of such positions).
In any event, if AMS does not cause Mr. Somers to remain a member of the AMS
Board or to continue as Chairman of the Board, President
141
<PAGE> 151
and Chief Executive Officer of AMS (unless such termination is for cause (as
defined) by AMS, by reason of Mr. Somers' death or disability or by reason of
Mr. Somers' decision not to seek reelection to any of such positions), Mr.
Somers will receive all compensation and benefits to which he is entitled
thereunder in one payment and without offset for early payment or otherwise. AMS
has also agreed to indemnify Mr. Somers to the fullest extent permitted under
applicable law from any and all liabilities to which he may become subject by
reason of his position as an officer or director of AMS.
On March 29, 1993, in connection with the execution of an extension of a
prior employment agreement, Mr. Somers was granted options to purchase 75,000
shares of AMS Common Stock at an exercise price of $5.50 per share. Such options
are exercisable on or prior to March 29, 1998; however, if Mr. Somers'
employment with AMS terminates by reason of discharge for cause pursuant to the
Employment Agreement or if he voluntarily terminates such employment (i) without
the prior written consent of AMS prior to a change in control of AMS or (ii)
following a change in control in a manner inconsistent with the Employment
Agreement, all rights with respect to any unexercised portion of the options
will terminate immediately upon such termination of employment. Pursuant to Mr.
Somers' Employment Agreement, if Mr. Somers terminates his employment with 30
days' prior written notice, AMS will be deemed to have given its prior written
consent thereto and Mr. Somers' options may be exercised within two years after
such termination. If Mr. Somers' employment with AMS terminates for any other
reason (other than for cause) (as defined), including as a result of the Merger,
the options may be exercised within two years after such termination to the
extent they were exercisable on the date of such termination.
On February 17, 1993, AMS and Mark S. Hull entered into an agreement
whereby Mr. Hull would be employed as Vice President and General Manager of AMS
at an initial salary of $80,000 per year, plus a $10,000 bonus for remaining an
employee for one year and an additional bonus of up to $10,000 for accomplishing
certain objectives (of which he has received $5,000). Mr. Hull's salary was
subsequently increased to $95,000 per year. Pursuant to the agreement, Mr. Hull
also received options to purchase 10,000 shares of AMS Common Stock at $6.00 per
share. Options with respect to 6,666 shares have already vested, and the
remaining options vest as follows: the earlier to occur of (i) March 22, 1996
for 3,334 shares or (ii) Mr. Hull's death or permanent disability. Such options
are exercisable on or prior to March 21, 1998, except that (i) rights with
respect to any unexercised portion of the options will terminate immediately if
Mr. Hull is discharged for cause (as defined) or voluntarily terminates his
employment without the prior written consent of AMS and (ii) rights with respect
to any unexercised portion of the options will terminate within two years for
any other termination of employment with AMS to the extent exercisable on the
date of such termination. Mr. Hull's agreement with AMS is terminable, by either
party, at will.
On July 11, 1989 Alice Cheung was granted options to purchase 3,333 shares
of AMS Common Stock exercisable at $12.00 per share. Such options expired
unexercised on July 11, 1994. On July 20, 1994 Alice Cheung was granted options
to purchase 3,333 shares of AMS Common Stock exercisable at $12.00 per share
(the closing price for a share of AMS Common Stock on the Nasdaq NM on July 20,
1994). Such options expired unexercised on January 11, 1995.
COMMITTEES OF THE AMS BOARD; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
AMS has no standing audit, nominating and compensation committees. The AMS
Board makes all decisions relating to compensation. During the last fiscal year
Richard G. Somers, the Chairman of the AMS Board, President and Chief Executive
Officer of AMS, participated in deliberations of the AMS Board concerning
executive officer compensation.
REPORT OF THE AMS BOARD ON EXECUTIVE COMPENSATION
The following report of the AMS Board of Directors shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement/Prospectus into any filing under the Securities Act or the
Exchange Act, except to the extent that AMS specifically incorporates this
information by reference, and shall not otherwise be deemed filed under the
Securities Act or the Exchange Act.
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<PAGE> 152
Compensation Policies. The compensation philosophy of the AMS Board is
based on the belief that the compensation of executive officers should reflect
the individual's commitment to AMS, the responsibilities such individual assumes
and the role such individual has in contributing to the success of AMS. The AMS
Board also believes that a link should exist between executive compensation and
the return on investment provided to stockholders as reflected by the
appreciation in the market price of AMS' stock. To that end, AMS maintains an
employee stock option plan which is designed to attract and retain talented
executives and to align the financial interests of AMS' executive officers with
those of its stockholders. AMS believes that reliance upon equity-based
incentives is advantageous to AMS because such incentives foster a long-term
commitment by recipients to the success of AMS and motivate such recipients to
seek to improve the long-term market performance of AMS' stock.
AMS compensates its executives with a combination of salary and
equity-based incentives. Salary is paid in cash at or below competitive levels
for the SMR industry. Salary decisions are determined by the AMS Board with
input from the Chief Executive Officer. Such a determination is based upon the
responsibilities and work performance of each executive. Stock options and
restricted stock awards are the principal vehicles for payment of long-term
compensation. This component of compensation is intended to retain and motivate
executives to improve market performance of AMS' stock. Stock options and
restricted stock awards are granted from time to time to executives based
primarily upon the individual's contribution in the past and potential
contributions in the future to the success of AMS. Such grants are generally
made at or above the prevailing market price for AMS' stock and will have value
only to the extent AMS' stock price increases. As the responsibility level of an
executive increases, a greater portion of total compensation opportunity is
based on equity incentives and less on salary. Options were not granted in
fiscal year 1994 due to a pending transaction with Nextel.
CEO Compensation. During AMS' fiscal year ended June 30, 1994, Richard G.
Somers, AMS' Chairman of the Board, President and Chief Executive Officer,
received compensation in the form of base salary. Mr. Somers' compensation
reflects his commitment to AMS, his familiarity with AMS, his substantial role
in continuing AMS' operations and his significant role in negotiating the
various transactions with Nextel. See "CERTAIN INFORMATION REGARDING THE
DIRECTORS AND EXECUTIVE OFFICERS OF AMS -- Executive Compensation."
THE BOARD OF DIRECTORS
Richard G. Somers
Gary S. Howard
William L. Wedum
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<PAGE> 153
PERFORMANCE GRAPH
The performance graph below compares cumulative total returns of AMS Common
Stock, the Wilshire Telephone Index and the Wilshire Index for The Nasdaq Stock
Market for the five year period ended June 30, 1994. Such information shall not
be deemed incorporated by reference by any general statement incorporating by
reference this Proxy Statement/Prospectus into any filing under the Securities
Act or under the Exchange Act, except to the extent AMS specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under the Securities Act or the Exchange Act.
FIVE YEAR CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
AMERICAN
MEASUREMENT PERIOD MOBILE SYS- WILSHIRE
(FISCAL YEAR COVERED) TEMS TELEPHONE NASDAQ
<S> <C> <C> <C>
1989 100 100 100
1990 76 111 108
1991 48 109 113
1992 51 120 136
1993 79 164 171
1994 165 160 173
</TABLE>
Total returns assume dividends were reinvested on the first ex-dividend date.
Years appearing in the performance graph refer to the fiscal year of AMS which
ends on June 30.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Nextel. Since the beginning of its last full fiscal
year, AMS has been involved in several transactions with Nextel. See "THE
MERGER -- Background of the Merger."
Nextel and AMS currently have entered into arrangements pursuant to which
AMS is performing maintenance work on some of the Florida SMR Systems that have
been acquired by MCF. The arrangements contemplate that AMS will be compensated
for such work at rates negotiated by AMS and Nextel.
Issuance of the May 17 Note to UAI. On April 28, 1989, AMS issued and sold
to UAI its 18% Promissory Note due May 10, 1989 in the aggregate principal
amount of $1,000,000. On May 17, 1989, such 18% Promissory Note was replaced
with an 18% Convertible Note, due February 1, 1990, in the aggregate principal
amount of $1,000,000 (the "May 17 Note"). Interest on the unpaid principal
amount of the May 17 Note accrued at the rate of 18% per annum and was payable
monthly on demand. On February 1, 1990, the May 17 Note, together with all
accrued interest thereon, was replaced by an 18% Convertible Subordinated Demand
Note in the aggregate principal amount of $1,136,500 (the "Demand Note").
Interest on the unpaid principal amount of the Demand Note accrued at the rate
of 18% per year. Principal and interest were payable
144
<PAGE> 154
on demand but no later than October 15, 1990. UAI agreed to extend the due date
of the Demand Note, which became payable on demand. UAI gave notice of
conversion to AMS under the Demand Note on August 27, 1993, with the issuance of
the shares of AMS Common Stock issuable upon such conversion being contingent on
the prior satisfaction of the requirements of the H-S-R Act. Those requirements
were satisfied on September 23, 1993. On October 1, 1993, the outstanding
balance on the Demand Note of $1,887,158 (consisting of principal and accrued
interest) was converted into 314,526 shares of AMS Common Stock at a conversion
price of $6.00 per share.
Assignment of the Convertible Imperial Note to UAI. On October 3, 1988,
AMS issued a Promissory Note in the aggregate principal amount of $2,000,000 to
Imperial Bank (the "Imperial Note") pursuant to a Loan Agreement, dated October
3, 1988, by and between Imperial Bank and AMS (the "Imperial Loan Agreement").
In connection with such loan, UAI, United Artists Communications, Inc. (the then
parent of UAI and the predecessor of UAE) and Imperial Bank entered into a Note
Purchase Agreement, dated October 3, 1988, pursuant to which UAI agreed to
purchase the Imperial Note from Imperial Bank in the event AMS defaulted under
the terms of the Imperial Loan Agreement. AMS subsequently defaulted under the
Imperial Loan Agreement, and UAI purchased the remaining principal amount of the
Imperial Note, $834,948, from Imperial Bank on August 30, 1991. In connection
with such purchase, AMS issued to UAI a Convertible Demand Note in the aggregate
principal amount of $834,948 (the "UAI Convertible Note"), which replaced the
Imperial Note. The UAI Convertible Note was payable on demand and accrued
interest at a rate of 2% per year in excess of a bank's prime rate. UAI gave
notice of conversion to AMS under the UAI Convertible Note on August 27, 1993,
with the issuance of the shares of AMS Common Stock issuable upon such
conversion being contingent on the prior satisfaction of the requirements of the
H-S-R Act. Those requirements were satisfied on September 23, 1993. On October
1, 1993, the outstanding balance on the UAI Convertible Note of $985,992
(consisting of principal and accrued interest) was converted into 147,383 shares
of AMS Common Stock at a conversion price of $6.69 per share.
Loan Agreement Among UAI, Richard Somers and AMS. AMS entered into a Loan
Agreement, dated as of August 26, 1992, as amended as of November 12, 1992 (as
so amended, the "Loan Agreement"), with UAI and Richard G. Somers. Pursuant to
the Loan Agreement, UAI and Mr. Somers lent AMS $1,800,000. All loans under the
Loan Agreement were made by UAI and Mr. Somers pro rata in accordance with their
respective commitments. Borrowings under the Loan Agreement accrued interest at
the rate of 12% per annum (which was payable with principal), were secured by
substantially all of the assets of AMS' SMR operations in the Philadelphia,
Pennsylvania metropolitan area (and any proceeds therefrom), and were repayable
on the earlier of demand by UAI and Mr. Somers or February 28, 1993. AMS also
borrowed an additional $1,000,000 from UAI during the third quarter of fiscal
1993 for working capital on terms substantially identical to those in the Loan
Agreement. The foregoing borrowings were repaid in full on February 24, 1993,
from the proceeds of the sale of AMS' Philadelphia-area SMR business to
Philadelphia Mobile.
Unauthorized Transfers of Funds by William J. Young. On March 25, 1992,
AMS issued a press release announcing that the AMS Board had commenced an
investigation into the unauthorized transfer of approximately $4.1 million from
the accounts of AMS by William J. Young, who at that time was a director and the
President, Chief Executive Officer and Chief Financial Officer of AMS. Mr. Young
subsequently resigned from all of his positions with AMS and as a director. As a
result of the AMS Board's investigation (in which the AMS Board was assisted by
independent accountants), it was determined that during the period beginning
July 1, 1990 and ending April 30, 1992, Mr. Young, in a series of numerous
transactions, caused funds to be transferred back and forth between the bank
accounts of AMS and non-AMS bank accounts controlled by Mr. Young.
The AMS Board demanded and obtained from Mr. Young a promissory note in the
principal amount of $4.1 million, which represented the net amount due to AMS as
a result of Mr. Young's unauthorized transfers. The note is payable on demand
and bears interest at 12% per annum (however, Mr. Young has not paid, and AMS
has not recognized the accrual of, any interest on the note). AMS created a
$3,718,000 reserve against collection on the promissory note (and an additional
amount of approximately $215,000 owed by Mr. Young to AMS), based on
management's assessment of the likelihood of collecting such debt.
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<PAGE> 155
Mr. Young has granted AMS a security interest in substantially all of his
assets. However, in most instances those assets were subject to senior liens of
other creditors. AMS pursued, in conjunction with Mr. Young's other creditors,
the sale of Mr. Young's assets and properties. AMS received $240,000 cash from
the sale of Mr. Young's home, and Mr. Young has assigned to AMS 38,333 shares of
AMS Common Stock owned by him (valued at $632,494 based on the trading price of
the AMS Common Stock on the assignment date). AMS has also negotiated the
transfer to AMS of, and settlements with respect to, certain SMR licenses held
by former associates of Mr. Young that were previously managed by AMS. Such
licenses were transferred to AMS during fiscal 1994 and Mr. Young received an
offset of approximately $196,500 against his indebtedness to AMS. AMS also
received approximately $180,000 from the sale of a radio common carrier paging
system previously owned by Mr. Young in September 1994. AMS received $300,000 in
September 1994 in connection with the sale of Mr. Young's interest in a separate
company. Management believes that Mr. Young's remaining assets are de minimis,
and does not expect that AMS will receive any further substantial recoveries
with respect to Mr. Young's indebtedness to AMS, which as of June 23, 1995
amounted to approximately $2.9 million, including accrued interest. AMS has
requested, however, that Mr. Young stipulate to a judgment for the balance of
the indebtedness that he owes to AMS.
Intercompany Charges. During fiscal 1992, Mr. Young utilized a portion of
AMS' excess office space for the operations of Sigma. AMS charged Mr. Young
office rent of $3,500 per month and for his secretary's salary, his prorated
share of employee medical insurance premiums, messenger services and other
employees' prorated time spent working for Sigma. During fiscal 1992 these
amounts aggregated $83,893. As of June 23, 1995, Mr. Young has not paid AMS any
of such amounts.
With the exception of the transactions involving Mr. Young and his
affiliates described above under the captions "-- Unauthorized Transfers of
Funds by William J. Young" and "-- Intercompany Charges," AMS believes that the
transactions described above were effected on terms and conditions as favorable
to AMS as could have been obtained in comparable arms' length transactions under
similar circumstances.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires each person who is the
beneficial owner (a "Beneficial Owner") of more than ten percent of any class of
equity securities registered pursuant to Section 12 of the Exchange Act (such as
the AMS Common Stock), or who is a director or an officer of the issuer of such
security, to file with the Commission and any national securities exchange upon
which such security is registered certain reports regarding the beneficial
ownership of securities of such issuer and changes in such ownership. Specific
due dates for these reports have been established by the Commission and AMS is
required to disclose any known late filing or failure to file such reports with
respect to its most recent fiscal year or prior fiscal years. Officers,
directors and Beneficial Owners are required by regulations of the Commission to
furnish AMS with copies of all reports filed with the Commission pursuant to
Section 16(a) of the Exchange Act.
To AMS' knowledge, based solely on a review of the copies of reports
furnished to AMS during and with respect to its most recent fiscal year, all
filings required pursuant to Section 16(a) of the Exchange Act applicable to
AMS' officers, directors and Beneficial Owners have been timely filed except the
following: UAI filed on August 13, 1993 (i) a Form 5 with respect to 829,409
shares of AMS Common Stock acquired through the conversion on November 30, 1991
of a Convertible Subordinated Note which was acquired on September 25, 1991 in
exchange for an 8% Convertible Subordinated Note due February 3, 1993, (ii) a
Form 5 with respect to an 18% Convertible Demand Note, dated February 1, 1990,
having an aggregate principal amount of $1,136,500, and (iii) a Form 5 with
respect to a Convertible Demand Note, dated August 14, 1991, having an aggregate
principal amount of $834,948. Such convertible notes were converted on October
1, 1993 for an aggregate of 461,909 shares of AMS Common Stock. UAI did not sell
any shares of AMS Common Stock during the period its filings under Section 16(a)
of the Exchange Act were late. Nextel filed on March 25, 1994 its initial Form 3
with respect to the purchase of the Initial Shares, the granting of the Option
and the granting of the rights under the Put Agreement and a Form 4 with respect
to the amendments to the Option and the Put Agreement.
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AMERICAN MOBILE SYSTEMS INCORPORATED
AND SUBSIDIARY
SELECTED FINANCIAL DATA
The following table presents selected operations data relating to AMS for
the nine months ended March 31, 1995 and 1994 and for each of the years in the
five year period ended June 30, 1994. In addition, the table sets forth selected
balance sheet data as of March 31, 1995 and as of June 30 of each of the years
in the five year period ended June 30, 1994. The interim financial data included
in the table is unaudited, but in the opinion of AMS' management, include all
adjustments (consisting only of normal recurring accruals) necessary for a fair
statement of the information provided for such interim periods. The results of
operations of such interim periods are not necessarily indicative of annual
results. The following financial information should be read in conjunction with
"AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY CONSOLIDATED FINANCIAL
STATEMENTS," and the related notes thereto, included elsewhere in this Proxy
Statement/Prospectus. See "INDEX TO FINANCIAL STATEMENTS."
The audit report on AMS' financial statements as of and for the years ended
June 30, 1994, 1993 and 1992 contains an explanatory paragraph that notes AMS is
a defendant in a complaint filed on behalf of persons who purchased AMS Common
Stock during the period from July 1, 1990 through March 24, 1992 which complaint
alleges that damages were suffered as a result thereof. The consolidated
financial statements do not include any adjustments that might result from any
liability that might ultimately be incurred upon the adjudication of such
matter. See "AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY CONSOLIDATED
FINANCIAL STATEMENTS," and the notes thereto, included elsewhere in this Proxy
Statement/Prospectus.
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<PAGE> 157
AMERICAN MOBILE SYSTEMS INCORPORATED
AND SUBSIDIARY
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31, YEAR ENDED JUNE 30,
----------------- ------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- ------- ------- -------- ------- -------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OPERATIONS DATA
Airtime:
Sales........................................ $ 4,127 $ 3,750 $ 5,064 $ 5,100 $ 4,573 $ 4,227 $ 3,931
Cost of sales, depreciation and
amortization............................... (1,925) (2,074) (2,818) (2,983) (3,019) (3,076) (3,398)
------- ------- ------- ------- -------- ------- -------
Gross profit on airtime............... 2,202 1,676 2,246 2,117 1,554 1,151 533
------- ------- ------- ------- -------- ------- -------
Equipment:
Sales........................................ 2,432 2,625 3,582 2,872 913 1,156 1,709
Cost of sales................................ (1,492) (1,655) (2,338) (2,196) (1,202) (1,308) (1,759)
------- ------- ------- ------- -------- ------- -------
Gross profit (loss) on equipment...... 940 970 1,244 676 (289) (152) (50)
------- ------- ------- ------- -------- ------- -------
Total gross profit.................... 3,142 2,646 3,490 2,793 1,265 999 483
------- ------- ------- ------- -------- ------- -------
Operating Expenses:
Selling, general and administrative,
depreciation and amortization.............. 3,619 4,157 5,466 6,037 6,462 4,945 6,391
Interest expense and amortization of debt
issuance costs, net........................ 795 689 910 1,361 1,618 1,900 2,461
------- ------- ------- ------- -------- ------- -------
4,414 4,846 6,376 7,398 8,080 6,845 8,852
------- ------- ------- ------- -------- ------- -------
Loss before other income (expense).... (1,272) (2,200) (2,886) (4,605) (6,815) (5,846) (8,369)
Other income:
Gain on sale of assets....................... 4 11 267 2,006 216 273 10,297
Litigation settlement........................ -- -- -- (372) -- --
Debt conversion expense...................... -- -- -- (3,224) (1,791) --
(Provision) recovery for doubtful receivable
from former officer........................ 186 400 724 -- (3,718) -- --
------- ------- ------- ------- -------- ------- -------
190 411 991 2,006 (7,098) (1,518) 10,297
------- ------- ------- ------- -------- ------- -------
Net earnings(loss).................... $(1,082) $(1,789) (1,895) $(2,599) $(13,913) $(7,364) $ 1,928(b)
======= ======= ======= ======= ======== ======= =======
Fully diluted earnings (loss) per common
share........................................ $ (.15) $ (.25) $ (.27) $ (.41) $ (2.74) $ (1.92) $ .78(b)
======= ======= ======= ======= ======== ======= =======
Weighted average number of shares outstanding,
fully diluted................................ 7,247 7,092 7,132 6,276 5,080 3,828 4,267(b)
======= ======= ======= ======= ======== ======= =======
</TABLE>
- ---------------
(a) No cash dividends were declared or paid during the five years ended June 30,
1994 or the nine months ended March 31, 1995.
(b) The provision for income taxes for 1990 was $778,000, which was offset by an
extraordinary credit for the same amount. For the year ended June 30, 1990,
the income before extraordinary credit was $1,150,000 and the related
earnings per common share were $.55 on a primary basis and $.47 on a
fully-diluted basis. The weighted average number of shares outstanding on a
primary basis was 2,104,000 and on a fully-diluted basis was 4,267,000.
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<PAGE> 158
AMERICAN MOBILE SYSTEMS INCORPORATED
AND SUBSIDIARY
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
JUNE 30,
MARCH 31, -----------------------------------------------
1995 1994 1993 1992 1991 1990
--------- ------- ------- ------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA
Property and equipment, net...................... $ 5,057 $ 5,864 $ 6,678 $ 8,283 $ 9,310 $10,364
Intangible assets, net........................... 11,167 12,206 10,921 11,233 9,112 8,497
Total assets..................................... 19,834 21,022 25,921 25,213 24,884 26,372
Current maturities of secured debt and capital
lease obligations.............................. 11,203 11,367(a) 4,589 1,494 -- --
Long-term debt (less current maturities):
Subordinated convertible
Notes -- stockholder......................... -- -- -- -- 3,198 6,250
Subordinated debt.............................. -- -- -- -- 2,550 7,254
Secured debt................................... -- --(a) 8,406 11,686 6,993 --
Capitalized lease obligations.................. 54 128 886 1,600 2,236 3,337
Stockholders' equity............................. 6,772 2,854 2,405 4,843 4,534 341
======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(a) See Notes 12 and 13 of Notes to Consolidated Financial Statements of AMS
included elsewhere herein.
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<PAGE> 159
AMERICAN MOBILE SYSTEMS INCORPORATED
AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the "AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY SELECTED FINANCIAL
DATA" and the consolidated financial statements of AMS, and the related notes
thereto, included elsewhere in this Proxy Statement/Prospectus.
RESULTS OF OPERATIONS
Nine Months Ended March 31, 1995 vs. Nine Months Ended March 31,
1994. AMS' total sales increased by 2.9% from $6,375,000 in the nine months
ended March 31, 1994 to $6,559,000 for the same period in 1995. Sales are
comprised of two components: sales of airtime to customers and sales of
equipment and service. As a percentage of total sales, sales of airtime for the
period ended March 31, 1995, were 62.9%, up slightly from 58.8% for the same
period in 1994. Airtime sales increased by 10.1% from $3,750,000 for the period
ended March 31, 1994 to $4,127,000 for the same period in 1995. This was a
result of the Company's net subscriber growth and an increase in the average
rate charged per subscriber unit. Sales of equipment and service have decreased
by 7.3% from $2,625,000 for the period ended March 31, 1994 to $2,432,000 for
the same period in 1995 as a result of a smaller sales team.
There was a decrease of 5.0% in the cost of sales for airtime from
$1,180,000 for the period ended March 31, 1994 to $1,121,000 for the same period
in 1995, and a decrease of 9.8% in the cost of sales for equipment and service
from $1,655,000 for the period ended March 31, 1994 to $1,492,000 for the same
period in 1995. Overall, the total cost of sales decreased by 7.8% from
$2,835,000 for the period ended March 31, 1994 to $2,613,000 for the comparable
period in 1995.
AMS' selling, general and administrative expenses have decreased 13.5% from
$3,023,000 for the period ended March 31, 1994 to $2,616,000 for the same period
in 1995. This decrease was the combined result of the reduction in sales and
service personnel and the decrease in legal fees for the period ended March 31,
1995. Interest expense increased by 2.8% from $621,000 for the period ended
March 31, 1994 to $795,000 for the same period in 1995 due to increases in the
interest rate and an $80,000 extension fee charged by KOP in connection with an
extension of certain principal repayments under the KOP Credit Agreement in
March 1995.
It is anticipated that AMS will continue to report operating losses during
its current fiscal year because of its continuing significant interest,
depreciation and amortization expenses, as well as continued costs of marketing
incurred to increase the number of subscribers to AMS' SMR systems.
Year Ended June 30, 1994 vs. Year Ended June 30, 1993. AMS' total sales
increased by 8.5% from $7,972,000 in fiscal 1993 to $8,646,000 in fiscal 1994.
Sales are comprised of two components: sales of airtime and sales of equipment
and service. Airtime sales remained constant for fiscal 1994 as a result of the
sale of AMS' SMR systems in the Philadelphia area, which generated approximately
$174,000 in sales in fiscal 1993, which amount was offset by the increase in
airtime sales resulting from AMS' net subscriber growth in fiscal 1994.
Sales of equipment and services increased by 24.7% from $2,872,000 in
fiscal 1993 to $3,582,000 in fiscal 1994. This increase was mainly attributable
to the fact that American Mobile Services Incorporated, AMS' subsidiary which
performs all of AMS' sales and services functions, did not begin operations
until August 31, 1992.
Cost of sales for airtime, excluding depreciation and amortization,
decreased by 3% from $1,679,000 in fiscal 1993 to $1,629,000 in fiscal 1994.
This decrease was primarily attributable to the sale of the SMR systems in the
Philadelphia area in fiscal 1993. See "BUSINESS OF AMS -- Recent Material
Acquisitions and Divestitures." Cost of equipment sales and services increased
by 6.5% from $2,196,000 in fiscal 1993 to
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<PAGE> 160
$2,338,000 in fiscal 1994. The increase in the cost of equipment sales and
services was due primarily to the 24.7% increase in sales of equipment and
services discussed above. Overall, the total cost of sales, excluding
depreciation and amortization, increased by 2.4% from $3,875,000 in fiscal 1993
to $3,967,000 in fiscal 1994.
AMS' selling, general and administrative expenses decreased by 9% from
$4,372,000 in fiscal 1993 to $3,974,000 in fiscal 1994. This decrease was mainly
due to the $450,000 decrease in professional and legal fees in fiscal 1994.
Interest expense decreased by 33% from $1,361,000 in fiscal 1993 to $910,000 in
fiscal 1994. This decrease is attributable to the conversion of certain
convertible notes held by UAI in October 1993 and the gradual repayment of the
capitalized lease obligation and secured debts.
AMS reported a net loss of $2,599,000 in fiscal 1993, as opposed to a net
loss of $1,895,000 in fiscal year 1994. The decrease in net loss of $704,000 is
the net result of AMS' improved operations in fiscal 1994, decrease in
depreciation, amortization and interest expense of $739,000 and the net decrease
of $1,015,000 in gain on sale of assets and recovery of doubtful receivable from
a former officer in fiscal 1994 as compared to fiscal 1993.
It is anticipated that AMS will continue to report operating losses during
fiscal 1995 due to its significant depreciation and amortization and interest
expenses, as well as continued marketing costs aimed at increasing the number of
subscribers to AMS' SMR systems.
Year Ended June 30, 1993 vs. Year Ended June 30, 1992. AMS' total sales
increased by 45.3% from $5,486,000 in fiscal 1992 to $7,972,000 in fiscal 1993.
Airtime sales increased by 11.5% from $4,573,000 for fiscal 1992 to $5,100,000
for fiscal 1993. This increase in airtime sales was the result of both an
increase in subscribers due to AMS' marketing efforts and AMS' exchange
transaction with Johnson Communications Corporation ("JCC") in August 1991. See
"BUSINESS OF AMS -- Recent Material Acquisitions and Divestitures." At the same
time, sales of equipment and service increased by 215% from $913,000 in fiscal
1992 to $2,872,000 for fiscal 1993. This increase was the result of AMS'
termination of its marketing arrangements with RESCO in August 1992.
Cost of sales for airtime, excluding depreciation and amortization,
decreased by 2.4% from $1,721,000 for fiscal 1992 to $1,679,000 for fiscal 1993.
This decrease was attributable to a $77,000 reduction in provision for doubtful
accounts for fiscal 1993. Cost of equipment sales and service increased by 82.7%
from $1,202,000 for fiscal 1992 to $2,196,000 for fiscal 1993. The increase in
the cost of equipment sales and service was due primarily to the increase in
sales of equipment and services discussed above. Overall, the total cost of
sales, excluding depreciation and amortization, increased by 32.6% from
$2,923,000 in fiscal 1992 to $3,875,000 for fiscal 1993.
AMS' selling, general and administrative expenses decreased by 10.7% from
$4,896,000 for fiscal 1992 to $4,372,000 for fiscal 1993. This decrease was
directly attributable to the termination of the commission arrangement with
RESCO, which resulted in the reduction of $1,930,000 in commission expense for
fiscal 1993. As a result of the termination of the arrangement with RESCO, AMS
and its marketing subsidiary incurred an additional $1,571,000 of selling,
general and administrative expenses for fiscal 1993.
Interest expense decreased by 15.9% from $1,618,000 for fiscal 1992 to
$1,361,000 for fiscal 1993 due to lower interest rates for fiscal 1993, the
gradual repayment of AMS' capitalized lease obligations and the conversion of
all of AMS' subordinated debt into AMS Common Stock during fiscal 1992.
In February 1993, AMS sold all of its Philadelphia area SMR business and
related assets which resulted in an approximate $2,000,000 gain. See "BUSINESS
OF AMS -- Recent Material Acquisitions and Divestitures."
AMS reported a net loss of $13,913,000 in fiscal 1992, as opposed to a net
loss of $2,599,000 in fiscal 1993. The decrease in net loss of $11,314,000 is
attributable primarily to improved operations in fiscal 1993 and the gain from
the sale of the Philadelphia SMR business, as well as to the recognition in
fiscal 1992 of a one time expense of $3,224,000 for debt conversion expense, a
provision for doubtful receivables from a former officer of $3,718,000 and the
termination of the RESCO arrangements.
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<PAGE> 161
LIQUIDITY AND CAPITAL RESOURCES
AMS incurred substantial losses in fiscal years 1992, 1993 and 1994 and in
the first nine months of fiscal 1995. During each of these periods, AMS also
incurred working capital deficits and in fiscal year 1992, 1993 and 1994 used
net cash in its operating activities. During the three years ended June 30,
1994, the net cash used in operating activities decreased $266,000 between 1992
and 1993 and decreased $1,795,000 between 1993 and 1994, resulting in net cash
used in year ended June 30, 1994 of $33,000. Net cash provided by operating
activities for the nine months ended March 31, 1995 was $1,226,000. Net cash
used in investing activities in fiscal 1994 was $847,000, resulting primarily
from expenditures for property and equipment and acquisitions of SMR systems.
Net cash used in investing activities for the nine months ended March 31, 1995
was $320,000. Net cash provided by investing activities in fiscal 1993 was
$2,479,000, resulting primarily from the proceeds received in the sale of the
Philadelphia SMR assets for approximately $3.5 million offset by expenditures
for property, equipment and assets held for sale. In 1992, cash used in
investing activities was $6,513,000, which resulted from expenditures for
property, equipment and system of $3,504,000 and net advances to a former
officer (discussed elsewhere herein) and affiliate of $3.3 million.
During the three years ended June 30, 1994, AMS had net cash provided
(used) by financing activities of $(2,556,000) in 1994, $3,327,000 in 1993 and
$8,414,000 in 1992. The proceeds from issuance of debt were approximately $6.6
million in 1992. The proceeds from the issuance of common stock in 1994 were
approximately $54,000, $5 million in 1993 and $5.3 million in 1992. The payments
of debt and capitalized lease obligations were approximately $2.6 million in
1994, $3.8 million in 1993 and $3.8 million in 1992. Net cash used in financing
activities for the nine months ended March 31, 1995 was $355,000.
AMS' working capital deficit increased from $3,343,000 at June 30, 1993 to
$10,810,000 at June 30, 1994. AMS' working capital deficit at March 31, 1995 was
$10,837,000. AMS' cash balance decreased by approximately $3.4 million between
June 30, 1994 and June 30, 1993. The large increase in working capital deficit
is mainly attributable to the classification of the entire $10.7 million
borrowed under the KOP Credit Facility as a current liability in the
consolidated balance sheet as of June 30, 1994. During fiscal 1994, AMS obtained
waivers and amendments of applicable requirements under the KOP Credit Facility
to prevent a number of potential defaults thereunder. Since waivers existing at
such time did not extend beyond June 30, 1995, the entire amount borrowed under
the KOP Credit Agreement has been classified a current liability in the event of
a potential default. See "-- The KOP Credit Agreement."
AMS believes that continued growth in its monthly revenues from airtime
billing are vital to AMS' ability to increase its revenues and achieve
profitable operations in the future.
The KOP Credit Agreement. Approximately $3.9 million in principal is due
and payable to Kansallis-Osake-Pankki, a Finnish banking corporation acting
through its New York branch ("KOP") under a Credit Agreement, dated as of April
9, 1991, as amended (the "KOP Credit Agreement"), between AMS and KOP on the
earlier of August 15, 1995 or five business days after the date on which the
Merger is consummated. As of March 31, 1995, approximately $10.7 million in
borrowings was outstanding under the KOP Credit Agreement pursuant to a term
loan with a final maturity of April 9, 1998. Borrowings under the KOP Credit
Agreement bear interest, at AMS' election, at (i) KOP's prime rate, as in effect
from time to time, plus a margin of .25% to 1.25% or (ii) a LIBOR rate plus a
margin of 1.5% to 2.5%. The applicable margin is determined by reference to AMS'
total debt in relation to its annualized cash flow (as those terms are defined
in the KOP Credit Agreement). As of March 31, 1995, the interest rate then in
effect for borrowings under the KOP Credit Agreement was approximately 8.63% per
annum. Interest is payable by AMS monthly in arrears.
The KOP Credit Agreement prohibits the payment of cash dividends by AMS or
the redemption or other acquisition by AMS of shares of, or securities
exercisable for, AMS Common Stock and contains covenants that restrict AMS'
ability, among other things: to incur further indebtedness; to create liens on
its properties; to invest in other companies; to acquire additional SMR systems
or enter into joint ventures; or to sell, outside of the ordinary course of
business, any of its assets. KOP has consented to the consummation of the Merger
with Nextel.
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<PAGE> 162
Borrowings under the KOP Credit Facility are secured by substantially all
of the tangible and intangible assets of AMS.
AMS has no further borrowing availability under the KOP Credit Agreement.
AMS has previously obtained waivers and amendments of applicable
requirements under the KOP Credit Agreement to prevent a number of potential
defaults thereunder, which would have resulted primarily from AMS' failure to
comply with (i) covenants providing for the maintenance of certain ratios of (a)
senior debt to the sum of annualized quarterly cash flow plus marketing expenses
(the "Senior Debt Ratio") and (b) operating cash flow to debt service and (ii)
certain limits on the marketing expenses incurred by AMS. Waivers of the
covenant relating to the Senior Debt Ratio have been given for the periods ended
December 31, 1993, March 31, 1994, June 30, 1994, September 30, 1994 and
December 31, 1994, but not for quarters ending thereafter. In addition, payment
installments under the KOP Credit Agreement for each of March 31, 1994, June 30,
1994, September 30, 1994, December 31, 1994, March 31, 1995 and June 30, 1995
have been extended, and will be due and payable on the earlier of August 15,
1995 and five business days after the date on which the Merger is consummated.
It is anticipated that AMS will have insufficient funds to pay the approximately
$3.9 million in principal which will be due and payable on or before August 15,
1995. If the Merger is not consummated by August 15, 1995 and payments otherwise
due to KOP on August 15, 1995 are not rescheduled, AMS would be in default under
the KOP Credit Agreement and KOP would be entitled to declare the entire
outstanding principal amount thereunder, plus all accrued interest thereon, due
and payable.
Working Capital Requirements. Assuming that the Merger is consummated
prior to August 15, 1995, AMS currently anticipates that prior to the Merger its
working capital and cash requirements for fiscal 1995 will be principally drawn
from existing cash on hand and cash flow from operations. However, there can be
no assurance that the Merger will be consummated by or subsequent to August 15,
1995. Ultimately, if the conditions to the Merger are not satisfied and the
transactions contemplated by the Merger Agreement are abandoned by Nextel and
AMS (and the Stock Purchase Agreement is not reinstated), it is likely that AMS
will be in default under the KOP Credit Agreement and that KOP will have the
right to declare the entire outstanding principal amount thereunder, and all
accrued interest thereon, immediately due and payable. In such event, AMS would
seek to reschedule its payment obligations under the KOP Credit Agreement and
obtain financing from a strategic partner; however, no discussions have been
held with KOP concerning a possible restructuring of AMS' payment obligations,
and there is no assurance that such a strategic partner could be found on a
timely basis or at all. There is also no assurance that TCI would lend
additional funds to AMS, and TCI has not made any commitments to AMS in this
regard.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On August 13, 1992, AMS dismissed Deloitte & Touche as its independent
accountants, which had audited AMS' financial statements for each of the years
in the two-year period ended June 30, 1991. The AMS Board approved the decision
to dismiss Deloitte & Touche. On September 5, 1992, AMS engaged KPMG Peat
Marwick LLP ("Peat Marwick") as its independent accountants.
The independent auditors' report, dated October 11, 1991, of Deloitte &
Touche on the balance sheet of AMS as of June 30, 1991 and the related
statements of operations, stockholders' equity and cash flows for the year then
ended, contained an explanatory paragraph that stated, "the Company has suffered
recurring losses from operations and has a working capital deficit. These
matters raise substantial doubt about the Company's ability to continue as a
going concern." During AMS' 1991 fiscal year and the interim period immediately
preceding the dismissal of Deloitte & Touche in fiscal 1993, there were no
disagreements between AMS and Deloitte & Touche on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure that, if not resolved to the satisfaction of Deloitte & Touche, would
have caused it
153
<PAGE> 163
to make a reference to the subject matter of the disagreement in connection with
its report on AMS' audited financial statements.
In connection with the filing by AMS of a Current Report on Form 8-K, dated
August 13, 1992, disclosing Deloitte & Touche's dismissal, Deloitte & Touche
filed a letter with the Commission, in accordance with Item 304 (a)(3) of
Regulation S-K, which stated that Deloitte & Touche had discussed with AMS prior
to its dismissal certain matters that constituted "reportable events" under Item
304 (a)(1)(v) of Regulation S-K. Deloitte & Touche stated in its letter that
prior to its dismissal it had advised AMS of the need to expand the procedures
Deloitte & Touche would perform in its engagement to audit AMS' fiscal 1992
financial statements based upon certain information furnished to it in
connection with its preliminary planning for that audit. Deloitte & Touche
stated that those procedures related to the following: an evaluation of the
recoverability of amounts due from affiliates of approximately $4.5 million at
June 30, 1992; evaluation of the findings of the investigation of activities of
William J. Young conducted for the AMS' Board by another accounting firm;
evaluation of the appropriate accounting for costs associated with a certain
marketing agreement during 1992; evaluation of the appropriate accounting for
certain obligations under management agreements related to AMS' use of certain
channels; and evaluation of AMS' fiscal 1993 business plan and assessment of its
ability to continue as a going concern. AMS did not disagree with Deloitte &
Touche's planned expansion of its audit procedures and provided a copy of
Deloitte & Touche's letter to Peat Marwick for their information in conducting
their audit of AMS' 1992 financial statements. AMS also addressed the matters
raised in Deloitte & Touche's letter.
AMS did not consult with Peat Marwick prior to the dismissal of Deloitte &
Touche on any accounting principle, transaction, or type of audit opinion that
might be rendered on AMS' financial statements.
STOCKHOLDER PROPOSALS
If the Merger Agreement is terminated, AMS thereafter will prepare and
deliver a proxy statement to its stockholders to solicit proxies in connection
with the matters to be considered and voted upon at the 1996 Annual Meeting
which is expected to be held in November 1996. In such event, stockholders of
AMS may present proper proposals for inclusion in AMS's proxy statement and for
consideration and action at such 1996 Annual Meeting of Stockholders by
submitting their proposals to AMS by June 1, 1996. Any such proposal must be
mailed or delivered to: Secretary, 20920-C Warner Center Lane, Woodland Hills,
California 91367-5002.
LEGAL MATTERS
The validity of the shares of Nextel Common Stock offered hereby will be
passed upon for Nextel by Jones, Day, Reavis & Pogue ("Jones Day"). Certain tax
matters have been passed upon for Nextel by Jones Day and for AMS by Baker &
Botts, L.L.P.
EXPERTS
The consolidated financial statements and related consolidated financial
statement schedules incorporated in this Proxy Statement/Prospectus by reference
from Nextel's Transition Report on Form 10-K for the nine months ended December
31, 1994, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The consolidated balance sheets of American Mobile Systems Incorporated and
subsidiary (AMS) as of June 30, 1994 and 1993, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended June 30, 1994, and the related financial
statement schedules, have been included and incorporated by reference herein and
in the Registration Statement in reliance upon the reports, dated August 26,
1994, of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein and incorporated by reference herein and in the
Registration Statement, and upon the authority of said firm as experts in
accounting and auditing.
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<PAGE> 164
The reports of KPMG Peat Marwick LLP, covering the June 30, 1994, 1993 and
1992 consolidated financial statements and financial statement schedules of AMS
contain an explanatory paragraph that states that AMS is a defendant in a
consolidated complaint filed on behalf of persons who purchased AMS common stock
during the period from July 1, 1990 through March 24, 1992 and alleges that
damages were suffered as a result thereof. The consolidated financial statements
and financial statement schedules do not include any adjustments that might
result from the outcome of that uncertainty.
The consolidated financial statements of OneComm Corporation as of December
31, 1994 and 1993, and for each of the years in the three-year period ended
December 31, 1994, have been included and incorporated by reference in this
Proxy Statement/Prospectus in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein and
incorporated by reference, and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of Questar Telecom, Inc. at December 31, 1993 and
for the year then ended appearing in the Proxy Statement/Prospectus have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference, such financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The Combined Balance Sheets of Advanced MobileComm of Nevada, Inc.,
Advanced MobileComm of Southern California, Inc. and Advanced MobileComm of
Colorado, Inc. (collectively, "Advanced MobileComm West") as of December 31,
1993, and the Combined Statements of Operations, Stockholders' Equity and Cash
Flows for the year ended December 31, 1993, included and incorporated by
reference in this Proxy Statement/Prospectus, have been included herein and
incorporated by reference in reliance on the report of Coopers & Lybrand,
independent accountants, and given on the authority of that firm as experts in
accounting and auditing.
The Consolidated Balance Sheet of PowerFone as of December 31, 1993, and
the Consolidated Statement of Operations, Stockholders' Equity and Cash Flows
for the year then ended included and incorporated herein by reference in this
Proxy Statement/Prospectus; have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
The Balance Sheets of the 800 MHz Specialized Mobile Radio Territory of
Motorola, Inc. (Nextel Properties) (a business within the Network Services
Division ("Division") of Motorola, Inc. ("Parent") (the "Territory")) as of
December 31, 1993 and 1994 and the related Statements of Operations and
Territory Equity and Cash Flows for each of the years in the three-year period
ended December 31, 1994, have been included and incorporated by reference in
this Proxy Statement/Prospectus in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, appearing elsewhere and
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The consolidated financial statements of Dial Page, Inc. and subsidiaries
as of December 31, 1993 and 1994 and for each of the years in the three-year
period ended December 31, 1994, have been included and incorporated by reference
in this Proxy Statement/Prospectus in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein and incorporated by reference, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of Transit Communications Corporation
and subsidiaries (formerly Transit Communications Atlanta, L.P.) and certain
assets and liabilities of Transit Sales and Service, Inc. included in this Proxy
Statement/Prospectus have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included and incorporated by reference herein in reliance upon the authority of
said firm as experts in accounting and auditing.
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<PAGE> 165
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report............................................. F-4
Consolidated Balance Sheets, June 30, 1994 and 1993...................... F-5
Consolidated Statements of Operations, Years Ended June 30, 1994, 1993
and 1992.............................................................. F-6
Consolidated Statements of Stockholders' Equity, Years Ended June 30,
1994, 1993 and 1992................................................... F-7
Consolidated Statements of Cash Flows, Years Ended June 30, 1994, 1993
and 1992.............................................................. F-8 and F-9
Notes to Consolidated Financial Statements............................... F-10 to F-22
Condensed Consolidated Balance Sheets, March 31, 1995, and June 30, 1994
(unaudited)........................................................... F-23
Condensed Consolidated Statements of Operations, Nine Months Ended March
31, 1995 and 1994 (unaudited)......................................... F-24
Condensed Consolidated Statements of Cash Flows, Nine Months Ended March
31, 1995 and 1994 (unaudited)......................................... F-25 and F-26
Notes to Condensed Consolidated Financial Statements (unaudited)......... F-27 to F-29
POWERFONE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report............................................. F-31
Consolidated Balance Sheet, December 31, 1993............................ F-32 and F-33
Consolidated Statement of Operations, Year Ended December 31, 1993....... F-34
Consolidated Statement of Common Stockholders' Deficiency, Year Ended
December 31, 1993..................................................... F-35
Consolidated Statement of Cash Flows, Year Ended December 31, 1993....... F-36
Notes to Consolidated Financial Statements............................... F-37 to F-42
Condensed Consolidated Balance Sheets, December 31, 1993 and March 31,
1994 (unaudited)...................................................... F-43 and F-44
Condensed Consolidated Statements of Operations, Three Months Ended March
31, 1993 and 1994 (unaudited)......................................... F-45
Condensed Consolidated Statements of Cash Flows, Three Months Ended March
31, 1993 and 1994 (unaudited)......................................... F-46
Notes to Condensed Consolidated Financial Statements (unaudited)......... F-47
800MHZ SPECIALIZED MOBILE RADIO TERRITORY OF
MOTOROLA, INC. (NEXTEL PROPERTIES) (A BUSINESS WITHIN THE
NETWORK SERVICES DIVISION (DIVISION) OF MOTOROLA, INC. (PARENT)) (THE
TERRITORY)
FINANCIAL STATEMENTS
Independent Auditors' Report............................................. F-48
Balance Sheets, December 31, 1993 and 1994 and March 31, 1994 and 1995
(unaudited)........................................................... F-49
Statements of Operations and Territory Equity, Years Ended December 31,
1992, 1993 and 1994 and Three Months Ended March 31, 1994 and 1995
(unaudited)........................................................... F-50
Statements of Cash Flows, Years Ended December 31, 1992, 1993 and 1994
and Three Months Ended March 31, 1994 and 1995 (unaudited)............ F-51
Notes to Financial Statements............................................ F-52 to F-61
</TABLE>
F-1
<PAGE> 166
<TABLE>
<S> <C>
ONECOMM CORPORATION AND SUBSIDIARIES (FORMERLY CENCALL COMMUNICATIONS
CORP.)
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report............................................. F-63
Consolidated Balance Sheets, December 31, 1994 and 1993.................. F-64 and F-65
Consolidated Statements of Operations, Years Ended December 31, 1994,
1993 and 1992......................................................... F-66
Consolidated Statements of Stockholders' Equity (Deficit), Years Ended
December 31, 1994, 1993 and 1992...................................... F-67
Consolidated Statements of Cash Flows, Years Ended December 31, 1994,
1993 and 1992......................................................... F-68
Notes to Consolidated Financial Statements............................... F-69 to F-79
Consolidated Balance Sheets, March 31, 1995 (unaudited) and
December 31, 1994..................................................... F-80
Consolidated Statements of Operations, Three Months Ended March 31, 1995
and 1994 (unaudited).................................................. F-81
Consolidated Statements of Stockholders' Equity, Year Ended December 31,
1994 and Three Months Ended March 31, 1995 (unaudited)................ F-82
Consolidated Statements of Cash Flows, Three Months Ended March 31, 1995
and 1994 (unaudited).................................................. F-83
Notes to Consolidated Financial Statements (unaudited)................... F-84 to F-88
DIAL PAGE, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report............................................. F-89
Consolidated Balance Sheets, December 31, 1993 and 1994.................. F-90
Consolidated Statements of Operations, Years Ended December 31, 1992,
1993 and 1994......................................................... F-91
Consolidated Statements of Stockholders'/Partners' Equity (Deficit),
Years Ended December 31, 1992, 1993 and 1994.......................... F-92
Consolidated Statements of Cash Flows, Years Ended December 31, 1992,
1993 and 1994......................................................... F-93 and F-94
Notes to Consolidated Financial Statements............................... F-95 to F-111
Consolidated Statements of Operations, Three Months Ended March 31, 1995
and 1994 (unaudited).................................................. F-112
Consolidated Balance Sheets, March 31, 1995 (unaudited) and
December 31, 1994..................................................... F-113
Consolidated Statements of Cash Flows, Three Months Ended March 31, 1995
and 1994 (unaudited).................................................. F-114
Notes to Consolidated Financial Statements (unaudited)................... F-115 to F-117
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES (FORMERLY TRANSIT
COMMUNICATIONS ATLANTA, L.P.) AND CERTAIN ASSETS AND LIABILITIES OF
TRANSIT SALES AND SERVICE, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants................................. F-118
Consolidated Combined Balance Sheets, December 31, 1992 and 1993......... F-119
Consolidated Combined Statements of Operations, Years Ended December 31,
1991, 1992 and 1993................................................... F-120
Consolidated Combined Statements of Changes in Stockholders'
Equity/Partners' Capital, Years Ended December 31, 1991, 1992 and
1993.................................................................. F-121
Consolidated Combined Statements of Cash Flows, Years Ended December 31,
1991, 1992 and 1993................................................... F-122
Notes to Consolidated Combined Financial Statements...................... F-123 to F-138
</TABLE>
F-2
<PAGE> 167
<TABLE>
<S> <C>
Condensed Consolidated Interim Balance Sheets, March 31, 1994 (unaudited)
and December 31, 1993................................................. F-139
Condensed Consolidated Interim Statements of Operations, Three Months
Ended March 31, 1994 and 1993 (unaudited)............................. F-140
Condensed Consolidated Interim Statements of Cash Flows, Three Months
Ended March 31, 1994 and 1993 (unaudited)............................. F-141
Notes to Condensed Consolidated Interim Financial Statements
(unaudited)........................................................... F-142
QUESTAR TELECOM, INC.
FINANCIAL STATEMENTS
Report of Independent Auditors........................................... F-143
Balance Sheet, December 31, 1993......................................... F-144
Statement of Operations and Accumulated Deficit, Year Ended
December 31, 1993..................................................... F-145
Statement of Cash Flows, Year Ended December 31, 1993.................... F-146
Notes to Financial Statements............................................ F-147 to F-150
Balance Sheet, June 30, 1994 (unaudited)................................. F-151
Statements of Operations, Six Months Ended June 30, 1993 and 1994
(unaudited)........................................................... F-152
Statements of Cash Flows, Six Months Ended June 30, 1993 and 1994
(unaudited)........................................................... F-153
Notes to Financial Statements (unaudited)................................ F-154
ADVANCED MOBILECOMM WEST
COMBINED FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-155
Combined Balance Sheets, June 30, 1994 (unaudited) and December 31,
1993.................................................................. F-156
Combined Statements of Operations, Six-Month Periods Ended June 30, 1994
(unaudited) and 1993 (unaudited) and Year Ended December 31, 1993..... F-157
Combined Statements of Stockholder's Equity, Six-Month Period Ended June
30, 1994 (unaudited) and Year Ended December 31, 1993................. F-158
Combined Statements of Cash Flows, Six-Month Periods Ended June 30, 1994
and 1993 (unaudited) and Year Ended December 31, 1993................. F-159
Notes to Combined Financial Statements................................... F-160 to F-166
</TABLE>
F-3
<PAGE> 168
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
American Mobile Systems Incorporated:
We have audited the accompanying consolidated balance sheets of American
Mobile Systems Incorporated and subsidiary as of June 30, 1994 and 1993, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended June 30, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Mobile Systems Incorporated and subsidiary as of June 30, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note 15 to the consolidated financial statements, the
Company is a defendant in a consolidated complaint filed on behalf of persons
who purchased the Company's common stock during the period from July 1, 1990
through March 24, 1992, and alleges that damages were suffered as a result
thereof. The ultimate outcome of the complaint cannot presently be determined.
Accordingly, no provision for any liability that may result upon adjudication
has been recognized in the accompanying consolidated financial statements.
KPMG Peat Marwick LLP
Denver, Colorado
August 26, 1994
F-4
<PAGE> 169
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1994 AND 1993
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
ASSETS (NOTE 12)
Current assets:
Cash and cash equivalents......................................... $ 584 $ 4,020
Accounts receivable:
Trade, net of allowance for doubtful accounts of $617 in 1994
and $769 in 1993 (note 18)..................................... 272 349
Other (note 5).................................................. 549 229
Receivable from a former officer, net of allowance for doubtful
recovery of $2,994 in 1994 and $3,718 in 1993 (notes 5 and 6).... -- 385
Inventories, net.................................................. 485 521
Other assets...................................................... 100 127
-------- --------
Total current assets....................................... 1,990 5,631
-------- --------
Notes receivable (note 6)............................................ 63 858
Property and equipment, net of accumulated depreciation and
amortization (note 7)............................................. 5,864 6,678
Intangible assets, net of accumulated amortization (note 8).......... 12,206 10,921
Deferred offering costs (notes 16 and 19)............................ 520 --
Other assets (note 9)................................................ 379 1,833
-------- --------
$ 21,022 $ 25,921
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (note 10)........................................... $ 136 $ 139
Current maturities of subordinated convertible notes
payable -- stockholder (note 11)................................ -- 1,971
Current maturities of secured debt and capitalized lease
obligations (notes 12 and 13)................................... 11,367 4,589
Accounts payable.................................................. 584 579
Accrued expenses.................................................. 587 767
Accrued interest (note 11)........................................ 64 890
Other............................................................. 62 39
-------- --------
Total current liabilities.................................. 12,800 8,974
-------- --------
Long-term secured debt (note 12)..................................... -- 8,406
Capitalized lease obligations (note 13).............................. 128 886
Other debt........................................................... 240 250
-------- --------
Total liabilities.......................................... 13,168 18,516
-------- --------
Common stock subject to repurchase, $.01 par value;
714 shares issued (note 16)....................................... 5,000 5,000
Stockholders' equity (notes 11, 12, and 16):
Preferred stock, $1 par value. Authorized 5,000 shares; none
issued and outstanding......................................... -- --
Common stock, $.01 par value. Authorized 20,000 shares; issued
and outstanding 6,533 shares in 1994 and 6,100 shares in
1993........................................................... 66 61
Additional paid-in capital...................................... 50,197 47,226
Accumulated deficit............................................. (46,777) (44,882)
-------- --------
3,486 2,405
Less 38 shares of treasury stock................................ (632) --
-------- --------
Total stockholders' equity................................. 2,854 2,405
-------- --------
Commitments and contingencies (notes 6 and 15)
$ 21,022 $ 25,921
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 170
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1994, 1993, AND 1992
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- --------
<S> <C> <C> <C>
Airtime:
Sales...................................................... $ 5,064 $ 5,100 $ 4,573
Cost of sales.............................................. (1,629) (1,679) (1,721)
Depreciation and amortization.............................. (1,189) (1,304) (1,298)
------- ------- --------
Gross profit on airtime............................ 2,246 2,117 1,554
------- ------- --------
Equipment:
Sales (including sales to RESCO, Inc. of $112 and $822 in
1993 and 1992, respectively) (note 4)................... 3,582 2,872 913
Cost of sales (including cost of sales to RESCO, Inc.
of $112 and $822 in 1993 and 1992, respectively)
(note 4)................................................ (2,338) (2,196) (1,202)
------- ------- --------
Gross profit (loss) on equipment................... 1,244 676 (289)
------- ------- --------
Total gross profit................................. 3,490 2,793 1,265
------- ------- --------
Operating expenses:
Selling, general, and administrative....................... 3,974 4,372 4,896
Depreciation and amortization.............................. 1,492 1,665 1,566
Interest expense and amortization of debt issuance costs,
net..................................................... 842 1,089 1,257
Interest expense on subordinated convertible notes
payable -- stockholder (note 11)........................ 68 272 361
------- ------- --------
6,376 7,398 8,080
------- ------- --------
Loss before other income (expense)................. (2,886) (4,605) (6,815)
------- ------- --------
Other income (expense):
Gain on sale of assets (note 17)........................... 267 2,006 216
Litigation settlement...................................... -- -- (372)
Debt conversion expense (note 16).......................... -- -- (3,224)
Reduction in provision for doubtful receivable from former
officer (notes 5 and 6)................................. 724 -- --
Provision for doubtful receivable from former officer
(note 5)................................................ -- -- (3,718)
------- ------- --------
991 2,006 (7,098)
------- ------- --------
Net loss........................................... $(1,895) $(2,599) $(13,913)
======= ======= ========
Loss per share............................................... $ (.27) $ (.41) $ (2.74)
======= ======= ========
Weighted average number of shares outstanding................ 7,132 6,276 5,080
======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 171
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(NOTES 11, 12, 15, AND 16)
YEARS ENDED JUNE 30, 1994, 1993, AND 1992
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
ISSUED ADDITIONAL
----------------- PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL
------ ------ ---------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1991................ 4,052 $ 41 $ 34,101 $ (28,370) $(1,238) $ 4,534
Conversion of subordinated debt....... 1,173 11 8,695 -- -- 8,706
Issued for payment of interest........ 208 2 691 -- -- 693
Sale of treasury stock................ -- -- (251) -- 1,238 987
Sale of common stock in a private
placement offering.................. 587 6 4,250 -- -- 4,256
Stock issuance costs.................. -- -- (420) -- -- (420)
Net loss.............................. -- -- -- (13,913) -- (13,913)
----- ---- -------- --------- ------- --------
BALANCE, JUNE 30, 1992................ 6,020 60 47,066 (42,283) -- 4,843
Issued for services................... 5 -- 23 -- -- 23
Settlement of lawsuit................. 75 1 355 -- -- 356
Stock issuance costs.................. -- -- (218) -- -- (218)
Net loss.............................. -- -- -- (2,599) -- (2,599)
----- ---- -------- --------- ------- --------
BALANCE, JUNE 30, 1993................ 6,100 61 47,226 (44,882) -- 2,405
Acquisition of treasury stock......... (38) -- -- -- (632) (632)
Conversion of subordinated debt....... 465 5 2,888 -- -- 2,893
Exercise of employee stock options.... 6 -- 83 -- -- 83
Net loss.............................. -- -- -- (1,895) -- (1,895)
----- ---- -------- --------- ------- --------
BALANCE, JUNE 30, 1994................ 6,533 $ 66 $ 50,197 $ (46,777) $ (632) $ 2,854
===== ==== ======== ========= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 172
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1994, 1993, AND 1992
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................................. $(1,895) $(2,599) $(13,913)
------- ------- --------
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization...................................... 2,681 2,970 2,695
Provision for doubtful receivables................................. 245 180 409
Provision for doubtful note receivable from a former officer....... -- -- 3,718
Reduction in provision for doubtful receivable from a former
officer.......................................................... (724) -- --
Provision for inventory obsolescence............................... 70 100 334
Issuance of common stock in payment of interest and for services... -- 23 693
Interest expense applied to principal.............................. -- 4 17
Special compensation -- stock options.............................. 29 -- --
Gain on sale of assets............................................. (267) (2,006) (216)
Debt conversion expense............................................ -- -- 3,224
Change in asset and liabilities:
Decrease (increase) in accounts receivable....................... (188) (297) 132
Increase in inventories.......................................... (34) (16) (24)
Decrease (increase) in other assets and deferred offering
costs......................................................... 108 (129) 140
Increase (decrease) in accounts payable and accrued expenses..... (152) (241) 977
Increase (decrease) in accrued interest.......................... 94 183 (280)
Total adjustments............................................. 1,862 771 11,819
------- ------- --------
Net cash used in operating activities......................... (33) (1,828) (2,094)
------- ------- --------
Cash flows from investing activities:
Expenditures for property and equipment.............................. (562) (175) (1,332)
Expenditures for acquisitions of Specialized Mobile Radio (SMR)
systems............................................................ (750) (525) (2,172)
Proceeds from sale of assets......................................... 453 3,384 286
Additions to assets held for resale.................................. -- (421) --
Net decrease (increase) in due from affiliate and from former officer
and related parties of a former officer............................ 12 216 (3,295)
------- ------- --------
Net cash provided by (used in) investing activities........... (847) 2,479 (6,513)
------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of notes payable.............................. -- 2,325 835
Proceeds from issuance of subordinated debt and secured debt......... -- -- 6,552
Payments of notes payable and subordinated debt...................... (1,786) (2,607) (2,618)
Proceeds from capitalized lease obligations.......................... -- -- 19
Principal payments under capitalized lease obligations............... (824) (1,173) (1,197)
Proceeds from issuance of common stock............................... 54 5,000 4,256
Proceeds from sale of treasury stock................................. -- -- 1,061
Expenditures for issuance of common stock............................ -- (218) (494)
------- ------- --------
Net cash provided by (used in) financing activities........... (2,556) 3,327 8,414
------- ------- --------
Net increase (decrease) in cash............................... (3,436) 3,978 (193)
Cash and cash equivalents, beginning of year........................... 4,020 42 235
------- ------- --------
Cash and cash equivalents, end of year................................. $ 584 $ 4,020 $ 42
======= ======= ========
Supplemental disclosure of cash flow information -- Cash paid for
interest............................................................. $ 807 $ 1,191 $ 1,344
======= ======= ========
</TABLE>
(Continued)
F-8
<PAGE> 173
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the year ended June 30, 1994, the following noncash investing and
financing activities occurred:
(a) Common stock valued at $632 was received from a former officer of
the Company in payment of a note receivable with a net balance of
$369. The difference of $263 was recorded as a reduction in
provision for doubtful receivable from a former officer.
(b) SMR licenses valued at $976 were acquired in settlement of $795 in
notes receivable, $5 in deposit receivable and the assumption of a
$12 option payable. The remaining $164 was recorded as a reduction
in provision for doubtful receivable from a former officer.
(c) Shares of common stock (462) were issued upon the conversion of
$2,873 of debt and accrued interest.
(d) The Company acquired RESCO, Inc.'s 50% interest in the RESCO/AMS
partnership's SMR systems in Jacksonville, Florida for
approximately $800. Accordingly, the Company's investment in the
RESCO/AMS joint venture was reduced by the Company's share of the
book basis of the Jacksonville assets in the joint venture.
(e) Exercised employee stock options resulted in the recording of $29
of special compensation expense and a corresponding increase in
additional paid-in capital.
(f) Shares of common stock (3) were issued upon the conversion of $20
of accrued interest.
During the year ended June 30, 1993, the following noncash investing and
financing activities occurred:
(a) Three SMR licenses were acquired in settlement of $62 in notes
receivable (see note 6).
(b) The Company settled a lawsuit which had been accrued for in fiscal
1992 through the issuance of 75 shares of the Company's common
stock valued at $4.75 per share.
During the year ended June 30, 1992, the following noncash investing and
financing activities occurred:
(a) Atlanta and Orlando SMR systems with net cost of $1,979 were
exchanged for "JCC" Tampa and Miami SMR systems.
(b) Subordinated notes payable and long-term secured debt increased by
$984 from an acquisition.
(c) Common stock was issued upon the conversion of $6,175 of
subordinated debt and accrued interest.
(d) Capitalized lease obligations of $198 were assumed to acquire
network equipment.
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 174
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994, 1993, AND 1992
(1) NATURE OF BUSINESS AND BASIS OF FINANCIAL STATEMENT PRESENTATION
American Mobile Systems Incorporated and subsidiary (the Company) are
engaged in the business of operating and managing Specialized Mobile Radio (SMR)
systems that provide mobile radio and dispatch services, under licenses issued
by the Federal Communications Commission (FCC), principally to customers
throughout major metropolitan areas of Southeast Florida and on Florida's Gulf
Coast. In addition, the Company markets communications, mobile telephone, and
radio dispatch equipment and services.
The Company's marketing and sales and service agreements with RESCO, Inc.
were terminated on August 31, 1992. Effective September 1, 1992, all sales and
service functions were performed through the Company's newly formed wholly owned
subsidiary, American Mobile Services Incorporated. The accompanying consolidated
financial statements include the accounts of the Company and its subsidiary. All
intercompany balances and transactions have been eliminated in consolidation.
The Company has incurred losses during the three years ended June 30, 1994.
During this same three-year period, the Company also used net cash in its
operating activities and had net working capital deficits. During 1992, 1993,
and 1994, the Company met its cash requirements through its financing activities
and existing cash. The Company expects its proposed financing activities (see
note 16) along with its planned operating activities, will provide adequate
capital to expand its markets and to continue to operate. However, there can be
no assurance that the proposed financing and planned operating activities will
be completed.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid instruments with original maturities of three months
or less to be cash equivalents. Cash equivalents of $3,487,000 at June 30, 1993
consisted of certificates of deposit.
REVENUE RECOGNITION
The Company recognizes revenue from airtime sales based upon monthly access
charges per unit plus airtime charges as used. Airtime sales also include
revenue from management agreements which are recognized as earned. Revenue from
the sale of equipment is recognized when the units are sold.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist principally of radio communication equipment held for sale and
resale. Market value is determined by replacement cost or net realizable value.
PROPERTY AND EQUIPMENT, DEPRECIATION, AND AMORTIZATION
Property and equipment are stated at cost. Depreciation and amortization
are provided by the straight-line basis over their expected useful lives of
between 5 and 10 years.
INVESTMENT IN JOINT VENTURE
The Company uses the equity method of accounting for its investment in a
50%-owned joint venture. The Company's investment, at cost, is increased or
decreased annually by its share of the undistributed profits or losses of the
joint venture and decreased by any distributions made to it by the joint
venture.
F-10
<PAGE> 175
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (Statement 109).
Statement 109 requires a change from the deferred method of accounting for
income taxes of APB Opinion 11 to the asset and liability method of accounting
for income taxes. Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Effective July 1, 1993, the Company adopted Statement 109. There was no
effect on the Company's financial statements of adopting Statement 109.
INTANGIBLE ASSETS
Intangible assets are stated at cost. License rights are costs incurred for
FCC issued licenses primarily as a result of business acquisitions and are being
amortized on a straight-line basis over an estimated life of 20 years. Costs
assigned to customer lists purchased in business combinations are being
amortized on a straight-line basis over an estimated useful life of 10 years.
The excess of cost over fair value of companies acquired is being amortized on a
straight-line basis over its estimated useful life of 20 years. All relevant
factors and circumstances are periodically reviewed to determine whether
reductions in the intangible asset amortization periods are appropriate.
LOSS PER SHARE
Loss per share is computed based on the weighted average number of common
shares outstanding during the period. Shares to be issued upon the exercise of
warrants and options are not included in the calculation of net loss per share
for the years ended June 30, 1994, 1993 and 1992 since the effect would be
anti-dilutive.
(3) ASSET EXCHANGES WITH JCC
The Company entered into two Asset Exchange Agreements (Exchange
Agreements), dated as of August 1, 1991, with Johnson Communications Corporation
(JCC) whereby the Company acquired SMR sales and service and repeater businesses
from JCC in Miami and Tampa, Florida, and transferred to JCC its SMR repeater
businesses in Atlanta, Georgia, and Orlando, Florida. The values assigned for
the Miami business was $1,534,000 and for the Tampa business, $3,116,000. The
net book value of the Atlanta business was $300,000 and the Orlando business was
$1,679,000. To the extent the values assigned did not offset, the difference was
paid or was payable in cash at closing.
The parties have closed on a majority of the systems involved in the
exchange, and are operating most of the remaining systems pursuant to management
agreements pending approval of certain license transfers from the FCC. As of
August 26, 1994, the Company had not received thirty 900 MHz channels from JCC
located in Tampa, Florida, and a dispute currently exists concerning this
matter. The Exchange Agreements provide for liquidated damages in the amount of
$40,000 for each channel not delivered, which may result in a claim by the
Company against JCC (or its successor) in the amount of $1,200,000 if the
dispute is not amicably resolved.
F-11
<PAGE> 176
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) TRANSACTIONS WITH AFFILIATE
As of June 30, 1994 and 1993, advances to (from) the joint venture with
RESCO, Inc. in the amounts of $(306,000) and $448,000, respectively, are
included in the investment in joint venture (see note 9).
(5) RECEIVABLE FROM A FORMER OFFICER
During fiscal year ended June 30, 1992 and the prior year, the Company's
former director, president, chief executive officer, and chief financial officer
caused to occur a series of transfers from the accounts of the Company to this
individual and his related interests which were not authorized by the Company's
Board of Directors. The balance due at June 30, 1992 of $4,343,000, after
adjustment, from this individual resulted primarily from transfers of $5,767,000
from the Company, reduced by repayments of $2,756,000 during that fiscal year.
The highest outstanding balance due from this individual and his related
interests during fiscal 1992 was approximately $4,500,000, for which the Company
recorded interest income of $161,000.
In March 1992, the Board of Directors of the Company became aware of these
transfers and commenced an investigation. The Board of Directors retained
independent counsel and independent accountants to assist in the investigation
of such transfers and transfers in the prior year. The Board determined, based
on the review by independent accountants, that the transfers by the former
officer in the fiscal year ended June 30, 1991, were part of a pattern of
repetitive overdrafts of Company bank accounts and bank accounts controlled by
the former officer, including those of Autotel Capital Partnership (ACP) (a
general partner in Autotel Communications Network (Autotel) (see note 15) and
related entities controlled by the former officer. The Company obtained a
$4,128,000 note from the former officer, which is in part collateralized by
various personal assets, which represented the amount due at June 30, 1992 as a
result of such transfers. The note is due on demand and bears interest at the
lesser of 12% per annum or the maximum allowable rate provided by law. The
remaining balance of $215,000 as of June 30, 1992 was attributed to amounts due
to the Company for interest, goods, and various services provided by the Company
to the former officer. However, given uncertainty that the collateral would be
sufficient to cover the note and other amounts due the Company for the year
ended June 30, 1992, the Company recorded a provision of $3,718,000 for the
estimated doubtful recovery. No interest has been accrued since March 1992.
During the year ended June 30, 1993, the Company received cash from certain
collateral sold in the amount of approximately $240,000. On September 2, 1993,
the former officer assigned his 38,333 shares of the Company's common stock to
the Company and approximately $632,000 was credited to his outstanding
indebtedness based on the trading price of the common stock on the assignment
date. The Company expects to receive $300,000 during the first quarter of fiscal
1995 from the sale of the former officer's interest in a separate company. A
portion of the amounts received or to be received was recorded as a reduction of
the receivable and the balance as a reduction in provision for doubtful
receivable from former officer in the accompanying consolidated statement of
operations.
(6) NOTES RECEIVABLE, PRINCIPALLY FROM PARTIES WHO HAD A RELATIONSHIP WITH A
FORMER OFFICER
In 1988, in connection with assets purchased from Autotel, the Company
acquired notes receivable, with interest at rates from 10% to 12%, to be paid
over 10 years. The notes resulted from the sale of equipment to SMR license
owners. At June 30, 1994 and 1993, notes receivable from certain SMR license
owners totaled $63,000 and $858,000, respectively.
The Company also acquired in the Autotel purchase, certain management
agreements (the Management Agreements) which provide management, marketing, and
operational support for SMR facilities owned by these same SMR license holders.
In certain cases, the Company also leased equipment to the SMR license holder.
The Company, pursuant to the Management Agreements, was solely responsible for
the costs of providing all such services except for costs specifically
identified under the terms of these agreements. The agreements provide that in
exchange for such services and obligations, the Company would receive a
F-12
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AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) NOTES RECEIVABLE, PRINCIPALLY FROM PARTIES WHO HAD A RELATIONSHIP WITH A
FORMER OFFICER (CONTINUED)
percentage of the gross receipts generated from each managed facility after the
license holder first received a stated minimum amount of such receipts. The
amounts payable to the SMR license holder were to be offset against amounts owed
on the notes and equipment leases.
At the date of the Autotel purchase, the SMR license holders had entered
into option agreements, which allowed these license holders to receive shares in
the Company in exchange for their SMR license rights and related facilities and
equipment. These shares were to be paid from shares belonging to ACP and held in
escrow for that purpose. In addition, pursuant to the terms of the option
agreements, upon the exercise of these options by the license holder, the notes
receivable would also be forgiven and the equipment leases and other management
agreements terminated.
Subsequent to 1988, the Company also entered into oral and written
agreements with these license holders and others to manage trunked SMR systems
on similar terms.
During the year ended June 30, 1994, the Company purchased SMR licenses
(pursuant to the option and settlement agreements) valued at $976,000 in
settlement of $795,000 of the notes receivable and $164,000 of the note
receivable from a former officer.
The Company also has various additional management agreements to manage and
operate SMR systems whose licenses are owned by other parties which extend to
2007. Management fees, which are not material, are included in cost of
sales-airtime. These licensees have the option to require the Company to
purchase the SMR systems which, if exercised in total, is estimated not to
exceed $100,000.
(7) PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of June 30 (amounts in
thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
SMR equipment...................................................... $ 8,119 $ 8,220
Computer equipment................................................. 1,313 1,302
Rental equipment................................................... 922 992
Equipment under capitalized leases................................. 2,206 2,184
Other.............................................................. 1,922 1,464
------- -------
14,482 14,162
Less accumulated depreciation and amortization (including $953 and
$738 for equipment under capitalized leases)..................... 8,618 7,484
------- -------
$ 5,864 $ 6,678
======= =======
</TABLE>
The Company incurred costs of approximately $588,000, $122,000, and
$397,000 in 1994, 1993 and 1992, respectively, in connection with development
and construction of SMR systems.
F-13
<PAGE> 178
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) INTANGIBLE ASSETS
Intangible assets consist of the following as of June 30 (amounts in
thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Excess of cost over fair value of net assets acquired............ $ 2,961 $ 2,961
Options to acquire and rights of first refusal for SMR systems... 1,018 1,018
License rights................................................... 8,997 6,971
Customer lists................................................... 3,072 2,869
-------- --------
16,048 13,819
Less accumulated amortization.................................... 3,842 2,898
-------- --------
$ 12,206 $ 10,921
======== ========
</TABLE>
(9) OTHER ASSETS
Other assets consist of the following as of June 30 (amounts in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ------
<S> <C> <C>
Investment in joint venture, net of advances(a)..................... $(39) $1,337
Other............................................................... 418 496
---- ------
$379 $1,833
==== ======
</TABLE>
(a) In April 1990, the Company purchased a 50% interest in SMR systems for
$930,000 in cash and 25,000 shares of the Company's common stock. In
connection with this purchase, the Company entered into a joint venture
agreement with RESCO, Inc. (RESCO/AMS Communications, a joint venture
partnership which is 50% owned by the Company and 50% owned by RESCO, Inc.)
to provide for the joint ownership of these systems which are managed by the
Company. The Company also contributed to this venture a five-channel system
serving Jacksonville, Florida.
Pursuant to an Asset Purchase and Sales Agreement, dated July 15, 1993 (the
RESCO/AMS Agreement), by and among RESCO/AMS Communications and Dial Call, Inc.,
RESCO/AMS Communications agreed to sell all of its 800 MHz SMR systems and
related assets in South Carolina and Georgia for an aggregate consideration of
$1,700,000. This transaction closed in June 1994.
The Company also acquired RESCO, Inc.'s 50% interest in RESCO/AMS's systems
in Jacksonville, Florida, for approximately $800,000 and RESCO, Inc. acquired
AMS's 50% interest in RESCO/AMS's 450 MHz repeater business for approximately
$100,000 in June 1994.
(10) NOTES PAYABLE
In connection with various system acquisitions during fiscal 1992, the
Company assumed several notes, resulting from put options exercised by
licensees. These notes bear interest at rates ranging from 10% to 12% per annum.
F-14
<PAGE> 179
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) SUBORDINATED CONVERTIBLE NOTES PAYABLE -- STOCKHOLDER
Subordinated convertible notes payable -- stockholder consist of the
following as of June 30, 1993 (amounts in thousands):
<TABLE>
<S> <C>
Convertible subordinated note payable to stockholder, due on demand,
interest at 18%(a)(c)..................................................... $1,136
Convertible demand note payable to stockholder, interest at a rate of 2%
above prime rate(b)(c).................................................... 835
------
$1,971
======
</TABLE>
(a) Note was held by United Artists Investment, Inc. (UAI) and it, along with
accrued interest, were convertible at $6 per share into shares of common
stock.
(b) On August 30, 1991, in accordance with a note purchase agreement between the
bank and UAI and United Artists Communications, Inc. (UAC, the predecessor
to United Artists Entertainment Company) (together UA), UAI purchased the
Company's remaining indebtedness of $835,000 from the bank. The Company
issued UAI a convertible note in the principal amount of $835,000 in
accordance with an agreement of satisfaction and subsequent amendment with
UA. The note was due on demand, bore interest at a rate of 2% above a bank's
prime rate per annum, and it, along with accrued interest were convertible
into shares of common stock at the rate of $6.69 per share.
(c) On October 1, 1993, the Company issued 314,526 shares of Common Stock to UAI
upon the conversion of the 18% Convertible Demand Note, dated February 1,
1990, having an outstanding principal amount of $1,136,500 and accrued
interest of $750,658. Also on October 1, 1993, the Company issued 147,383
shares of Common Stock to UAI upon the conversion of the Convertible Demand
Note dated August 14, 1991, having an outstanding principal amount of
$834,948 and accrued interest of $151,044.
(12) LONG-TERM SECURED DEBT
In April 1991, the Company entered into a Credit Agreement with a bank. The
Company and the bank entered into an amendment, dated as of August 17, 1992,
pursuant to which the bank and the Company agreed to certain amendments to the
Credit Agreement. Subject to the terms of the Amended Credit Agreement
(Agreement), the bank agreed to lend the Company up to $12 million on a
revolving basis until April 9, 1993. On that date, the outstanding revolving
loans were converted into a five-year term loan (Term Loan). The Term Loan bears
interest at (i) the bank's prime rate plus a margin of .25% to 1.25% or (ii) at
a LIBOR rate plus a margin of 1.5% to 2.5%. At June 30, 1994, the interest rate
in effect was 6.69%. Interest is payable by the Company monthly.
The Term Loan requires the repayment of the principal amount outstanding at
June 30, 1994, as follows (amounts in thousands):
<TABLE>
<S> <C>
YEAR ENDING JUNE 30:
1995............................................ $ 3,871
1996............................................ 2,045
1997............................................ 2,953
1998............................................ 1,818
-------
$10,687
=======
</TABLE>
The Term Loan, as amended on August 22, 1994, contains financial covenants
which prohibit the payment of cash dividends or the redemption or other
acquisitions by the Company of shares of, or securities exercisable for, common
stock. The Term Loan also contains covenants that, among other things, restrict
the Company's ability to incur further indebtedness or to create liens on its
properties; to invest in other
F-15
<PAGE> 180
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) LONG-TERM SECURED DEBT (CONTINUED)
companies; to acquire additional SMR systems or enter into joint ventures; or to
sell, outside of the ordinary course of business, any of its assets. In
addition, the Company is required to maintain, as defined, specified ratios of
cash flow to debt service and senior debt and is prohibited from exceeding a
specified amount of marketing expenses. During the year ended June 30, 1994, the
Company was in default for exceeding the marketing expenditure limitations and
for violation of the debt service ratio and the senior debt ratio covenants. The
Company received an amendment and waiver pursuant to which the bank eliminated
the Company's defaults through June 30, 1994 for the ratio covenants and waived
the default for the marketing expenditure covenant through September 30, 1994.
In addition, installments originally due under the Credit Agreement on March 31,
1994, June 30, 1994, and September 30, 1994 were extended and will be due and
payable on the earlier of October 31, 1994 or the date on which NEXTEL
Communications, Inc. (Nextel) acquires a majority interest in the Company (see
note 16). Since the Company's waiver does not extend beyond June 30, 1995, the
entire balance of the Term Loan has been classified as a current liability in
the accompanying consolidated balance sheet as of June 30, 1994.
Borrowings under the Agreement are secured by substantially all of the
tangible and intangible assets of the Company. The Company has also assigned to
the bank the assets pledged to the Company by its former chief executive officer
and chief financial officer. Under the assignment, the Company retains any cash
received from the sale of such assets which is necessary to meet its projected
cash flow needs for the next 12 months before applying the cash received to
repay the borrowings under the Agreement.
The Company also issued a stock purchase warrant to the bank whereby the
bank has the right to purchase from the Company 160,000 shares of common stock
at $1.50 per share (see note 15).
(13) CAPITALIZED LEASE OBLIGATIONS
The Company leases SMR equipment under lease obligations which have been
capitalized at interest rates which approximate the rates implicit in the lease
agreements.
In April 1989, the Company entered into a purchase agreement with Lease
Programs Inc. (LPI), whereby LPI finances the Company's acquisition of radio
communication equipment and tower equipment. In accordance with the agreement,
the Company purchases equipment and subsequently sells such equipment to LPI.
LPI then leases the equipment to the Company for a three-year period with an
effective interest rate ranging from 16% to 17% per annum. There were no
financing arrangements made between the Company and LPI in fiscal 1994.
The following schedule describes the components of the capitalized lease
obligations as of June 30 (amounts in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ------
<S> <C> <C>
Total minimum lease payments payable........................ $885 $2,121
Less amount attributable to interest........................ (98) (510)
---- ------
$787 $1,611
==== ======
</TABLE>
F-16
<PAGE> 181
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) CAPITALIZED LEASE OBLIGATIONS (CONTINUED)
These minimum lease payments payable are due as follows (amounts in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30:
- --------------------
<S> <C>
1995.................................................. $744
1996.................................................. 96
1997.................................................. 45
----
$885
====
</TABLE>
(14) INCOME TAXES
As of June 30, 1994, the Company had available for federal income tax
purposes net operating loss carryforwards of approximately $39,700,000, expiring
from 1998 through 2009 based upon present tax regulations. The net operating
loss carryforward available to offset future taxable income may be limited for
losses generated before February 1988. Net operating loss carryforwards may also
be limited as a result of future changes in ownership. The Company also had
available investment tax credit carryforwards of $38,000 expiring through 2001.
The primary components of the deferred tax liabilities at June 30, 1994
represent property and equipment (principally due to differences in
depreciation) and intangible assets (principally due to differences in
amortization). The primary components of deferred tax assets represent
allowances for doubtful accounts and net operating loss carryforwards. The
following components of the net deferred tax liability are presented below
(amounts in thousands):
<TABLE>
<S> <C>
Deferred tax liabilities:
Property and equipment, principally due to differences in
depreciation......................................................... $ (1,146)
Intangible assets, principally due to differences in amortization....... (2,295)
--------
Total gross deferred tax liabilities............................ (3,441)
--------
Deferred tax assets:
Receivables, principally due to allowance for doubtful accounts......... 1,444
Inventories, principally due to allowance for obsolescence.............. 110
Net operating loss carryforward......................................... 15,895
--------
Total gross deferred tax assets................................. 17,449
Less valuation allowance................................................ (14,008)
--------
Net deferred tax assets......................................... 3,441
--------
Net deferred taxes.............................................. $ --
========
</TABLE>
(15) COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with its current president and
chief executive officer. The agreement and subsequent amendments provide for an
aggregate annual base salary of $175,000 until March 29, 1995.
F-17
<PAGE> 182
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) COMMITMENTS AND CONTINGENCIES (CONTINUED)
OPERATING LEASES
The Company has operating leases, principally for operating sites and
office space. Total rent expense, including month-to-month rentals, approximated
$926,000, $1,015,000, and $1,055,000 for the years ended June 30, 1994, 1993,
and 1992, respectively.
The future minimum rental commitments on operating leases are as follows
(amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30:
--------------------
<S> <C>
1995........................................... $ 486
1996........................................... 336
1997........................................... 217
1998........................................... 179
1999........................................... 35
------
$1,253
======
</TABLE>
In addition to fixed rentals, these leases have various escalation clauses
that include requirements for maintenance and real estate taxes and adjustment
for inflation. With respect to certain of these leases, the Company has options
to extend the terms.
COMPLAINT AND INVESTIGATION
During March 1992, the Company was named as a defendant along with its
former director, president, chief executive officer, and chief financial officer
in a complaint filed on behalf of persons who purchased the Company's common
stock during the period from April 9, 1991 through March 24, 1992. On August 5,
1993, the plaintiff filed a consolidated complaint which added the Company's
former auditors and enlarged the putative class to include all persons who
purchased the Company's common stock during the period from July 1, 1990 through
March 24, 1992. The consolidated complaint alleges damages were suffered as a
result of alleged violations of the federal securities laws by the Company, the
former officer, and the Company's former auditors.
The Company answered the consolidated complaint on August 20, 1993, denying
all allegations of wrongdoing contained in the consolidated complaint. The
Company intends to continue to vigorously defend itself against all allegations
of wrongdoing in this action. The ultimate outcome of the consolidated complaint
cannot presently be determined. Accordingly, no provision for any liability that
may result upon adjudication has been recognized in the financial statements.
The Securities and Exchange Commission is conducting a formal investigation
into certain unauthorized transfers of funds from the accounts of the Company by
the Company's former director, president, chief executive officer, and chief
financial officer (see note 5). The Company was voluntarily cooperating with a
prior informal investigation during which three depositions had been taken. The
investigation became formal with the issuance of a subpoena to a third party in
this matter. The Company intends to continue cooperating with this
investigation.
FCC LICENSES
The construction, operation and transfer of control of SMR systems are
regulated by the FCC. The FCC has allocated a specific number of frequencies in
the 800/900 MHz radio spectrum bands for use by SMR systems, and issues licenses
to the extent there are available frequencies. An SMR licensee is normally
required to construct and place a trunked SMR system in operation within one
year from the date of the
F-18
<PAGE> 183
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) COMMITMENTS AND CONTINGENCIES (CONTINUED)
license grant. Failure to meet construction requirements results in automatic
license cancellation. An SMR operator of trunked channels licensed prior to June
1, 1993 must be loaded with a minimum of 70 mobile units per channel within five
years of the initial license grant, except that 900 MHz SMR operators have been
given an initial extension until the Spring of 1995 to meet this loading
requirement. If a given SMR system is not loaded with 70 mobile units per
channel within the applicable period, the authorization may be superseded to
reduce the number of channels to one per each 100 mobile units, or fraction
thereof, being served. The Company and the licensees it manages have
historically met the loading requirement for most of their licenses and have
retained ownership of over 90% of the trunked channels utilized by their SMR
systems. Management anticipates, based on the Company's past experience and the
number of mobile units loaded on adjacent systems or channels, that most of the
licenses that have not met their loading requirement will do so before the
expiration of the requisite loading period.
The FCC has notified four licensees of SMR systems, who collectively have
18 channels located in the vicinity of Homestead, Florida, and are subject to
management agreements with the Company, that their licenses were canceled for
failure to timely construct their SMR systems. The Company has advised the FCC
that the Company timely constructed the licensees' SMR systems in their behalf.
The Company has assisted each of these licensees in the preparation of petitions
for reconsideration which were subsequently denied. The licensees have filed for
an appeal of this decision made by the FCC.
(16) STOCKHOLDERS' EQUITY
TENDER OFFER/DEBT CONVERSION EXPENSES
On July 6, 1990, the Company completed tender offers whereby certain
convertible subordinated debentures due in 1991 and convertible subordinated
notes due in 1993 were converted into shares of common stock at a reduced
exercised price of $6.375 per share. The offer to the holders of the convertible
subordinated notes due in 1993 also included a condition to increase the
aggregate number of shares of common stock issuable upon exercise of related
warrants by reducing the cost per share to $6.375. One of the conditions to both
tender offers was that UAI convert a principal amount of a convertible
subordinated note, due in 1993, at least equal to the proportion of the
principal amount of the convertible subordinated debentures due in 1991
tendered. In response to the tender offer, the following debt and warrants were
converted to common stock during the fiscal year ended June 30, 1992:
<TABLE>
<CAPTION>
PRINCIPAL ACCRUED CONVERSION/
AMOUNT INTEREST EXERCISE SHARES
CONVERTED CONVERTED PRICE ISSUED(1)
--------- --------- ----------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT
CONVERSION/EXERCISE PRICE)
<S> <C> <C> <C> <C>
Subordinated debt due in 1991............. $ 3,420 18 $6 to 7 551
Note held by UAI.......................... 2,062 675 3.30 829
------- --- -----
$ 5,482 693 1,380
======= === =====
</TABLE>
(1) Includes shares issued for accrued interest.
As a result of the reduction in conversion rate as an inducement to the
noteholders to convert the debt into common stock, the Company incurred
conversion expenses of $3,224,000 for the year ended 1992. The conversion
expense represents the difference in total market value of the additional shares
issued at the reduced conversion rates and exercise price rather than at the
various conversion rates in effect in accordance with the respective terms of
the subordinated debentures due in 1991, convertible subordinated notes due in
1993 and related warrants, and the note held by UAI.
F-19
<PAGE> 184
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) STOCKHOLDERS' EQUITY (CONTINUED)
PRIVATE PLACEMENT OFFERING
In December 1991, a group of investors in a private placement purchased
587,000 shares of common stock at $7.25 per share. Proceeds from the private
placement were $4,250,000, which were reduced by $420,000 of stock issuance
costs.
NEXTEL TRANSACTION
During 1993, the Company entered into agreements with NEXTEL, pursuant to
which NEXTEL may acquire up to 10,914,286 shares of the Company's common stock
at a price of $7 per share for an aggregate consideration totaling approximately
$76,400,000 in cash and property and an additional 1,950,000 shares at $8.50 per
share, as described below.
On April 7, 1993, pursuant to an Initial Stock Purchase Agreement, the
Company sold to NEXTEL 714,286 shares of Common Stock (the Initial Shares) for
an aggregate purchase price of $5,000,000 in cash. In connection therewith, the
Company agreed to repurchase the Initial Shares at the initial issuance price of
$5,000,000 upon request by NEXTEL, if NEXTEL does not acquire a controlling
interest in the Company by October 31, 1994, as extended (unless such occurrence
is solely the fault of NEXTEL). Also, in connection with the purchase and sale
of the Initial Shares, the Company issued to NEXTEL an option to acquire up to
an additional 1,950,000 shares, as adjusted, of common stock (the Option Shares)
at a purchase price of $8.50 per share in cash (the Option) (the exact number
will be based on the fully diluted number of shares of common stock outstanding
at the time of the initial closing under the Stock Purchase Agreement as
discussed below). The Option provides antidilution protection to NEXTEL and is
exercisable in whole or in part at any time prior to September 30, 1998 (subject
to earlier expiration upon the occurrence of certain events).
On August 25, 1993, the Company and NEXTEL executed a Stock Purchase
Agreement (the Stock Purchase Agreement) pursuant to which the Company has
agreed to sell to NEXTEL up to 10,200,000 shares of common stock (which,
together with the Initial Shares but excluding the Option Shares represent an
approximately 61% fully diluted equity interest in the Company) at $7 per share,
for an aggregate consideration totaling approximately $71,400,000 in cash and
property (not including the purchase price for the Initial Shares). The purchase
price may be paid in cash or in a combination of at least $15,000,000 in cash
and the transfer to the Company of certain SMR systems and related assets in
Florida valued at NEXTEL's actual cost of acquisition (including brokers'
commissions and professional fees paid to third parties) of such systems.
Pursuant to the Stock Purchase Agreement, holders (other than NEXTEL) of
shares of common stock or other securities of the Company convertible into or
exercisable for shares of common stock which are outstanding immediately prior
to the initial closing under the Stock Purchase Agreement (Existing Stock) will
have the right no later than within 30 days after the seventh anniversary of the
initial closing under the Stock Purchase Agreement, to require NEXTEL to
purchase their shares of Existing Stock for a purchase price equal to 7/22 of
the average per-sharing trading price of NEXTEL common stock for the 30 trading
days preceding such anniversary.
During the fiscal year ended June 30, 1994, the Company recorded deferred
offering costs in the amount of $520,000 related to the proposed NEXTEL
transaction.
There can be no assurance that the transactions contemplated by the Stock
Purchase Agreement will be completed.
F-20
<PAGE> 185
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
Warrants to purchase 85,000 shares and 31,000 shares of common stock
expired during the years ended June 30, 1993 and 1992, respectively.
No warrants were exercised during the three years ended June 30, 1994.
As of June 30, 1994, warrants to purchase 160,000 shares of common stock at
$1.50 were outstanding. The warrants expire April 9, 1998.
OPTIONS GRANTED TO OFFICER
In connection with an employment agreement in 1993, the current chairman of
the board and chief executive officer was granted options to purchase 75,000
shares at $5.50 per share. Such options are exercisable on or prior to March 28,
1998. During 1993, options to purchase 50,000 shares at $9 per share granted to
this officer under a previous employment agreement expired.
EMPLOYEE STOCK OPTION PLAN
In February 1987, the stockholders approved the adoption of the Company's
1986 Stock Option Plan by the Board of Directors. The Plan provides for the
granting of options to officers, key employees of the Company, and other
persons, as determined by the Board of Directors, to purchase up to 300,000
shares of the Company's common stock, subject to certain anti-dilution
provisions. The Plan terminates on December 31, 1996 unless terminated earlier
by the Board of Directors.
The following table summarizes the activity in this Plan for the three
years ended June 30, 1994.
<TABLE>
<CAPTION>
EXERCISE
OPTIONS OPTIONS PRICE PER
EXERCISABLE OUTSTANDING SHARE
----------- ----------- --------------
<S> <C> <C> <C>
Options at June 30, 1991................................. 152,999 152,999 $ 9.00 - 12.00
Expired.................................................. (33,000) (33,000) 10.50
-------- --------
Options at June 30, 1992................................. 119,999 119,999 9.00 - 12.00
Granted.................................................. -- 89,500 5.50 - 6.50
Expired.................................................. (100,000) (100,000) 9.00
-------- --------
Options at June 30, 1993................................. 19,999 109,499 5.50 - 12.00
Exercisable.............................................. 82,833 -- 5.50 - 6.50
Expired or exercised..................................... (19,166) (19,166) 5.50 - 12.00
-------- --------
Options at June 30, 1994................................. 83,666 90,333 $ 5.50 - 12.00
======== ========
</TABLE>
As of June 30, 1994, options to purchase an aggregate of 90,333 shares
(including the 75,000 options discussed above) of common stock were held by 4
persons. The expiration dates for options outstanding under the Plan range from
July 11, 1994 to April 2, 1998. During the fiscal year ended June 30, 1994,
5,833 options were exercised under the Plan. These options had an average
exercise price of $9.21 per share.
RESERVED SHARES
At June 30, 1994, there was a total of approximately 250,333 shares of
common stock reserved for issuance under exercise privileges related to options
and warrants described in this note 16, and in note 12.
F-21
<PAGE> 186
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) STOCKHOLDERS' EQUITY (CONTINUED)
SETTLEMENT OF LAWSUIT
During fiscal year 1993, 75,000 shares of common stock were issued in
settlement of a lawsuit. The fair market value at the date of issuance was $4.75
per share.
(17) SALE OF ASSETS AND ASSET SALE AGREEMENTS
On February 23, 1993, the Company sold to Philadelphia Mobile
Communications, Inc. all of the Philadelphia area SMR business and related
assets for $3,500,000 cash.
Pursuant to an Asset Purchase Agreement, dated December 31, 1993, between
the Company and an unrelated third party, on May 24, 1994, the Company sold its
interest in SMR systems in Houston, Texas, for $341,000 in cash.
(18) CONCENTRATION OF CREDIT RISK
As of June 30, 1994, the Company's accounts receivable, net of allowance
for doubtful accounts, were $272,000. The ultimate collectibility of this amount
is susceptible to changes in market conditions in major metropolitan areas of
Southeast Florida and on Florida's gulf coast.
(19) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
During the fiscal year ended June 30, 1994, the Company recorded offering
costs (related to the proposed NEXTEL transaction) as a reduction of
stockholders' equity. Since the proposed transaction is pending as of June 30,
1994, the amount has been reclassified as deferred offering costs in the amount
of $520,000 within the accompanying consolidated balance sheet.
<TABLE>
<CAPTION>
FISCAL 1994
------------------------------
FIRST SECOND THIRD
QUARTER QUARTER QUARTER
------- ------ -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity:
As previously reported......................... $ 1,308 $3,287 $ 2,736
Reclassification of deferred offering costs.... 35 157 158
------- ------ -------
As adjusted.................................... $ 1,343 $3,444 $ 2,894
======= ====== =======
</TABLE>
F-22
<PAGE> 187
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1995 1994
--------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................... $ 1,135 $ 584
Accounts Receivable
Trade, net of allowance for doubtful accounts of $751 at March 31,
1995 and $617 at June 30, 1994...................................... 236 272
Other................................................................ 163 549
Inventories, net........................................................ 445 485
Other assets............................................................ 97 100
-------- --------
Total Current Assets............................................ 2,076 1,990
-------- --------
NOTES RECEIVABLE.......................................................... 63 63
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization............................................................ 5,057 5,864
INTANGIBLE ASSETS, net of accumulated amortization........................ 11,167 12,206
DEFERRED OFFERING COSTS................................................... 1,142 520
OTHER ASSETS.............................................................. 329 379
-------- --------
$ 19,834 $ 21,022
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable........................................................... $ -- $ 136
Current maturities of secured debt and capitalized lease obligations.... 11,203 11,367
Accounts payable........................................................ 463 584
Accrued expenses........................................................ 730 587
Accrued interest........................................................ 77 64
Other................................................................... 440 62
-------- --------
Total Current Liabilities....................................... 12,913 12,800
-------- --------
CAPITALIZED LEASE OBLIGATIONS............................................. 54 128
OTHER DEBT................................................................ 95 240
-------- --------
Total Liabilities............................................... 13,062 13,168
-------- --------
Common stock subject to repurchase, $.01 par value; 714 shares issued..... -- 5,000
STOCKHOLDERS' EQUITY
Preferred Stock -- $1.00 par value; authorized 5,000 shares; none issued
and outstanding...................................................... -- --
Common stock -- $.01 par value; authorized -- 20,000 shares; issued and
outstanding -- 7,247 shares at March 31, 1995 and 6,533 shares at
June 30, 1994........................................................ 73 66
Additional paid-in capital.............................................. 55,190 50,197
Accumulated deficit..................................................... (47,859) (46,777)
-------- --------
7,404 3,486
Less 38 shares of treasury stock -- at cost............................. (632) (632)
-------- --------
Total Stockholders' Equity...................................... 6,772 2,854
-------- --------
$ 19,834 $ 21,022
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
F-23
<PAGE> 188
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
--------------------
1995 1994
------- -------
<S> <C> <C>
AIRTIME
Sales................................................................. $ 4,127 $ 3,750
Cost of Sales......................................................... (1,121) (1,180)
Depreciation and amortization......................................... (804) (894)
------- -------
Gross profit on airtime....................................... 2,202 1,676
------- -------
EQUIPMENT
Sales................................................................. 2,432 2,625
Cost of Sales......................................................... (1,492) (1,655)
------- -------
Gross profit on equipment..................................... 940 970
------- -------
Total gross profit............................................ 3,142 2,646
------- -------
OPERATING EXPENSES
Selling, general and administrative................................... 2,616 3,023
Depreciation and amortization......................................... 1,003 1,134
Interest expense and amortization of debt issuance costs, net......... 795 621
Interest expense on subordinated convertible notes
payable -- stockholder............................................. -- 68
------- -------
4,414 4,846
------- -------
Loss before other income...................................... (1,272) (2,200)
------- -------
OTHER INCOME
Gain on sale of assets................................................ 4 11
Reduction in provision for doubtful receivable from a former
officer............................................................ 186 400
------- -------
190 411
------- -------
NET LOSS...................................................... $(1,082) $(1,789)
======= =======
LOSS PER SHARE.......................................................... $ (.15) $ (.25)
======= =======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING.................... 7,247 7,092
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
F-24
<PAGE> 189
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
--------------------
1995 1994
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................................. $(1,082) $(1,789)
------- -------
Adjustments to reconcile net loss to net cash provided (used) in
operating activities:
Depreciation and amortization...................................... 1,807 2,023
Provision for doubtful receivables................................. 149 187
Reduction in provision for doubtful receivable from a former
officer........................................................... -- (400)
Interest expense applied to principal.............................. 18 --
KOP loan extension fee applied to principal........................ 80 --
Compensation expense -- stock option............................... -- 23
Gain on sale of assets............................................. (4) (11)
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable......................... 273 (186)
Decrease (increase) in inventories................................. 40 (53)
Increase in other assets and deferred offering costs............... (196) (208)
Increase (decrease) in accounts payable and accrued expenses....... 128 (332)
Increase in accrued interest....................................... 13 85
------- -------
Total adjustments............................................. 2,308 1,128
------- -------
Net cash provided (used) in operating activities.............. 1,226 (661)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment............................... (209) (372)
Expenditures for acquisitions of SMR systems and intangible assets.... (116) (202)
Proceeds from sale of assets.......................................... 5 21
Net decrease in receivable from a former officer...................... -- 16
------- -------
Net cash used in investing activities......................... (320) (537)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued for exercise of stock option...................... -- 14
Principal payments under capitalized lease obligations................ (336) (543)
Expenditures from issuance of common stock............................ -- (157)
Payments of notes payable, subordinated debt, and secured debt........ (19) (1,582)
------- -------
Net cash used in financing activities......................... (355) (2,268)
------- -------
Net increase (decrease) in cash and cash equivalents.......... 551 (3,466)
CASH AND CASH EQUIVALENTS, beginning of period.......................... 584 4,020
------- -------
CASH AND CASH EQUIVALENTS, end of period................................ $ 1,135 $ 554
======= =======
</TABLE>
(Continued)
F-25
<PAGE> 190
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the nine months ended March 31, 1995, the following noncash
investing and financing activities occurred:
a. Upon the dissolution of the Resco/AMS partnership, the Company's
investment in the partnership was closed out and the net cost of the
Jacksonville license distributed in June 1994 was reduced by $148 (See
Note C-2).
b. AMS and Dial Call (successor to JCC) entered into an agreement in
February 1995 regarding the settlement of certain liabilities with
respect to the AMS/JCC transaction that closed in August 1991, whereby
various notes payable to JCC were reduced by $262, with a corresponding
reduction in the net cost of the Miami and Tampa licenses acquired from
JCC in August 1991.
During the nine months ended March 31, 1994, the following noncash
investing and financing activities occurred:
a. Common stock valued at $632 was received from a former officer of the
Company in payment of a note receivable with a net balance of $369. The
difference of $263 was recorded as a reduction in provision for doubtful
receivable from a former officer.
b. SMR licenses valued at $330 were acquired in settlement of $188 in
notes receivable and $5 in deposit receivable. The remaining $137 was
recorded as a reduction in provision for doubtful note receivable from a
former officer.
c. 462 shares of common stock were issued upon the conversion of $2,873
of debt and accrued interest.
d. The Company acquired Resco, Inc.'s 50% interest in Resco/AMS' SMR
systems in Jacksonville, Florida for approximately $800. Accordingly,
the Company's investment in the Resco/AMS partnership was reduced by the
net cost of the Jacksonville assets in Resco/AMS (See Note C-2).
e. Various SMR licenses valued at $588 were acquired in settlement of
$576 in notes receivable and the assumption of a $12 option payable.
f. An employee exercised a stock option, which resulted in recording $23
of compensation expense and a corresponding increase in additional
paid-in capital.
See Notes to Condensed Consolidated Financial Statements.
F-26
<PAGE> 191
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company and its subsidiary. All significant
intercompany accounts and transactions have been eliminated in consolidation. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation of these unaudited
financial statements have been included. Operating results for any interim
period are not necessarily indicative of the results that may be expected for
the full year. These condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto
contained in the Company's annual report on Form 10-K for the year ended June
30, 1994.
Loss per share is computed by dividing the loss for the period by the
weighted average number of shares of common stock outstanding.
NOTE B -- NATURE OF BUSINESS AND MANAGEMENT PLANS
The Company has incurred losses in fiscal years 1992, 1993 and 1994 and the
first nine months of fiscal 1995. During most of this period, the Company also
used net cash in its operating activities and had net working capital deficits.
The Company met its cash requirements through its financing activities and
investing activities during this period. The Company anticipates that its
working capital and cash requirements for the balance of fiscal 1995 will be
principally drawn from the following sources: (i) the existing cash on hand; and
(ii) cash flow from operations, pending the Company's anticipated business
transaction with Nextel. As described in more detail under Note C, the Company
is currently expected to consummate the Merger Agreement with Nextel during the
first quarter of fiscal 1996. However, there can be no assurance that the
proposed transaction will be completed. If the Company is unable to close its
proposed business transaction with Nextel, it would need to seek financing to
repay amounts due to Kansallis-Osake-Pankki ("KOP") or obtain the agreement of
KOP to a rescheduling of the Company's repayment obligations. No assurance can
be given that such financing could be obtained on acceptable terms, or that KOP
would agree to such a rescheduling. The Company negotiated an extension of
approximately $3,871,000 in total principal repayments under its credit
agreement with KOP, which were originally due between December 31, 1993 through
June 30, 1995 and are now due June 30, 1995. KOP charged an $80,000 extension
fee as a condition of extending certain principal repayments in March 1995. The
Company is seeking another extension to the date that the transaction with
Nextel is anticipated to be completed.
NOTE C -- SIGNIFICANT TRANSACTIONS AND EVENTS
1. Nextel Transaction
On April 25, 1995, the Company and Nextel Communications, Inc. ("Nextel")
entered into a definitive Agreement and Plan of Merger, dated as of April 25,
1995 (the "Merger Agreement"), by and among the Company, Nextel and Mobile
Communications of Florida, Inc., a wholly owned subsidiary of Nextel ("MCF").
The Merger Agreement provides for MCF to merge with and into the Company, with
the Company being the surviving corporation (the "Merger"). In the Merger, each
share of Common Stock, par value $.01 per share ("Common Stock"), of the Company
issued and outstanding (except for shares held by Nextel or the Company) will be
converted into the right to receive 0.62 of a share of Class A Common Stock, par
value $.001 per share ("Nextel Stock"), of Nextel (based on there being no more
than 6,775,721 shares of Common Stock outstanding on a fully diluted basis
(other than any shares held by Nextel)), resulting in approximately 4,200,000
shares of Nextel Stock becoming issuable in connection with the Merger. Each
unexercised employee stock option of the Company outstanding after the Merger
will be assumed by Nextel
F-27
<PAGE> 192
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
1. Nextel Transaction (continued)
and will be converted into an option to purchase that number of shares of Nextel
Stock that the holder thereof would have received in the Merger had such holder
exercised such option immediately prior to the Merger.
The Merger is subject to customary closing conditions, including (i)
approval of the Merger by the holders of the Company's Common Stock, (ii) Nextel
and the Company having obtained all governmental and third party consents and
approvals required in connection with the Merger, including under the indentures
pursuant to which certain of Nextel's outstanding indebtedness has been issued
(the "Nextel Indentures"), (iii) each of Nextel and the Company having received
an opinion of counsel to the effect that, among other things, the Merger can be
consummated on a tax free basis, and (iv) the Company receiving an opinion from
its financial advisor that, from a financial point of view, the Merger is fair
to the public holders of Common Stock. Additionally, the Merger is subject to
(i) the consummation of the purchase of equity securities of Nextel by an
affiliate of Craig O. McCaw contemplated by that certain Securities Purchase
Agreement, dated as of April 4, 1995 (the "McCaw Purchase"), (ii) no holder of
Common Stock being entitled to exercise appraisal rights in connection with the
Merger, and (iii) Nextel's ability to cause the Company to repay all of its
outstanding indebtedness following the Merger without prepayment penalties or
similar charges or any third party consents.
As described in earlier financial statements, the Company and Nextel are
also parties to a certain Stock Purchase Agreement, originally dated as of
August 25, 1993 (as amended, the "Stock Purchase Agreement"), pursuant to which
Nextel had agreed to purchase a majority equity interest in the Company. Upon
the signing of the Merger Agreement, the Stock Purchase Agreement was terminated
and superseded, subject to the Stock Purchase Agreement being automatically
returned to full force and effect if the Merger Agreement is terminated pursuant
to the applicable provisions of the Merger Agreement in any of the following
circumstances: (i) if the McCaw Purchase is not consummated by September 15,
1995, (ii) if the Common Stock is not listed on the Nasdaq National Market on
the record date for the special meeting of the holders of the Common Stock
relating to the Merger, (iii) if Nextel is unable to obtain the necessary
consents relating to the Merger under the Nextel Indentures by September 15,
1995, or (iv) if the proxy statement/prospectus relating to the Merger is not
mailed to the holders of the Common Stock by July 31, 1995. In addition to the
circumstances described above and certain other circumstances described in the
Merger Agreement, the Merger Agreement may also be terminated by either the
Company or Nextel (but without the Stock Purchase Agreement being returned to
full force and effect) if the Merger is not consummated by September 30, 1995.
In connection with the Merger Agreement, Tele-Communications, Inc. ("TCI")
and Nextel have entered into a voting agreement (the "Voting Agreement")
pursuant to which TCI has agreed, among other things, (i) not to dispose of its
Common Stock prior to the Merger except in certain limited circumstances and
(ii) to vote (or grant a proxy to Nextel to vote) its shares of Common Stock in
favor of the Merger. In addition, pursuant to the Merger Agreement Nextel has
agreed to vote its Common Stock in favor of the Merger. Together, Nextel and TCI
beneficially own approximately 46% of the outstanding shares of Common Stock.
The foregoing summary descriptions of the Merger Agreement and the Voting
Agreement are qualified in their entirety by reference to the precise terms and
conditions of such agreements, copies of which have been filed with the
Commission.
2. Resco/AMS Partnership Dissolution
The Company and Resco, Inc., the general partners of Resco/AMS Partnership
dissolved the Resco/AMS partnership as of December 31, 1994. All remaining
assets of the partnership have been distributed among its partners in accordance
with the partnership agreement.
F-28
<PAGE> 193
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE C -- SIGNIFICANT TRANSACTIONS AND EVENTS
3. Pending Asset Sale
In December 1994, the Company entered into various agreements with
PowerSpectrum of Miami, Inc. ("PowerSpectrum") by which the Company expects to
sell a ten-channel 900 MHz SMR facility, excluding equipment, located in Miami,
Florida to PowerSpectrum for a purchase price of $300,000. In December 1994, the
Company received $270,000 of such purchase price as a deposit in connection with
the sale of the SMR system to PowerSpectrum, and such funds are only required to
be returned to PowerSpectrum in certain limited circumstances. Also in December
1994, the Company entered into various agreements with Frank DiRico and a
company which he controls by which the Company expects to sell a ten-channel 900
MHz SMR facility, excluding equipment, located in Miami, Florida to Frank DiRico
for a purchase price of $400,000. In December 1994, the Company received $80,000
of such purchase price as a deposit in connection with the sale of such SMR
system, and such funds are only required to be returned by the Company in
certain limited circumstances. Both of the aforementioned sales are contingent
upon FCC approval.
4. Stockholder Equity
As a result of the termination of the Put Agreement on November 18, 1994,
the number of issued and outstanding shares of common stock was increased by
714,286 shares, and the total stockholders' equity balance was increased by a
corresponding $5 million.
F-29
<PAGE> 194
(This page intentionally left blank)
F-30
<PAGE> 195
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
PowerFone Holdings, Inc.
Reston, Virginia
We have audited the accompanying consolidated balance sheet of PowerFone
Holdings, Inc. and subsidiary as of December 31, 1993, and the related
consolidated statements of operations, common stockholders' deficiency, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of PowerFone Holdings, Inc. and
subsidiary at December, 31, 1993, and the results of their operations and their
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Washington, D.C.
February 22, 1994
F-31
<PAGE> 196
POWERFONE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents (Note 1)............................................ $ 2,669,912
Short-term investments (Note 1)............................................... 20,000,000
Due from Nextel (Note 6)...................................................... 2,007,500
Accounts receivable (net of allowance for doubtful accounts of $1,813)........ 57,476
Prepaid expenses.............................................................. 16,582
Other current assets.......................................................... 150,333
-----------
Total current assets.................................................. 24,901,803
-----------
Property, Plant, and Equipment (Notes 1, 3 and 4):
Land.......................................................................... 105,000
Buildings and leasehold improvements.......................................... 134,629
Equipment..................................................................... 2,610,375
Furniture and fixtures........................................................ 43,063
-----------
2,893,067
Less accumulated depreciation......................................... (404,551)
-----------
Net property, plant and equipment................................ 2,488,516
-----------
Intangible Assets (Notes 1 and 3):
Licenses...................................................................... 4,921,010
Noncompete agreements......................................................... 680,682
Organization costs............................................................ 602,522
Goodwill...................................................................... 1,184,470
-----------
7,388,684
Less accumulated amortization......................................... (612,196)
-----------
Net intangible assets............................................ 6,776,488
-----------
Other Assets:
Acquisition deposits (Note 6)................................................. 1,851,207
Deferred acquisition costs (Note 1)........................................... 820,863
Other deposits................................................................ 29,018
-----------
Total other assets.................................................... 2,701,088
-----------
Total Assets..................................................... $36,867,895
===========
</TABLE>
(Continued)
See notes to consolidated financial statements.
F-32
<PAGE> 197
POWERFONE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIENCY
<TABLE>
<S> <C>
Current Liabilities:
Accounts payable.............................................................. $ 217,643
Accrued expenses.............................................................. 128,950
Acquisition retainer.......................................................... 170,000
Accrued dividends payable..................................................... 495,000
Current portion of long-term debt and noncompete liability (Notes 4 and 6).... 249,053
-----------
Total current liabilities.................................................. 1,260,646
Noncompete Liability (Note 6)................................................... 253,145
Long-Term Debt (Note 4)......................................................... 1,374,354
-----------
Total liabilities.......................................................... 2,888,145
-----------
Commitments and Contingencies (Notes 4 and 6)
Redeemable Convertible Preferred Stock, par value $0.01 per share (Note 5):
Series B -- 48,000 shares authorized; 46,774 shares outstanding............... 4,677,447
Series C -- 350,000 shares authorized; 330,000 shares outstanding............. 31,230,650
-----------
Total redeemable convertible preferred stock............................... 35,908,097
-----------
Common Stockholders' Deficiency (Note 5):
Common stock, par value $0.01 per share -- authorized, 5,000,000 shares;
301,020 shares outstanding................................................. 3,010
Common stock -- additional paid-in capital.................................... 11,782
Accumulated deficit........................................................... (1,943,139)
-----------
Total stockholders' deficiency............................................. (1,928,347)
-----------
Total Liabilities and Common Stockholders' Deficiency...................... $36,867,895
===========
</TABLE>
(Concluded)
See notes to consolidated financial statements.
F-33
<PAGE> 198
POWERFONE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C>
Revenue (Note 1):
Radio service revenue......................................................... $ 1,012,933
Equipment sales and maintenance............................................... 50,608
-----------
Total...................................................................... 1,063,541
-----------
Costs and Expenses Related to Revenue:
Cost of radio service revenue................................................. 190,871
Cost of equipment sales and maintenance....................................... 55,353
-----------
Total...................................................................... 246,224
-----------
Gross Profit.................................................................... 817,317
-----------
Other Operating Costs and Expense:
Selling, general and administrative........................................... 268,814
Corporate expenses............................................................ 1,089,748
Depreciation and amortization (Note 1)........................................ 786,125
-----------
Total...................................................................... 2,144,687
-----------
Operating Loss.................................................................. (1,327,370)
-----------
Other Income (Expense):
Interest expense.............................................................. (118,292)
Interest income............................................................... 177,473
Other expense................................................................. (27,823)
-----------
Total...................................................................... 31,358
-----------
Net Loss........................................................................ $(1,296,012)
===========
Net Loss Per Common Share....................................................... $ (1.41)
===========
Weighted Average Number of Common Shares Outstanding............................ 918,496
===========
</TABLE>
See notes to consolidated financial statements.
F-34
<PAGE> 199
POWERFONE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' DEFICIENCY
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993................. 1,132,676 $ 11,327 $ 53,413 $ (152,127) $ (87,387)
Reorganization in conjunction with
Private Placement.................... (831,656) (8,317) (41,361) -- (49,948)
Accrued Dividend....................... -- -- -- (495,000) (495,000)
Net loss............................... -- -- -- (1,296,012) (1,296,012)
--------- -------- -------- ----------- -----------
BALANCE, DECEMBER 31, 1993............... 301,020 $ 3,010 $ 11,782 $(1,943,139) $(1,928,347)
========= ======== ======== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-35
<PAGE> 200
POWERFONE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss..................................................................... $ (1,296,012)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................. 786,125
Net change in operating assets and liabilities:
Accounts receivable..................................................... 5,516
Inventory............................................................... 34,515
Prepaid expenses........................................................ (10,171)
Other current assets.................................................... (130,921)
Accounts payable........................................................ 170,135
Accrued expenses........................................................ 113,160
------------
Net cash used in operating activities................................ (327,653)
------------
Cash Flows from Investing Activities:
Short-term investments....................................................... (20,000,000)
Payments for acquisitions.................................................... (7,831,341)
Capital expenditures......................................................... (1,297,720)
Increase in other deposits................................................... (29,018)
------------
Net cash used in investing activities................................ (29,158,079)
------------
Cash Flows from Financing Activities:
Capital contributions........................................................ 33,000,000
Borrowings under secured agreement........................................... 2,693,000
Other borrowings............................................................. 399,485
Repayment of debt............................................................ (2,206,580)
Financing cost expenditures.................................................. (1,769,350)
------------
Net cash provided by financing activities............................ 32,116,555
------------
Increase in Cash and Cash Equivalents.......................................... 2,630,823
Cash and Cash Equivalents, January 1, 1993..................................... 39,089
------------
Cash and Cash Equivalents, December 31, 1993................................... $ 2,669,912
============
Supplemental Disclosure of Cash Flow Information:
Interest paid................................................................ $ 93,540
============
</TABLE>
See notes to consolidated financial statements.
F-36
<PAGE> 201
POWERFONE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Financial Statement Presentation -- PowerFone
Holdings, Inc. was incorporated as a Delaware corporation in October 1992 to
function as a holding company for its wholly owned subsidiary, PowerFone, Inc.
PowerFone, Inc. was incorporated in April 1990 as a Delaware corporation to
acquire and operate certain specialized mobile radio (SMR) companies. PowerFone,
Inc., had no operations other than organizational activities prior to May 1992.
Consolidation -- The accompanying consolidated financial statements include
the accounts of PowerFone Holdings, Inc. and PowerFone, Inc., (collectively
referred to as "the Company"). All significant intercompany transactions have
been eliminated in consolidation.
Cash and Cash Equivalents -- All investments in highly liquid debt
instruments purchased with a maturity of three months or less are considered to
be cash equivalents.
Short-Term Investments -- Short-term investments are stated at the lower of
cost or market. At December 31, 1993, the aggregate cost of short-term
investments approximated their market value. Short-term investments include
marketable debt securities with maturities of greater than 90 days.
Property, Plant, and Equipment -- Property, plant, and equipment is
recorded at cost. Depreciation is provided over the estimated useful life of
each class of depreciable assets using the straight-line method. The Company is
depreciating the majority of its equipment using a seven-year life. Buildings
are being depreciated over a 15-year life. The remaining assets under property,
plant and equipment are being depreciated using lives ranging from two to four
years.
Intangible Assets -- The cost of acquiring Federal Communications
Commission (FCC) licenses, and other tangible and intangible assets from
unrelated parties is allocated based on the relative fair values of the acquired
net assets. FCC licenses are amortized using the straight-line method over a
25-year period.
Covenants not to compete are amortized over the life of the agreements
using the straight-line method. Organization costs are amortized using the
straight-line method over five years. Debt issuance costs are amortized over the
term of the related debt. Goodwill is being amortized over a 20-year period.
Revenue Recognition -- Revenue is recognized for air time and other
services during the period utilized and for sales of equipment when delivered.
Deferred Acquisition Costs -- Costs incurred relating to SMR acquisitions,
consisting primarily of legal, consulting and engineering costs, are deferred
until the acquisition is completed and the territory is placed in service.
Subsequent to the service date, the costs are transferred to capitalized
licenses and amortized over five years.
Income Taxes -- Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
There was no effect on the Company's financial
F-37
<PAGE> 202
POWERFONE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
statements of adopting SFAS No. 109 in 1993. The tax effect of significant
temporary differences that result in a deferred tax asset or liability as of
December 31, 1992, are as follows:
<TABLE>
<S> <C>
Deferred tax asset:
Net operating loss carryforwards................................ $ 70,000
Deferred tax liability:
Differences in depreciation and amortization.................... (20,000)
--------
Net deferred tax asset.......................................... 50,000
Less valuation allowance........................................ (50,000)
--------
Deferred tax asset, net of valuation allowance.................. $ --
========
</TABLE>
Net Loss Per Share -- Net loss per share is computed by dividing the loss
for the period by the weighted average number of shares of common stock
outstanding during the period and does not include common stock equivalents
since their effect on the net loss per share would be antidilutive.
(2) MERGER AGREEMENT
In October 1993, the Company entered into a binding letter agreement with
Nextel Communications, Inc. (Nextel) whereby Nextel will acquire all of the
Company's capital stock (see Note 5) in exchange for 8,000,000 shares of Class A
Common Stock of Nextel. In February 1994, the Company and Nextel signed a
definitive merger agreement. The proposed transaction is subject to pending
regulatory approval.
(3) BUSINESS COMBINATIONS
During 1993, the Company acquired certain of the net assets of several SMR
companies for cash. All of the acquisitions were accounted for using the
purchase method of accounting. Accordingly, the results of the operations of the
acquired companies are included in the Company's statement of operations from
the date of acquisition. Summary information regarding the acquisitions is as
follows:
<TABLE>
<CAPTION>
BUSINESS ASSETS ACQUIRED ACQUISITION DATE AMOUNT
------------------------ ----------------- ------
<S> <C> <C>
Teletech........................ April 1993 $ 200,000
Double Talk..................... June 1993 550,000
Potomac......................... August 1993 525,000
Radio Communication Systems..... August 1993 245,000
Cleveland Communications, August 1993
Inc........................... 220,000
Lake County..................... August 1993 20,000
Call Mobile..................... November 1993 325,000
Hedgecom........................ November 1993 75,000
Raymart......................... December 1993 477,500
----------
$2,637,500
==========
</TABLE>
F-38
<PAGE> 203
POWERFONE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) BUSINESS COMBINATIONS -- (CONTINUED)
The aggregate purchase price was allocated based upon fair value as
follows:
<TABLE>
<S> <C>
FCC licenses..................................................... $2,018,500
Noncompete agreements............................................ 300,000
Fixed assets..................................................... 259,000
Goodwill......................................................... 60,000
----------
$2,637,500
==========
</TABLE>
The operations of these businesses were not significant and, accordingly,
pro forma information is not presented.
(4) LONG-TERM DEBT
Secured Credit Agreement -- The Company has a Revolving Loan Commitment
(Revolving Loan) and an Accumulating Term Loan Commitment (Term Loan) with
Harris Trust and Savings Bank through a Secured Credit Agreement (Agreement).
Maximum Revolving Loan Commitment borrowings under the Agreement cannot exceed
$750,000 and maximum Term Loan borrowings cannot exceed $1,500,000. Aggregated
borrowings cannot exceed $2,000,000. Principal payments on the Revolving Loan
are due quarterly starting in December 1994 and are based on the amount
outstanding as of the conversion date (November 1994). Principal payments on the
Term Loan are due quarterly starting in December 1993 and are also based on the
amount outstanding at the conversion date ($1,500,000 at November 1993).
Interest on both the Revolving Loan and the Term Loan is payable quarterly and
is equal to 2% over the Floating Rate (7.5% at December 31, 1993).
As of December 31, 1993, there were no borrowings outstanding under the
Revolving Loan and the amount outstanding under the Term Loan was $1,462,500.
The maximum borrowings outstanding under the Agreement during 1993 was
$2,000,000.
PowerFone Holdings, Inc., has pledged its investment, 50,000 shares of
PowerFone, Inc. common stock, to collateralize the indebtedness with the Bank.
As part of its Merger Agreement with Nextel (see Note 2), the Company has agreed
to pay off this indebtedness prior to closing of the merger.
Principal debt maturity on the Term Loan is as follows:
<TABLE>
<S> <C>
1994............................................................. $ 168,750
1995............................................................. 243,750
1996............................................................. 300,000
1997............................................................. 750,000
----------
1,462,500
Current.......................................................... (168,750)
----------
Long-term........................................................ $1,293,750
==========
</TABLE>
F-39
<PAGE> 204
POWERFONE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) LONG-TERM DEBT -- (CONTINUED)
Vehicle Loans -- The Company has loans outstanding that are secured by
vehicles used in the Company's business. Interest rates on these loans range
from 7.0% to 8.5% per annum. Principal debt maturity on these loans is as
follows:
<TABLE>
<S> <C>
1994...................................................... $ 33,304
1995...................................................... 36,219
1996...................................................... 34,415
1997...................................................... 9,969
--------
113,907
(33,303)
--------
Long-term................................................. $ 80,604
========
</TABLE>
(5) CAPITAL STOCK
On April 22, 1992 the Company was originally incorporated as PowerFone,
Inc. At that time 46,000 shares of preferred stock and 1,122,806 shares of
common stock of PowerFone, Inc. were issued. Effective October 20, 1992, and
prior to acquiring the Secured Credit Agreement (see Note 4), PowerFone
Holdings, Inc., the parent company, was created. Upon organization of PowerFone
Holdings, Inc., PowerFone, Inc., issued 50,000 shares of its $.01 par value
common stock to PowerFone Holdings, Inc. Additionally, each PowerFone, Inc.
shareholder received a share of PowerFone Holdings, Inc. common and/or Series A
preferred stock in exchange for each share of PowerFone, Inc. common or
preferred held. In addition to the change in entity in which shareholders held
stock, an additional 3,907 shares of common stock and 275 shares of Series A
preferred stock were issued to the founders based on contributions in excess of
the originally agreed-upon amounts. Additionally, due to ownership percentage
requirements, an additional 5,962 common shares were issued to the founders.
On April 26, 1993, the Company entered into an interim Funding Agreement
whereby certain investors agreed to extend funds to the Company in the aggregate
amount of $2,500,000. Such funds were to be applied to the purchase of
securities by the investors in the Private Placement described below.
On September 29, 1993, the Company completed a private placement of 330,000
shares of Series C Preferred Stock for $33,000,000. The funding was received in
three installments: $2,500,000 in April 1993, as discussed above; $10,500,000 at
closing; and the balance of $20,000,000 on October 19, 1993. The Series C
Preferred is convertible into the Company's Common Stock and provides for
cumulative dividends at the rate of 6% per annum. As a condition to the
consummation of the Private Placement, the existing shareholders exchanged all
the Company's outstanding Series A Preferred Stock and certain shares of the
Company's outstanding Common Stock for the Company's Series B Preferred Stock.
The Series A preferred stock was canceled. Each share of the Series B Preferred
is convertible into approximately 17.3 shares of Common Stock and each share of
the Series C Preferred is convertible into approximately 1.3 shares of Common
Stock. Conversion is mandatory upon the occurrence of certain events. The
preferred stock votes with the common stock on the same basis as if converted
and has other preferential rights.
Upon conversion to common stock, the preferred stockholders (Series B and
C) must be paid all cumulative dividends. Because all the preferred shares
(Series B and C) will be converted pursuant to the merger agreement (see Note
2), the Company has accrued dividends payable of $495,000 at December 31, 1993.
F-40
<PAGE> 205
POWERFONE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) CAPITAL STOCK -- (CONTINUED)
At the option of Series B and C preferred stockholders, the outstanding
shares of Series B and C preferred stock are redeemable generally after
September 1998. At December 31, 1993 the redemption value of the preferred stock
approximated $33,495,000.
Below is a summary of the changes in the Series A, B and C preferred stock.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
--------------------- ------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ----------- ------ ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1992................... 46,275 $ 4,627,500 -- $ -- -- --
Interim Funding Arrangement............... -- -- -- -- -- $ 2,500,000
Reorganization in conjunction with private
placement............................... (46,275) (4,627,500) 46,774 $4,677,447 -- --
Issuance of Series C preferred............ -- -- -- -- 330,000 28,730,650
------- ----------- ------ ---------- ------- -----------
-- $ -- 46,774 $4,677,447 330,000 $31,230,650
======= =========== ====== ========== ======= ===========
</TABLE>
The Company has issued a warrant to Prudential Securities in connection
with the Private Placement to purchase 6,900 shares of Series C Preferred for
$690,000. The Company has also granted stock options to certain officers and key
employees providing for the issuance upon exercise of the granted options of an
aggregate 7,682 shares of common stock at an aggregate exercise price of
$540,000. The options will be fully vested at the closing of the merger with
Nextel (Note 2).
(6) COMMITMENTS
Pending Acquisitions -- As of December 31, 1993, the Company has entered
into numerous agreements to purchase various SMR businesses. The total cash
commitment under these purchase agreements is approximately $16,355,000. As part
of the merger agreement (see Note 2), Nextel agreed to pay for certain of these
acquisitions. Nextel's funding commitment related to these acquisitions at
December 31, 1993 is approximately $2,865,000. The Company's deposits related to
these acquisitions, totaling $2,007,500, are shown as amounts due from Nextel in
the accompanying balance sheet.
In addition to the cash purchases discussed above, the Company has also
entered into an agreement with Combined Technologies, Inc. ("CTI") whereby the
Company would acquire CTI's SMR business in exchange for 71,988 shares of the
Company's common stock.
Lease Commitments -- The Company leases some of its office and tower space
under noncancelable operating leases. Future minimum lease payments under these
leases as of December 31, 1993, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1994........................................... $ 570,000
1995........................................... 445,000
1996........................................... 260,000
1997........................................... 50,000
1998........................................... 20,000
After 1998..................................... 345,000
----------
Total.......................................... $1,690,000
==========
</TABLE>
Total rental expense was approximately $156,000 in 1993.
F-41
<PAGE> 206
POWERFONE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
(6) COMMITMENTS -- (CONTINUED)
Other Commitments -- As part of the acquisition of Electronic
Communications, Inc., in 1992, the Company entered into noncompete and
consulting agreements with the former owner. The following cash payments are due
as of December 31, 1993, under the agreements:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1994........................................... $ 90,000
1995........................................... 40,000
1996........................................... 40,000
1997........................................... 40,000
1998........................................... 300,000
---------
510,000
Less interest portion.......................... (209,855)
Net present value.............................. 300,145
Current........................................ (47,000)
---------
Long-term...................................... $ 253,145
=========
</TABLE>
The Company paid $90,000 under these agreements in 1993. Amounts relating
to other non-compete agreements were paid by the Company at the closing of the
respective acquisition.
(7) INCOME TAXES
As discussed in Note 1, the Company adopted SFAS No. 109 as of January 1,
1993. The Company has not accrued a provision for income taxes for 1993 as it
has not generated sufficient income or book-to-tax differences to require doing
so. The tax effect of significant temporary differences that result in a
deferred tax asset as of December 31, 1993, are as follows:
<TABLE>
<S> <C>
Deferred tax asset:
Net operating loss carryforwards............................... $ 545,000
Deferred tax liability:
Differences in depreciation and amortization................... (40,00)
---------
Net deferred tax asset......................................... 505,000
Less valuation allowance....................................... (505,00)
---------
Deferred tax asset ent of valuation allowance.................... $ --
=========
</TABLE>
The Company has net operating loss carryforwards of approximately $200,000
and $1,350,000 that expire in 2008 and 2009, respectively.
F-42
<PAGE> 207
POWERFONE HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1993 1994
------------ -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents....................................... $ 2,669,912 $ 4,976,264
Short-term investments.......................................... 20,000,000 10,000,000
Due from Nextel................................................. 2,007,500 170,616
Accounts receivable (net of allowance for doubtful accounts of
$1,813 in 1993 and $5,013 in 1994)........................... 57,476 65,949
Prepaid expenses................................................ 16,582 34,432
Other current assets............................................ 150,333 385,584
------------ -----------
Total current assets.................................... 24,901,803 15,632,845
------------ -----------
Property, Plant and Equipment:
Land............................................................ 105,000 105,000
Buildings and leasehold improvements............................ 134,629 134,629
Equipment....................................................... 2,610,375 3,572,149
Furniture and fixtures.......................................... 43,063 44,079
------------ -----------
2,893,067 3,855,857
Less accumulated depreciation........................... (404,551) (509,550)
------------ -----------
Net property, plant and equipment.................. 2,488,516 3,346,307
------------ -----------
Intangible Assets:
Licenses........................................................ 4,921,010 11,104,065
Non-compete agreements.......................................... 680,682 680,682
Organization costs.............................................. 602,522 602,522
Goodwill........................................................ 1,184,470 1,184,470
------------ -----------
7,388,684 13,571,739
Less accumulated amortization........................... (612,196) (762,194)
------------ -----------
Net intangible assets.............................. 6,776,488 12,809,545
------------ -----------
Other Assets:
Acquisition deposits............................................ 1,851,207 3,516,193
Deferred acquisition expenses................................... 820,863 1,299,572
Other deposits.................................................. 29,018 31,268
------------ -----------
Total other assets...................................... 2,701,088 4,847,033
------------ -----------
Total Assets....................................... $ 36,867,895 $36,635,730
============ ===========
</TABLE>
(Continued)
See notes to condensed consolidated financial statements.
F-43
<PAGE> 208
POWERFONE HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIENCY
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1993 1994
------------ -----------
<S> <C> <C>
Current Liabilities:
Accounts payable................................................ $ 217,643 $ 285,234
Accrued expenses................................................ 128,950 178,364
Acquisition retainer............................................ 170,000 14,400
Accrued dividends payable....................................... 495,000 1,002,904
Current portion of long-term debt............................... 249,053 81,277
Due to Nextel................................................... 2,007,500
------------ -----------
Total current liabilities.................................... 1,260,646 3,569,679
Non-Compete Liability............................................. 253,145 253,145
Long-Term Debt.................................................... 1,374,354 71,406
------------ -----------
Total liabilities............................................ 2,888,145 3,894,230
------------ -----------
Redeemable Convertible Preferred Stock, par value $0.01 per share:
Series B -- 48,000 shares authorized; 46,774 shares
outstanding.................................................. 4,677,447 4,677,447
Series C -- 350,000 shares authorized; 330,000 shares
outstanding.................................................. 31,230,650 31,230,650
------------ -----------
Total redeemable convertible preferred stock................. 35,908,097 35,908,097
------------ -----------
Common Stockholders' Deficiency:
Common stock, par value $0.01 per share; 5,000,000 shares
authorized; 301,020 shares outstanding....................... 3,010 3,010
Common stock, additional paid-in capital........................ 11,782 11,782
Accumulated deficit............................................. (1,943,139) (3,181,389)
------------ -----------
Total common stockholders' deficiency........................ (1,928,347) (3,166,597)
------------ -----------
Total Liabilities and Common Stockholders' Deficiency........ $ 36,867,895 $36,635,730
============ ===========
</TABLE>
(Concluded)
See notes to condensed consolidated financial statements.
F-44
<PAGE> 209
POWERFONE HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1993 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1993 1994
---------- ---------
<S> <C> <C>
Revenue:
Radio service revenue............................................. $ 210,993 $ 386,497
Equipment sales and maintenance................................... 27,703 480
---------- ---------
Total.......................................................... 238,696 386,977
---------- ---------
Costs and Expenses Related to Revenue:
Cost of radio service revenue..................................... 33,485 111,242
Cost of equipment sales and service............................... 23,192 --
---------- ---------
Total.......................................................... 56,677 111,242
---------- ---------
Gross Profit........................................................ 182,019 275,735
Other Operating Costs and Expenses:
Selling, general and administrative............................... 57,280 86,109
Corporate expenses................................................ 124,636 807,949
Depreciation and amortization..................................... 84,000 255,000
---------- ---------
Total.......................................................... 265,916 1,149,058
---------- ---------
Operating Loss...................................................... (83,897) (873,323)
---------- ---------
Other Income (Expense):
Interest expense.................................................. (18,170) (25,639)
Interest income................................................... 187 168,616
Other income (expense)............................................ 3,019 --
---------- ---------
Total.......................................................... (14,964) 142,977
---------- ---------
Net Loss............................................................ $ (98,861) $(730,346)
========== =========
Net Loss Per Share.................................................. $ (0.09) $ (2.43)
========== =========
Weighted Average Number of Common Shares Outstanding................ 1,132,676 301,020
========== =========
</TABLE>
See notes to condensed consolidated financial statements.
F-45
<PAGE> 210
POWERFONE HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1993 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1993 1994
--------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss......................................................... $ (98,861) $ (730,346)
Adjustments to reconcile net loss to net cash provided by (used
in) operating expenses:
Depreciation and amortization................................. 84,000 255,000
Net change in:
Accounts receivable......................................... 10,257 (8,473)
Inventory................................................... (1,636) --
Prepaid expenses............................................ -- (17,850)
Other current assets........................................ 8,813 (235,251)
Accounts payable............................................ 18,259 67,591
Accrued expenses............................................ (16,106) 49,414
--------- -----------
Net cash provided by (used in) operating activities...... 4,726 (619,915)
--------- -----------
Cash Flows from Investing Activities:
Short-term investments........................................... -- 10,000,000
Payments for acquisitions........................................ (216,488) (7,195,465)
Capital expenditures............................................. (72,483) (412,792)
Increase (decrease) in other assets.............................. 5,709 (2,250)
--------- -----------
Net cash provided by (used in) investing activities...... (283,262) 2,389,493
--------- -----------
Cash Flows from Financing Activities:
Repayment of debt................................................ (15,109) (2,008,226)
Borrowings under secured credit agreement........................ 287,750 537,500
Due to/from Nextel............................................... -- 2,007,500
--------- -----------
Net cash provided by financing activities................ 272,641 536,774
--------- -----------
(Decrease) Increase in Cash and Cash Equivalents................... (5,895) 2,306,352
Cash and Cash Equivalents, January 1............................... 39,089 2,669,912
--------- -----------
Cash and Cash Equivalents, March 31................................ $ 33,194 $ 4,976,264
========= ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-46
<PAGE> 211
POWERFONE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements of PowerFone Holdings, Inc.
and Subsidiary (the "Company") included herein have been prepared by the Company
without audit. In the opinion of management, all adjustments, consisting of
normal recurring adjustments, necessary for the fair presentation of financial
position, results of operations and cash flows have been included. These
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto for the year ended
December 31, 1993. Operating results for the interim period are not necessarily
indicative of results for an entire year.
(2) BUSINESS COMBINATIONS
During the three months ended March 31, 1994, the Company acquired certain
of the net assets of several SMR companies for cash. All of the acquisitions
were accounted for using the purchase method of accounting. Accordingly, the
results of operations of the acquired companies are included in the Company's
statement of operations from the date of acquisition. There were no acquisitions
during the period ended March 31, 1993. Summary information regarding the
acquisitions is as follows:
<TABLE>
<CAPTION>
BUSINESS ASSETS ACQUIRED ACQUISITION DATE AMOUNT
------------------------ ---------------- ----------
<S> <C> <C>
B & C Communications.................................... February 1994 $2,300,000
Vesu Communications..................................... February 1994 500,000
Busch Communications.................................... February 1994 275,000
Mobile Radio Service.................................... February 1994 266,000
West Penn............................................... February 1994 250,000
North Star.............................................. February 1994 110,000
Central States.......................................... March 1994 1,425,000
TADA Communications..................................... March 1994 625,000
TRA Communications...................................... March 1994 625,000
Carleton Communications................................. March 1994 190,000
----------
$6,566,000
==========
</TABLE>
The aggregate purchase price was allocated based upon fair value as
follows:
<TABLE>
<S> <C>
FCC licenses.............................................................. $6,146,000
Fixed assets.............................................................. 420,000
----------
$6,566,000
==========
</TABLE>
The operations of these businesses were not significant and, accordingly,
pro forma information is not presented.
F-47
<PAGE> 212
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Motorola, Inc.:
We have audited the accompanying balance sheets of the 800MHz Specialized
Mobile Radio Territory of Motorola, Inc. (Nextel Properties) (a business within
the Network Services Division (Division) of Motorola, Inc. (Parent)) (the
Territory) as of December 31, 1993 and 1994, and the related statements of
operations and territory equity and cash flows for each of the years in the
three-year period ended December 31, 1994. These financial statements are the
responsibility of the Division's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the 800MHz Specialized
Mobile Radio Territory of Motorola, Inc. (Nextel Properties) (a business within
the Network Services Division (Division) of Motorola, Inc. (Parent)) (the
Territory) as of December 31, 1993 and 1994, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1994, in conformity with generally accepted accounting principles.
As discussed in notes 1 and 7, the Territory adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, in 1993.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 24, 1995
F-48
<PAGE> 213
800 MHZ SPECIALIZED MOBILE RADIO TERRITORY OF MOTOROLA, INC.
(NEXTEL PROPERTIES)
(A BUSINESS WITHIN THE NETWORK SERVICES DIVISION (DIVISION) OF MOTOROLA, INC.
(PARENT))
(THE TERRITORY)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------- ---------------------
1993 1994 1994 1995
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Accounts receivable, net of allowance for
doubtful accounts of $298 in 1993, $213 in
1994, $246 in 1994, and $209 in 1995....... $ 14,541 $ 14,591 $ 14,208 $ 14,152
Prepaid expenses and other.................... 8 10 8 10
-------- -------- -------- --------
Total current assets....................... 14,549 14,601 14,216 14,162
-------- -------- -------- --------
Deposits........................................ 13,333 32,284 26,082 30,165
Communications equipment, net................... 29,813 29,541 27,778 33,651
Intangible assets, net.......................... 98,964 230,234 96,549 247,118
-------- -------- -------- --------
$156,659 $306,660 $164,625 $325,096
======== ======== ======== ========
LIABILITIES AND TERRITORY EQUITY
Current liabilities:
Current portion of notes payable.............. $ 1,350 $ 5,960 $ 6,825 $ 485
Accounts payable, principally related-party... 2,918 4,510 2,483 1,828
Deferred revenue.............................. 8,273 7,330 8,530 7,604
Other liabilities............................. 174 563 231 550
-------- -------- -------- --------
Total current liabilities.................. 12,715 18,363 18,069 10,467
-------- -------- -------- --------
Notes payable................................... 6,615 574 1,065 484
Territory equity................................ 137,329 287,723 145,491 314,145
-------- -------- -------- --------
Total liabilities and territory equity.......... $156,659 $306,660 $164,625 $325,096
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE> 214
800MHZ SPECIALIZED MOBILE RADIO TERRITORY OF MOTOROLA, INC.
(NEXTEL PROPERTIES)
(A BUSINESS WITHIN THE NETWORK SERVICES DIVISION (DIVISION) OF MOTOROLA, INC.
(PARENT))
(THE TERRITORY)
STATEMENTS OF OPERATIONS AND TERRITORY EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
----------------------------- -------------------
1992 1993 1994 1994 1995
------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Services revenue......................... $64,273 $ 70,641 $ 76,626 $ 18,273 $ 19,387
Less finders' fees....................... 3,423 4,093 6,106 1,586 1,681
------- -------- -------- -------- --------
Net Revenues............................... 60,850 66,548 70,520 16,687 17,706
Costs and expenses related to revenues:
Cost of operations, including $25,971 in
1992, $27,215 in 1993, $28,891 in
1994, $6,716 in 1994, and $7,735 in
1995, from related parties............ 36,495 38,856 40,334 9,599 10,662
General and administrative, including
$1,851 in 1992, $1,796 in 1993, $1,235
in 1994, $341 in 1994, and $427 in
1995, from related parties............ 8,362 8,303 6,681 2,161 1,710
Depreciation and amortization............ 16,973 18,412 18,683 3,798 7,760
------- -------- -------- -------- --------
Operating income (loss).................... (980) 977 4,822 1,129 (2,426)
Other expense -- interest.................. 969 1,019 923 244 234
Income (loss) before income taxes.......... (1,949) (42) 3,899 885 (2,660)
Income tax expense (benefit)............... 963 2,486 4,331 995 (236)
------- -------- -------- -------- --------
Loss before cumulative effect of change in
accounting principle..................... (2,912) (2,528) (432) (110) (2,424)
Cumulative effect at January 1, 1993 of
change in accounting for income taxes.... -- (4,633) -- -- --
------- -------- -------- -------- --------
Net loss................................... (2,912) (7,161) (432) (110) (2,424)
Territory equity at beginning of year...... 71,648 92,869 137,329 137,329 287,723
Contributions from Parent, net............. 24,133 51,621 150,826 8,272 28,846
------- -------- -------- -------- --------
Territory equity at end of year............ $92,869 $137,329 $287,723 $145,491 $314,145
======= ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-50
<PAGE> 215
800 MHZ SPECIALIZED MOBILE RADIO TERRITORY OF MOTOROLA, INC.
(NEXTEL PROPERTIES)
(A BUSINESS WITHIN THE NETWORK SERVICES DIVISION (DIVISION) OF MOTOROLA, INC.
(PARENT))
(THE TERRITORY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
------------------------------- -------------------
1992 1993 1994 1994 1995
-------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................. $ (2,912) $ (7,161) $ (432) $ (110) $ (2,424)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation........................... 8,797 9,265 6,277 1,383 3,117
Amortization of intangible assets...... 8,178 9,147 12,406 2,415 4,643
Provision for doubtful accounts........ (368) (290) (85) (52) (4)
Change in assets and liabilities:
Accounts receivable................. (132) 819 35 384 443
Prepaid expenses and other.......... -- -- (2) -- --
Accounts payable, principally
related-party..................... 229 399 1,592 (435) (2,682)
Deferred revenue.................... 156 (528) (943) 257 274
Other liabilities................... 264 (90) 389 57 (13)
-------- -------- --------- -------- --------
Net cash provided by operating
activities............................. 14,212 11,561 19,237 3,899 3,354
-------- -------- --------- -------- --------
Cash flows from investing activities:
Deposits, net.......................... -- (13,333) (18,951) (12,749) 2,119
Capital expenditures, net, principally
related-party, except as described
in note 2........................... (12,497) (12,994) (8,198) (1,540) (7,227)
Acquisition of intangible assets....... (8,479) (1,090) (143,676) -- (21,527)
Proceeds from the sale of assets....... -- -- 1,422 1,422 --
-------- -------- --------- -------- --------
Net cash used in investing activities.... (20,976) (27,417) (169,403) (12,867) (26,635)
-------- -------- --------- -------- --------
Cash flows from financing activities:
Contributions from Parent, net......... 5,169 17,086 151,597 9,043 28,846
Proceeds from notes payable............ 2,793 -- -- -- --
Payments on notes payable.............. (1,198) (1,230) (1,431) (75) (5,565)
-------- -------- --------- -------- --------
Net cash provided by financing
activities............................. 6,764 15,856 150,166 8,968 23,281
-------- -------- --------- -------- --------
Cash at beginning and end of year........ $ -- $ -- $ -- $ -- $ --
======== ======== ========= ======== ========
Supplementary disclosures --
Cash paid for interest................. $ 948 $ 938 $ 824 $ 244 $ 234
Transfer of equipment to Division...... -- 3,675 771 771 --
Issuance of Parent company stock
consideration for acquired assets... 18,964 38,210 -- -- --
======== ======== ========= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-51
<PAGE> 216
800 MHZ SPECIALIZED MOBILE RADIO TERRITORY OF MOTOROLA, INC.
(NEXTEL PROPERTIES)
(A BUSINESS WITHIN THE NETWORK SERVICES DIVISION (DIVISION) OF MOTOROLA, INC.
(PARENT))
(THE TERRITORY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993 AND 1994
(ALL AMOUNTS IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
The 800MHz Specialized Mobile Radio Territory of Motorola, Inc. (Nextel
Properties) (herein referred to as the Territory) is a business within the
Network Services Division (Division) of Motorola, Inc. (Parent). The Territory,
as a reporting entity, holds the Division's 800MHz licenses in all states within
the continental United States. The Territory is engaged in the operation of
owned and managed Specialized Mobile Radio (SMR) systems. Owned systems, or
MoSMRs, are systems operated by the Territory, which also owns the underlying
licenses. Managed systems, or McSMRs, are governed by management agreements with
third parties owning the licenses in these states and to which Motorola provides
operations services.
(B) BASIS OF PRESENTATION
The accompanying financial statements reflect the activity of the Territory
sites which exist as of December 31, 1994 and for which ownership interests are
to be transferred to a third party under an agreement in principle described in
note 9. The assets and liabilities of the Territory relate to the operations of
the Parent's 800MHz SMR business including, but not limited to, customer
contracts and accounts receivable, equipment, licenses, current liabilities, and
lease obligations, but do not include certain other assets used in the Parent's
site business. Such assets excluded from the Territory's assets and liabilities
are leased either directly from the Parent or from third parties through the
Parent. The assets and liabilities also include certain assets and liabilities
accruing to the Territory resulting from its management of McSMRs, including
customer contracts and accounts receivable, equipment, current liabilities, and
lease obligations. The statements of operations include the revenues derived and
costs related to both the MoSMR and McSMR businesses.
The Territory does not maintain its own cash receipts and disbursements.
Cash and income tax activities and related party transactions are managed by the
Parent and are reflected as a change in the territory equity account.
(C) DEPOSITS
Deposits represent amounts paid under executory asset purchase agreements
in consideration for the rights to acquire certain McSMR licenses.
(D) COMMUNICATIONS EQUIPMENT
Communications equipment is stated at cost. Depreciation of communications
equipment is calculated using accelerated and straight-line methods over the
estimated useful lives of the assets, which are seven to eight years.
Repairs and maintenance are expensed as incurred and betterments are
capitalized.
(E) INTANGIBLE ASSETS
Intangible assets are stated at cost. License rights represent costs
incurred for FCC-issued licenses and are amortized on a straight-line basis over
an estimated useful life of 20 years. Covenants not to compete are amortized on
a straight-line basis over the life of the agreements, which range from three to
five years. The excess of cost over fair value of companies acquired is
amortized on a straight-line basis over their estimated
F-52
<PAGE> 217
800 MHZ SPECIALIZED MOBILE RADIO TERRITORY OF MOTOROLA, INC.
(NEXTEL PROPERTIES)
(A BUSINESS WITHIN THE NETWORK SERVICES DIVISION (DIVISION) OF MOTOROLA, INC.
(PARENT))
(THE TERRITORY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
useful lives of ten to twenty years. The Territory assesses the recoverability
of intangible assets by determining whether the amount of the balances over
their remaining lives can be recovered through undiscounted future operating
cash flows of the operations.
(F) DEFERRED REVENUE
Deferred revenue consists of billings to customers in advance of airtime
usage, and is reflected as a liability at year-end.
(G) REVENUE RECOGNITION
The Territory recognizes revenue from air-time sales based upon monthly
access charges per unit plus air-time charges as used. Finders' fees represent
payments to third parties that supply the Territory with customers and are
expensed as incurred.
(H) INCOME TAXES
ACCOUNTING FOR 1992
The Territory is included in the consolidated U.S. income tax return of the
Parent. For financial reporting purposes, income tax expense for 1992 is
calculated under Accounting Principles Board Opinion No. 11, Accounting for
Income Taxes, and is computed as if the Territory filed a separate return.
Current and deferred income tax expense (benefit) is reflected as an increase in
(decrease of) territory equity as these accounts are maintained in the
accounting records of the Parent. State income taxes are computed utilizing a
blended state rate of 4.6%, which is net of Federal income tax benefit.
ACCOUNTING FOR 1993 AND 1994
The Territory adopted the asset and liability method of accounting for
income taxes as prescribed by Financial Accounting Standards Board Statement
109, Accounting for Income Taxes (SFAS 109), effective January 1, 1993. Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
SFAS 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Current and deferred income tax expense (benefit) is reflected as an increase in
(decrease of) Territory equity as these accounts are maintained in the
accounting records of the Parent. State income taxes are computed utilizing a
blended state rate of 4.6%, which is net of Federal income tax benefit.
(I) CREDIT CONCENTRATIONS AND FINANCIAL INSTRUMENTS
The Territory's customers are comprised of businesses which require the use
of the Territory's SMR systems. Financial instruments that potentially subject
the Territory to concentrations of credit risk consist principally of trade
receivables. As of December 31, 1993 and 1994, and March 31, 1994 and 1995, no
account receivable from any customer exceeded 5% of territory equity. Accounts
receivable are generally unsecured; however, management believes its allowance
for doubtful accounts is adequate to cover any exposure to loss.
F-53
<PAGE> 218
800 MHZ SPECIALIZED MOBILE RADIO TERRITORY OF MOTOROLA, INC.
(NEXTEL PROPERTIES)
(A BUSINESS WITHIN THE NETWORK SERVICES DIVISION (DIVISION) OF MOTOROLA, INC.
(PARENT))
(THE TERRITORY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) ACQUISITIONS
During 1992, 1993, and 1994, the Territory acquired several communications
businesses. The consideration for the acquisitions consisted of cash, notes
payable, or issuance of Parent company stock. The cash portions of the purchase
prices were funded by the Parent. The Territory used the purchase method to
account for these acquisitions. The results of the acquired operations have been
included in the Territory's statements of operations from the acquisition dates.
The fair values assigned to assets acquired and liabilities assumed are as
follows:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- --------
<S> <C> <C> <C>
Communications equipment................................. $ 311 $ 191 $ 1,809
Intangible assets........................................ 27,738 38,442 144,526
------- ------- --------
Net purchase price....................................... $28,049 $38,633 $146,335
======= ======= ========
</TABLE>
The acquisitions were paid as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- --------
<S> <C> <C> <C>
Cash..................................................... $ 6,292 $ 423 $146,335
Notes Payable............................................ 2,793 -- --
Issuance of Parent company stock......................... 18,964 38,210 --
------- ------- --------
$28,049 $38,633 $146,335
======= ======= ========
</TABLE>
Unaudited pro forma financial information for the years ended December 31,
1992, 1993, and 1994, as though the 1992 through 1994 acquisitions had occurred
as of January 1, 1992 follows:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Net revenues.............................................. $64,081 $68,437 $71,349
Operating income.......................................... 615 1,576 5,284
Income (loss) before income taxes......................... (1,031) 1,056 4,271
Net loss.................................................. (1,455) (4,101) (207)
</TABLE>
(3) COMMUNICATIONS EQUIPMENT
Pursuant to the consummation of the contribution and merger agreement
described in note 9, the specific assets within the Territory which will be
transferred under the agreement were identified. Communications equipment with a
gross and net balance of $16,171 and $3,675, which will not be transferred under
the agreement in principle were transferred from the records of the Territory to
the Division effective October 1993, and no longer depreciated within the
Territory as of that date. Depreciation expense for prior periods has not been
restated. Depreciation related to such assets of $2,274 and $1,706, was recorded
in 1992 and 1993, respectively.
Effective March 31, 1994, additional communications equipment with a gross
and net balance of $1,960 and $771, which will not be transferred under the
agreement were transferred from the records of the Territory to the Division,
and no longer depreciated within the Territory as of that date. Depreciation
expense for prior periods has not been restated. Depreciation of $71 for the
three months ended March 31, 1993 and 1994 was recorded related to such assets.
F-54
<PAGE> 219
800 MHZ SPECIALIZED MOBILE RADIO TERRITORY OF MOTOROLA, INC.
(NEXTEL PROPERTIES)
(A BUSINESS WITHIN THE NETWORK SERVICES DIVISION (DIVISION) OF MOTOROLA, INC.
(PARENT))
(THE TERRITORY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) COMMUNICATIONS EQUIPMENT (CONTINUED)
Communications equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
----------------- ------------------
1993 1994 1994 1995
------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Communications equipment....................... $91,023 $95,839 $89,192 $103,066
Less accumulated depreciation................ 61,210 66,298 61,404 69,415
------- ------- ------- --------
$29,813 $29,541 $27,778 $ 33,651
======= ======= ======= ========
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
------------------- -------------------
1993 1994 1994 1995
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Excess cost over assets acquired.............. $100,070 $116,366 $100,070 $116,368
FCC licenses.................................. 15,104 142,264 15,104 163,789
Covenants not to compete...................... 10,638 10,858 10,638 10,858
Customer lists................................ 563 563 563 563
-------- -------- -------- --------
126,375 270,051 126,375 291,578
Less accumulated amortization................. 27,411 39,817 29,826 44,460
-------- -------- -------- --------
$ 98,964 $230,234 $ 96,549 $247,118
======== ======== ======== ========
</TABLE>
(5) NOTES PAYABLE
Notes payable consists of notes payable to a third party arising as a
result of Territory acquisitions (see note 2). Certain notes accrue interest at
between 10% and 14%. Interest on other notes has been imputed for financial
reporting purposes at an 8% rate. Due dates range from 1995 to 1996 at December
31, 1994. The notes are unsecured.
The aggregate principal maturities are as follows: 1995 -- $5,960,
1996 -- $574.
(6) RELATED PARTY TRANSACTIONS
Certain general and administrative expenses are incurred by the Parent. The
Parent allocates costs to the Territory for insurance, employee salaries and
benefits, taxes, and other administrative expenses. The allocations were
estimated using proportional cost allocation methods. General and administrative
expenses include $1,851 in 1992, $1,796 in 1993, $1,235 in 1994, and $341 and
$427 in the three months ended March 31, 1994 and 1995, related to such charges.
Employees of the Territory are eligible for various benefits under programs
maintained by the Parent. Any related assets or liabilities are not included in
the Territory's financial statements, but rather, are reported as part of
equity.
F-55
<PAGE> 220
800 MHZ SPECIALIZED MOBILE RADIO TERRITORY OF MOTOROLA, INC.
(NEXTEL PROPERTIES)
(A BUSINESS WITHIN THE NETWORK SERVICES DIVISION (DIVISION) OF MOTOROLA, INC.
(PARENT))
(THE TERRITORY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) RELATED PARTY TRANSACTIONS (CONTINUED)
An affiliate of the Territory owns certain structures and equipment used by
the Territory in its operations under operating lease arrangements. Related
rental expenses were $16,596 in 1992, $17,914 in 1993, $19,559 in 1994, and
$4,528 and $5,439 in the three months ended March 31, 1994 and 1995.
An affiliate of the Territory provides maintenance services under service
contracts. The Territory incurred related expenses of $9,375 in 1992, $9,301 in
1993, $9,332 in 1994, and $2,188 and $2,296 in the three months ended March 31,
1994 and 1995.
Communications equipment and installation services are purchased from an
affiliate at amounts which are not "arm's length." Purchases aggregated $12,186
in 1992, $12,803 in 1993, $6,389 in 1994, and $1,525 and $7,155 in the three
months ended March 31, 1994 and 1995.
Certain communications equipment used in the Territory's operations has
been transferred to the Territory from the Division at zero basis. Therefore,
the asset values and related depreciation are not reflected in the Territory's
financial position or results of operations.
In management's opinion, the methods employed in allocating the
transactions described above are reasonable. However, the amounts disclosed may
not represent the amounts that would have been reported had these transactions
occurred with third parties at "arm's length."
(7) INCOME TAXES
As discussed in note 1, the Territory adopted SFAS 109 as of January 1,
1993. The cumulative effect of this change in accounting for income taxes of
$4,633 was determined as of January 1, 1993 and is reported separately in the
statement of operations for the year ended December 31, 1993. SFAS 109 also had
the effect of increasing income tax expense for the year ended December 31,
1993, by approximately $112, as compared to the amount which would have been
reported under the previous method. Prior years' financial statements have not
been restated to apply the provisions of SFAS 109.
F-56
<PAGE> 221
800 MHZ SPECIALIZED MOBILE RADIO TERRITORY OF MOTOROLA, INC.
(NEXTEL PROPERTIES)
(A BUSINESS WITHIN THE NETWORK SERVICES DIVISION (DIVISION) OF MOTOROLA, INC.
(PARENT))
(THE TERRITORY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) INCOME TAXES (CONTINUED)
Income tax expense consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------ -------- ------
<S> <C> <C> <C>
Year ended December 31, 1992:
U.S. Federal........................................... $1,001 $ (213) $ 788
State.................................................. 222 (47) 175
------ -------- ------
$1,223 $ (260) $ 963
====== ====== ======
Year ended December 31, 1993:
U.S. Federal........................................... $2,411 $ (346) $2,065
State.................................................. 519 (98) 421
------ ------ ------
$2,930 $ (444) $2,486
====== ====== ======
Year ended December 31, 1994:
U.S. Federal........................................... $2,849 $ 715 $3,564
State.................................................. 613 154 767
------ ------ ------
$3,462 $ 869 $4,331
====== ====== ======
</TABLE>
Income tax expense (benefit) was $963, $2,486, and $4,331 for the years
ended December 31, 1992, 1993, and 1994, and $995 and ($236) for the three
months ended March 31, 1994 and 1995, respectively, and differed from the
amounts computed by applying the U.S. Federal income tax rate to pretax income
as a result of the following:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31 ENDED MARCH 31
---------------------------- --------------
1992 1993 1994 1994 1995
------ ------ ------ ---- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Computed "expected" tax expense................ $ (633) $ (14) $1,365 $310 $(931)
Increase in income taxes resulting from:
Amortization of excess cost over assets
acquired.................................. 1,511 2,115 2,468 573 722
State income taxes, net of federal benefit... 115 273 498 112 (27)
Change in federal tax rate................... -- 112 -- -- --
------ ------ ------ ---- -----
$ 963 $2,486 $4,331 $995 $(236)
====== ====== ====== ==== =====
</TABLE>
F-57
<PAGE> 222
800 MHZ SPECIALIZED MOBILE RADIO TERRITORY OF MOTOROLA, INC.
(NEXTEL PROPERTIES)
(A BUSINESS WITHIN THE NETWORK SERVICES DIVISION (DIVISION) OF MOTOROLA, INC.
(PARENT))
(THE TERRITORY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) INCOME TAXES (CONTINUED)
For the year ended December 31, 1992, deferred income tax expense of $260
results from timing differences in the recognition of income and expense for
income tax and financial reporting purposes. The sources and tax effects of
those timing differences are presented below:
<TABLE>
<CAPTION>
1992
-----
<S> <C>
Excess depreciation of communications equipment for financial
reporting purposes over tax reporting purposes..................... $ (42)
Excess amortization of intangible assets for financial reporting
purposes over tax reporting purposes............................... (218)
-----
$(260)
=====
</TABLE>
The significant components of deferred income tax expense for the years
ended December 31, 1993 and 1994 are as follows:
<TABLE>
<CAPTION>
1993 1994
----- ----
<S> <C> <C>
Deferred tax expense, exclusive of the effects
of other components listed below........................... $(556) $869
Adjustments to deferred tax assets and liabilities
for enacted changes in tax laws............................ 112 --
----- ----
$(444) $869
===== ====
</TABLE>
Deferred taxes result from temporary differences in the recognition of
income and expense for income tax and financial reporting purposes. The sources
and tax effects of those temporary differences include excess financial
statement over tax depreciation, excess financial statement over tax
amortization of certain intangibles, allowance for doubtful accounts receivable,
and the capitalization and amortization of certain costs for tax purposes which
were expensed for financial reporting purposes.
F-58
<PAGE> 223
800 MHZ SPECIALIZED MOBILE RADIO TERRITORY OF MOTOROLA, INC.
(NEXTEL PROPERTIES)
(A BUSINESS WITHIN THE NETWORK SERVICES DIVISION (DIVISION) OF MOTOROLA, INC.
(PARENT))
(THE TERRITORY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to the deferred tax
assets and liabilities settled through the territory equity account at December
31, 1993 and 1994 are presented below:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts.... $ 183 $ 84
FCC licenses, due to differences in amortization............... 1,122 --
Customer lists, due to differences in amortization............. 119 43
Communications equipment, due to differences in capitalized
basis....................................................... 107 85
------- -------
Net deferred tax assets.......................................... 1,531 212
Deferred tax liabilities:
Plant and equipment, due to differences in depreciation........ (5,720) (4,349)
Excess cost over assets acquired, due to differences in
amortization................................................ -- (6)
FCC licenses, due to differences in amortization............... -- (916)
------- -------
Net deferred tax liabilities..................................... (5,720) (5,271)
Net deferred tax liability....................................... $(4,189) $(5,059)
======= =======
</TABLE>
At December 31, 1993 and 1994, $4,189 and $5,059, respectively, of
cumulative deferred taxes have been settled through the Territory equity
account. At December 31, 1993 and 1994, the basis of excess cost over fair value
of assets acquired for financial reporting purposes exceeds the basis for tax
purposes by $80,964 and $75,232, respectively.
(8) COMMITMENTS AND CONTINGENCIES
LEASES
The Territory leases antenna sites both directly from an affiliate and from
third parties through an affiliate under agreements which provide for payments
on a month-to-month basis. Rent expense under month-to-month agreements for the
years ended December 31, 1992, 1993, and 1994 amounted to $11,406, $12,282, and
$15,588 respectively.
F-59
<PAGE> 224
800 MHZ SPECIALIZED MOBILE RADIO TERRITORY OF MOTOROLA, INC.
(NEXTEL PROPERTIES)
(A BUSINESS WITHIN THE NETWORK SERVICES DIVISION (DIVISION) OF MOTOROLA, INC.
(PARENT))
(THE TERRITORY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) COMMITMENTS AND CONTINGENCIES (CONTINUED)
In addition, certain antenna sites are leased under operating leases with
noncancelable lease terms expiring at various dates through 2008. Future minimum
payments under these lease agreements are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
- -----------
<S> <C>
1995 ................................................... $1,821
1996 ................................................... 1,461
1997 ................................................... 1,181
1998 ................................................... 887
Thereafter ................................................... 2,212
------
$7,562
======
</TABLE>
Rent expense under noncancelable agreements for the years ended December
31, 1992, 1993, and 1994 amounted to $5,190, $5,766, and $3,971 respectively.
Effective in 1995, the majority of these lease agreements were renegotiated. The
impact of these actions will result in increased minimum payments in future
years.
MANAGED SITES
The Territory operates and manages McSMR sites under management agreements
with third parties. These agreements typically are for a base period of five to
ten years and include renewal options. The Territory has the right to place its
customers on these managed sites and, in consideration, pays a percentage of net
user revenues and a specified fixed rate per channel to the licensee. In the
event the licensee chooses to divest its interest, the Territory has a right of
first refusal with respect to such divestiture.
ASSET PURCHASE AGREEMENTS
The Territory entered into asset purchase agreements during 1993 and 1994
to acquire rights to certain McSMR licenses. Deposits of $13,333 and $18,951
were paid in 1993 and 1994, under these executory agreements in consideration
for the rights to these licenses. Remaining commitments of $126,767 at December
31, 1994 are to be paid upon the respective closings, which are expected to
occur within the next year.
Subsequent to December 31, 1994, and through March 24, 1995, the Territory
did not enter into additional asset purchase agreements.
The Territory's obligations to complete these purchase agreements are
contingent upon its completion of the contribution and merger agreement
discussed in note 9 or a similar or substitute transaction. In the event that
such completion does not occur, the Territory's rights and obligations will
revert to those under the preexisting management agreements.
(9) CONTRIBUTION AND MERGER AGREEMENT
In August 1994 the Parent entered into a Contribution and Merger Agreement
(Agreement) with Nextel Communications, Inc. (Purchaser) to transfer ownership
of the Territory and the licenses managed by the
F-60
<PAGE> 225
800 MHZ SPECIALIZED MOBILE RADIO TERRITORY OF MOTOROLA, INC.
(NEXTEL PROPERTIES)
(A BUSINESS WITHIN THE NETWORK SERVICES DIVISION
(DIVISION) OF MOTOROLA, INC. (PARENT))
(THE TERRITORY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(9) CONTRIBUTION AND MERGER AGREEMENT (CONTINUED)
Territory in exchange for shares of common stock. The transaction is designed as
a tax-free exchange to the Parent and the Purchaser.
In connection with this Agreement, the Parent is obligated, subject to the
provisions described below, to acquire rights to a "minimum required channel
value", as defined in the Agreement, for those licenses currently managed by the
Territory and to transfer such rights to the Purchaser at closing. Also at
closing, the Parent shall assign all assignable McSMR agreements for any
remaining McSMR channels and all rights to consideration payable to the Parent
under all nonassignable McSMR agreements. During the twelve-month period after
closing, the Parent is obligated to continue to use its best efforts to acquire
remaining managed licenses up to the minimum required channel value and assign
them to the Purchaser as acquired. Remaining managed licenses outstanding after
this period which are necessary to meet the required channel value will result,
by use of a formula, in a reduction to the consideration received by the Parent
under this Agreement. At December 31, 1994, additional commitments of $126,767,
in management's estimate, are necessary to meet the obligations under the
Agreement.
Closing of the Agreement is subject to a number of significant conditions,
including, among others, the receipt of approval from the Federal Communications
Commission ("FCC") of the change of control of certain SMR licenses, the filing
of all necessary reports and documents with the Department of Justice pursuant
to the Hart-ScottRodino Anti-Trust Improvements Act of 1976 and the expiration
or termination of all applicable waiting periods thereunder, and other
governmental approvals. There can be no assurance as to whether or when such
approvals will be received. Further, the transaction is contingent on approval
by the respective companies' boards of directors, approval by Nextel's
shareholders, approval by Nextel's public debt holders or satisfaction of
provisions of Nextel's debt indebentures, and the satisfaction of certain other
conditions.
F-61
<PAGE> 226
(This page intentionally left blank)
F-62
<PAGE> 227
INDEPENDENT AUDITORS' REPORT
The Board of Directors
OneComm Corporation:
We have audited the accompanying consolidated balance sheets of OneComm
Corporation (formerly CenCall Communications Corp.) and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the years
in the three-year period ended December 31, 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of OneComm
Corporation (formerly CenCall Communications Corp.) and subsidiaries as of
December 31, 1994 and 1993, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1994 in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
January 27, 1995
F-63
<PAGE> 228
ONECOMM CORPORATION AND SUBSIDIARIES
(FORMERLY CENCALL COMMUNICATIONS CORP.)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
ASSETS (NOTE 4)
Current assets:
Cash and cash equivalents..................................... $119,348,050 $ 18,318,824
Short-term investments........................................ 15,351,928 44,881,410
Inventory, net of valuation allowance of $5,070,335 in
1994 (note 1).............................................. 10,490,905 682,961
Accounts receivable, net of allowance of $284,640 and
$107,160 in 1994 and 1993, respectively.................... 2,243,564 1,452,223
Prepaid expenses and other assets............................. 2,143,755 193,733
------------ ------------
Total current assets.................................. 149,578,202 65,529,151
Property and equipment:
Land.......................................................... 117,941 117,941
Buildings and leasehold improvements.......................... 4,787,337 937,018
Equipment..................................................... 175,101,540 29,604,447
Furniture and fixtures........................................ 3,891,805 921,175
------------ ------------
183,898,623 31,580,581
Less accumulated depreciation.............................. (12,535,840) (3,027,578)
------------ ------------
Net property and equipment............................ 171,362,783 28,553,003
Intangible assets:
Federal Communications Commission licenses.................... 94,585,121 36,432,706
Covenants not to compete...................................... 13,762,000 9,264,000
Debt issuance costs........................................... 13,928,214 5,373,143
Organization costs and other.................................. 621,059 544,837
------------ ------------
122,896,394 51,614,686
Less accumulated amortization.............................. (9,802,368) (4,494,692)
------------ ------------
Net intangible assets................................. 113,094,026 47,119,994
Deposits for business combinations in progress (note 6)......... 5,358,923 2,519,344
Prepaid warranty costs.......................................... 12,005,006 --
Other assets.................................................... 1,264,025 2,458,297
------------ ------------
$452,662,965 $146,179,789
============ ============
</TABLE>
(-- Continued)
See accompanying notes to consolidated financial statements.
F-64
<PAGE> 229
ONECOMM CORPORATION AND SUBSIDIARIES
(FORMERLY CENCALL COMMUNICATIONS CORP.)
CONSOLIDATED BALANCE SHEETS, CONTINUED
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................. $ 7,653,730 $ 2,643,765
Cash overdraft................................................ 4,969,272 --
Due to equipment supplier..................................... 64,321,181 10,733,451
Other accrued liabilities..................................... 7,845,096 1,310,122
Deferred revenue.............................................. 833,434 281,355
Current portion of long-term debt (note 4).................... 1,250,000 1,250,000
Acquisition costs payable (note 6)............................ 24,235,225 1,635,000
------------ ------------
Total current liabilities............................. 111,107,938 17,853,693
Long-term debt, net of discount, less current portion
(note 4)...................................................... 278,992,036 5,250,000
------------ ------------
Total liabilities..................................... 390,099,974 23,103,693
Non-consolidated interests in Spectrum Resources of the
Midwest, Inc. (note 1)........................................ 2,513,852 2,212,232
Stockholders' equity (note 5)
Preferred stock, nonvoting, $.001 par value. Authorized
1,000,000 shares; none issued.............................. -- --
Common stock, voting, $.001 par value. Authorized 40,000,000
shares; issued and outstanding 18,184,759 and 17,164,201
shares at December 31, 1994 and 1993, respectively......... 18,185 17,164
Additional paid-in capital.................................... 154,169,654 133,246,762
Accumulated deficit........................................... (94,138,700) (12,400,062)
------------ ------------
Total stockholders' equity............................ 60,049,139 120,863,864
------------ ------------
Commitments (notes 2, 4 and 8)
$452,662,965 $146,179,789
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-65
<PAGE> 230
ONECOMM CORPORATION AND SUBSIDIARIES
(FORMERLY CENCALL COMMUNICATIONS CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
Revenue:
Network.......................................... $ 11,285,823 $ 8,247,081 $ 2,646,547
Equipment sales.................................. 1,887,058 1,748,540 1,548,101
Maintenance, installation and other.............. 1,602,597 1,894,364 1,493,396
------------ ----------- -----------
14,775,478 11,889,985 5,688,044
Operating costs and expenses:
Network.......................................... 13,385,470 2,152,751 510,903
Equipment........................................ 2,714,238 3,104,986 1,778,178
Maintenance, installation and other.............. 1,216,566 856,790 897,554
------------ ----------- -----------
17,316,274 6,114,527 3,186,635
------------ ----------- -----------
Gross profit (loss)...................... (2,540,796) 5,775,458 2,501,409
Selling, general and administrative expenses....... 31,141,883 6,319,343 1,408,176
Corporate expenses................................. 7,686,977 3,216,585 1,153,393
Depreciation and amortization of property and
equipment........................................ 9,508,262 1,762,431 599,898
Amortization of intangible assets.................. 6,292,676 2,568,956 878,191
Inventory valuation provision (note 1)............. 5,070,335 -- --
------------ ----------- -----------
Operating loss........................... (62,240,929) (8,091,857) (1,538,249)
------------ ----------- -----------
Other expense (income):
Interest expense................................. 23,736,257 865,980 387,594
Interest income.................................. (8,299,076) (1,083,538) (78,323)
Merger costs (note 3)............................ 4,674,645 -- --
Other............................................ (614,117) (90,065) --
------------ ----------- -----------
19,497,709 (307,623) 309,271
------------ ----------- -----------
Loss before extraordinary item........... (81,738,638) (7,784,234) (1,847,520)
Extraordinary item-loss on early extinguishment
of debt.......................................... -- 332,797 --
------------ ----------- -----------
Net loss................................. (81,738,638) (8,117,031) (1,847,520)
============ =========== ===========
Pro forma weighted average common shares
outstanding...................................... 17,655,478 13,442,723 10,516,387
============ =========== ===========
Pro forma net loss per common share:
Net loss before extraordinary item............... $ (4.63) $ (.58) $ (.18)
Extraordinary item............................... -- (.02) --
------------ ----------- -----------
Net loss................................. $ (4.63) $ (.60) $ (.18)
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-66
<PAGE> 231
ONECOMM CORPORATION AND SUBSIDIARIES
(FORMERLY CENCALL COMMUNICATIONS CORP.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
----------- ------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1992...... 326,171 $ 326 $ 286,314 $ (2,435,511) $ (2,148,871)
Net loss......................... -- -- -- (1,847,520) (1,847,520)
---------- ------- ------------ ------------ ------------
Balances at December 31, 1992.... 326,171 $ 326 $ 286,314 $ (4,283,031) $ (3,996,391)
Issuance of common stock for
cash, services, and options
exercised...................... 42,897 43 313,867 -- 313,910
Conversion of preferred stock to
common stock (note 5).......... 11,332,633 11,333 37,819,708 -- 37,831,041
Common stock issued in initial
public offering, net of
offering costs (note 5)........ 5,462,500 5,462 94,826,873 -- 94,832,335
Net loss......................... -- -- -- (8,117,031) (8,117,031)
---------- ------- ------------ ------------ ------------
Balances at December 31, 1993.... 17,164,201 $17,164 $133,246,762 $(12,400,062) $120,863,864
Issuance of common stock in
business combinations.......... 399,930 400 11,907,516 -- 11,907,916
Issuance of common stock and
option for investment in
subsidiary (note 1)............ 365,131 365 8,192,250 -- 8,192,615
Issuance of common stock for
options exercised.............. 255,497 256 823,126 -- 823,382
Net loss......................... -- -- -- (81,738,638) (81,738,638)
---------- ------- ------------ ------------ ------------
Balances at December 31, 1994.... 18,184,759 $18,185 $154,169,654 $(94,138,700) $ 60,049,139
========== ======= ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-67
<PAGE> 232
ONECOMM CORPORATION AND SUBSIDIARIES
(FORMERLY CENCALL COMMUNICATIONS CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 9)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (81,738,638) $ (8,117,031) $ (1,847,520)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization expense........ 15,800,938 4,331,387 1,478,089
Inventory valuation provision................ 5,070,335 -- --
Non-cash interest expense, net............... 22,674,426 -- --
Non-consolidated interests', share of loss... (560,034) (113,668) --
Equity in (profit) loss of non-consolidated
investment................................. (32,737) 23,603 --
Accrued interest receivable included in
short-term investments..................... (278,513) (391,094) --
Stock issued for services.................... -- 228,150 --
Loss on early extinguishment of debt......... -- 332,797 --
Decrease (increase) in operating assets:
Inventory.................................. (14,974,179) 44,026 (75,055)
Accounts receivable........................ (791,341) (390,659) (670,432)
Prepaid expenses and other assets.......... (1,950,022) (129,884) (4,565)
Increase (decrease) in operating liabilities:
Accounts payable........................... 871,307 2,178,316 237,571
Accrued liabilities........................ 6,541,315 682,925 497,068
Deferred revenue........................... 552,079 (52,471) 275,186
------------- ------------- ------------
Net cash used by operating activities... (48,815,064) (1,373,603) (109,658)
Cash flows from investing activities:
Acquisition of net assets in business
combinations................................. (18,058,635) (37,681,925) (11,196,492)
Additions to property and equipment............. (99,780,130) (8,525,076) (930,824)
Additions to intangible and other assets........ (5,533,693) (557,367) --
Payment of organization costs................... -- (110,157) --
Deposits on business combinations in progress... (5,358,923) (2,448,292) (71,052)
Investment in Gateway Communications, Inc....... -- -- (500,000)
Purchase of short-term investments.............. (232,250,426) (127,915,316) --
Maturities of short-term investments............ 262,058,421 83,425,000 --
------------- ------------- ------------
Net cash used by investing activities... (98,923,386) (93,813,133) (12,698,368)
Cash flows from financing activities:
Increase (decrease) in cash overdraft........... 4,969,272 (409,083) 409,083
Proceeds from notes payable and long-term debt.. 249,999,763 13,260,000 6,950,000
Repayments of notes payable and long-term debt.. (1,250,000) (9,860,000) (7,690,500)
Proceeds from notes payable to stockholders..... -- -- 965,000
Non-consolidated interests', purchase of stock
in subsidiary................................ 3,770,000 344,000 --
Proceeds from issuance of common and preferred
stock, net................................... 823,382 114,363,933 13,324,573
Debt issuance costs............................. (9,544,741) (5,590,063) (346,601)
------------- ------------- ------------
Net cash provided by financing
activities............................ 248,767,676 112,108,787 13,611,555
------------- ------------- ------------
Net increase in cash and cash equivalents......... 101,029,226 16,922,051 803,529
Cash and cash equivalents at beginning of year.... 18,318,824 1,396,773 593,244
------------- ------------- ------------
Cash and cash equivalents at end of year.......... $ 119,348,050 $ 18,318,824 $ 1,396,773
============= ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-68
<PAGE> 233
ONECOMM CORPORATION AND SUBSIDIARIES
(FORMERLY CENCALL COMMUNICATIONS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION AND BASIS OF PRESENTATION
OneComm Corporation (formerly CenCall Communications Corp.) ("OneComm") was
incorporated as a Delaware corporation on February 2, 1990, and operates as a
holding company for its wholly owned subsidiaries, OneComm Corporation, N.A.
(formerly CenCall, Inc.) ("OneComm, N.A.") and C-CALL Corp., (collectively the
Company). OneComm, N.A. and C-CALL Corp. were incorporated as Delaware
corporations to acquire and operate certain Specialized Mobile Radio ("SMR")
businesses.
At December 31, 1994, the Company owns approximately 80% of the outstanding
common and preferred stock of Spectrum Resources of the Midwest, Inc. ("SRMW").
During 1994, the Company issued shares of
common stock and an option to acquire shares of common stock of OneComm to
certain holders of SRMW stock and the holder of an option to acquire shares of
SRMW stock in exchange for their shares of SRMW stock and such option in a
transaction that increased the Company's ownership of SRMW to approximately 80%
(the "SRMW Transaction"). The Company provides management services to SRMW under
the terms and conditions of a management agreement. The accompanying
consolidated financial statements include the accounts of OneComm, OneComm,
N.A., C-CALL Corp. and SRMW. All significant intercompany transactions have been
eliminated in consolidation.
(B) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include investments in money market funds and
short-term commercial paper of approximately $118,162,000 and $16,934,000 at
December 31, 1994 and 1993, respectively.
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to be
cash equivalents.
(C) SHORT-TERM INVESTMENTS
Short-term investments include short-term corporate notes and U.S. Treasury
securities and have been recorded at amortized cost which approximates market
value.
(D) PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is provided over
the estimated useful life of each class of depreciable assets using the
straight-line method as follows: Furniture, fixtures, and equipment -- 3 to 10
years, and buildings -- 30 years. Leasehold improvements are depreciated over
the shorter of the lease term or the estimated useful life of the improvement.
During 1994, OneComm decreased the estimated useful lives of certain equipment.
This change in accounting estimate resulted in an increase in depreciation
expense of approximately $2,500,000 for 1994.
The Company capitalizes interest in accordance with Statement of Financial
Accounting Standards No. 34, Capitalization of Interest Cost, which is amortized
over the lives of the related constructed assets. During 1994, the Company
incurred approximately $27,044,000 in interest expense, of which approximately
$3,308,000 was capitalized. Interest capitalized in 1993 and 1992 was not
significant.
Included in equipment as of December 31, 1994 is approximately $78,150,000
of equipment not yet placed in service which, accordingly, is not being
depreciated as of December 31, 1994.
F-69
<PAGE> 234
ONECOMM CORPORATION AND SUBSIDIARIES
(FORMERLY CENCALL COMMUNICATIONS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(E) INVENTORY
Inventory consists of spare parts and both digital and analog mobile radios
held for sale and is stated at the lower of cost or market value as determined
by the specific identification method.
As a result of a change in business strategy, the Company recorded a
provision of $5,070,335 related to the valuation of certain analog equipment
inventory during the fourth quarter of 1994.
(F) INTANGIBLE ASSETS
The cost of acquiring Federal Communications Commission ("FCC") licenses,
tangible, and other intangible assets from unrelated parties is allocated based
on the relative fair values of the acquired assets. FCC licenses are amortized
using the straight-line method over a 25-year period.
Covenants not to compete are amortized over the life of the agreements,
ranging from two to five years, using the straight-line method. Organization
costs are amortized using the straight-line method over five years. Debt
issuance costs are amortized over the term of the related debt.
The Company periodically evaluates the net realizable value of intangible
assets based upon specific events and circumstances using current market values
of similar assets, recent transactions and cash flow analyses, as appropriate.
(G) REVENUE RECOGNITION
Network revenue includes primarily access and usage charges for subscriber
units under service agreements with the Company. The terms of these service
agreements range from month-to-month to 36 months. Revenue received under
maintenance contracts is recognized ratably over the life of the contract.
Demand maintenance revenue is recorded at the time the service is performed.
Equipment sales revenue is recognized at the time the subscriber unit is placed
in service. Installation revenue is recognized at the time of installation.
(H) INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes
("Statement 109"). Statement 109 required a change from the deferred method of
accounting for income taxes of APB Opinion 11 to the asset and liability method
of accounting for income taxes. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Effective January 1, 1993, the Company adopted Statement 109. There was no
effect on the Company's financial statements of adopting Statement 109 in 1993.
F-70
<PAGE> 235
ONECOMM CORPORATION AND SUBSIDIARIES
(FORMERLY CENCALL COMMUNICATIONS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(I) LOSS PER COMMON SHARE
Loss per common share is computed by dividing the Company's consolidated
net loss by the weighted average number of common shares outstanding during the
period. Weighted average common shares outstanding reflect the conversion of all
preferred shares into common stock on a one-for-one basis and a 25.5-for-1 stock
split effected upon the completion of the Company's initial public offering of
common stock (the "IPO"). Through March 31, 1993, they also include the effects
of common stock options and warrants issued within one year prior to the IPO at
a per share price less than the IPO price per share, as required by the
regulations of the Securities and Exchange Commission. Outstanding common stock
options and warrants are not included in the computation subsequent to March 31,
1993 because their effect would be antidilutive. The dividend requirement on the
redeemable preferred stock has been excluded from the computation as a result of
the conversion of all outstanding shares of preferred stock to shares of common
stock at the time of the IPO.
(J) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1994
presentation.
(2) MERGER AGREEMENT
On July 13, 1994, the Company signed a definitive agreement (as amended,
the "Merger Agreement") to effect a tax-free merger (the "Merger") of the
Company with and into Nextel Communications, Inc. ("Nextel"). Nextel will be the
surviving corporation of the Merger. Like the Company, Nextel provides Digital
Mobile and SMR radio services to customers within its service areas. The Merger
Agreement supersedes the previously publicly announced non-binding letter of
understanding, executed October 18, 1993, between OneComm and Nextel (the
"OneComm/Nextel Letter Agreement"), concerning Nextel's proposed transfer of
certain SMR assets to OneComm in exchange for shares of OneComm common stock.
Pursuant to the Merger Agreement, each fully diluted share of OneComm's
common stock, par value $0.001 per share (the "Common Stock"), will be converted
into the right to receive approximately 1.067 shares of Class A common stock of
Nextel, par value $0.001 per share, assuming 21,143,730 shares of OneComm common
stock are outstanding, on a fully diluted basis, at the closing of the Merger.
Based on that assumption, Nextel will issue 22,550,000 shares of its Class A
common stock and stock equivalents in exchange for the stock and stock
equivalents of OneComm upon consummation of the Merger. On January 10, 1995,
OneComm and Nextel entered into a first amendment to the Merger Agreement,
providing that Nextel, at its discretion, may elect whether to make a cash
payment in lieu of any fractional share interests to which OneComm stockholders
otherwise would be entitled under the terms of the Merger Agreement or to
deliver, in lieu thereof, a whole number of shares of Nextel common stock
determined by rounding up to the nearest whole share.
Closing of the Merger is subject to a number of significant conditions,
including, among others, the receipt of approval from the FCC of the transfer of
control of certain SMR licenses to Nextel, the filing of certain information
with the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the Federal Trade Commission (the "FTC") pursuant to the
Hart-Scott-Rodino Anti-Trust Improvements Act of 1976 (the "HSR Act") and the
expiration or termination of all applicable waiting periods thereunder. The FCC
granted the necessary approval of the transfer of control of the Company's
constructed SMR licenses to Nextel, and requested additional information
regarding OneComm's unconstructed licenses on February 17, 1995. OneComm
submitted the required showing relating to its unconstructed licenses on
F-71
<PAGE> 236
ONECOMM CORPORATION AND SUBSIDIARIES
(FORMERLY CENCALL COMMUNICATIONS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1994 AND 1993
(2) MERGER AGREEMENT (CONTINUED)
March 20, 1995. On that same day, a petition for reconsideration of the FCC's
grant of authority for the transfer of control applications was filed with the
FCC. In the petition, the parties challenging the grant of the applications
stated their intention to challenge the sufficiency of the showing as well.
OneComm anticipates that pleadings regarding the petition and showing will be
filed in April, 1995. The required waiting period under the HSR Act was
terminated by the Antitrust Division on August 12, 1994. Further, the Merger is
contingent on approval by the stockholders of each of the Company and Nextel,
compliance with certain provisions of each of OneComm's public bond Indenture,
dated as of January 13, 1994 (the "Indenture") and Nextel's public bond
Indentures, dated as of August 15, 1993 and February 15, 1994, respectively
(collectively the "Nextel Indentures", and together with the Indenture, the
"Bond Indentures") (or, in lieu of such compliance, receipt of the necessary
consent of holders of the outstanding bonds under each of the Bond Indentures),
as discussed in more detail below, and the satisfaction of certain other
conditions. There can be no assurance as to whether or when the additional
conditions to consummation of the Merger will be satisfied. Currently, it is
anticipated the closing of the Merger will take place near the end of the second
quarter of 1995, provided that all of the closing conditions have been
satisfied. The Merger Agreement provides that, if the Merger has not closed by
June 30, 1995, either party may terminate the Merger Agreement.
The Merger Agreement requires that, among other things, all necessary
consents of third parties be provided as a condition to closing of the Merger.
Each of the Bond Indentures contains a substantially identical provision
applicable in the event of a merger involving the obligor thereunder. Such
provisions would not permit OneComm or Nextel to consummate the Merger if the
surviving corporation of the Merger, on a pro forma basis, taking into account
the effects of the Merger, would be unable to incur at least one dollar of
additional "Debt" (as defined in the Bond Indentures), other than certain
permitted Debt, under the Debt incurrence limitations contained in the Bond
Indentures. If this requirement would not be met, then the consent of the
holders of a majority of the outstanding principal amount of the bonds issued
under each of the Bond Indentures would be required as a pre-condition to the
consummation of the Merger. These provisions of the Nextel Indentures, and
similar provisions in the public bond indentures applicable to Dial Page, Inc.
("Dial Page"), with whom Nextel has also announced a pending merger, will also
limit Nextel's ability to consummate certain other of its publicly announced
pending transactions, including, among others, the merger with Dial Page and
Nextel's acquisition of Motorola's SMR assets in Nextel's, OneComm's and Dial
Page's operating regions (the "Nextel/Motorola Agreement").
The Bond Indentures contain substantially similar limitations on Debt
incurrence. In general, in order to incur Debt (other than permitted Debt), the
obligor, at the time of the incurrence, either (i) must be generating operating
cash flow that meets or exceeds a specified ratio determined by reference to the
obligor's consolidated Debt, or (ii) must have a ratio of Debt (including Debt
of its subsidiaries that are "Restricted Subsidiaries", as defined in the Bond
Indentures) to its "Total Market Capitalization" (also defined in the Bond
Indentures), expressed as a percentage, of not greater than 30%.
Historically, neither OneComm nor Nextel has generated, nor is it presently
anticipated that at the time of the Merger they collectively would be
generating, operating cash flow sufficient to meet the required annualized
levels. Accordingly, in order for the Merger to be permitted under the terms of
the Bond Indentures, the merged entity must have a Debt to Total Market
Capitalization ratio, expressed as a percentage, of not greater than 30%. Based
on the current Debt levels of OneComm and Nextel, the number of shares of Nextel
common stock that are expected to be outstanding upon consummation of the Merger
and the recent trading price of Nextel's common stock, the Debt to Total Market
Capitalization ratio of the merged entity would exceed the permitted 30% level.
Under such circumstances, the Merger could not be consummated without causing a
Default under each of the Bond Indentures, unless the consent of the holders
F-72
<PAGE> 237
ONECOMM CORPORATION AND SUBSIDIARIES
(FORMERLY CENCALL COMMUNICATIONS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1994 AND 1993
(2) MERGER AGREEMENT (CONTINUED)
of a majority of the outstanding principal amount of the bonds issued under each
of the Bond Indentures is obtained.
OneComm and Nextel are considering various actions which, if taken, would
permit the Merger to be consummated under the provisions of the Bond Indentures.
Such actions may include actions which would have the effect of reducing the
Debt to Total Market Capitalization ratio that would result from the Merger
(such as reducing the outstanding Debt of Nextel and/or OneComm and transactions
that result in an increase in the number of shares of Nextel common stock
outstanding), and the possible solicitation of consents to modify or waive the
requirements of the applicable provisions of the Bond Indentures, in accordance
with the terms of the Bond Indentures. These or other actions, if any, may be
taken separately or in combination, as deemed appropriate by the respective
Boards of Directors of OneComm and Nextel. OneComm and Nextel have asked their
respective financial advisors to consider and advise them with respect to these
various actions. At this time, no assurances can be given that either the
requisite Debt to Total Market Capitalization ratio can be achieved or, if it is
not achieved, that the necessary consents of the bond holders under the Bond
Indentures could be obtained.
On October 22, 1993, OneComm announced that it had signed an agreement in
principle with Motorola to purchase Motorola's 800MHz SMR business, systems and
licenses in a number of states in OneComm's Operating Regions, as well as
certain additional states in exchange for 11.5 million shares of OneComm's
Common Stock (the "Motorola/OneComm Letter Agreement"). Under the terms of the
Motorola/ OneComm Letter Agreement, OneComm would acquire Motorola's SMR assets
in Arizona, Colorado, Idaho, southern Illinois, Iowa, Kansas, Minnesota,
Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, Oregon, South
Dakota, Washington and Wyoming. However, pursuant to the Nextel/Motorola
Agreement subsequently announced by Motorola and Nextel, Motorola has agreed to
transfer Motorola's SMR assets in these markets to Nextel, contingent upon the
prior consummation of the Merger. There is, at present, no intention to enter
into a definitive agreement between OneComm and Motorola with respect to the
transactions contemplated by the Motorola/OneComm Letter Agreement. If the
Merger is not consummated, Motorola and OneComm may pursue further negotiation
of a definitive agreement regarding the proposed acquisition of Motorola's SMR
assets described in the Motorola/OneComm Letter Agreement or, if Motorola so
elects, Motorola may transfer its SMR assets in OneComm's operating regions to
Nextel pursuant to the Nextel/Motorola Agreement.
(3) MERGER COSTS
In connection with the Merger Agreement, the Company incurred approximately
$3.8 million in professional fees, primarily investment banking fees, during
1994. In addition, the Company expensed approximately $900,000, which was
previously recorded as deposits for business combinations. Such amounts were
related to the OneComm/Nextel Letter Agreement and the Motorola/OneComm Letter
Agreement.
(4) LONG-TERM DEBT
In 1993, in connection with the acquisition of an SMR system, OneComm, N.A.
issued a promissory note (the "Promissory Note") in the amount of $6,500,000,
due to the seller of the SMR system. The note bears interest at 7.5%, payable
quarterly.
On January 13, 1994, the Company issued $409,876,000 of its Senior
Redeemable Discount Notes (the "Notes") due in January 2004 pursuant to the
Indenture. The net proceeds to the Company were approximately $240,000,000. Cash
interest will not accrue on the Notes prior to January 15, 1999.
F-73
<PAGE> 238
ONECOMM CORPORATION AND SUBSIDIARIES
(FORMERLY CENCALL COMMUNICATIONS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1994 AND 1993
(4) LONG-TERM DEBT (CONTINUED)
Commencing July 15, 1999, cash interest on The Notes will be payable
semi-annually at a rate of 10.125% per annum. The Notes are general, unsecured
obligations of the Company. The Company's subsidiaries are not directly
obligated under the Notes. The Notes are stated net of unamortized discount of
approximately $134,884,000 at December 31, 1994.
Long term debt is summarized as follows:
<TABLE>
<S> <C>
Notes................................................................. $ 409,876,000
Unamortized discount.................................................. (134,883,964)
-------------
274,992,036
Promissory note....................................................... 5,250,000
-------------
Total............................................................... 280,242,036
Less current portion.................................................. (1,250,000)
-------------
$ 278,992,036
=============
</TABLE>
Future principal payments under the Promissory Note and the Notes for years
after December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995.................................................................. $ 1,250,000
1996.................................................................. 1,000,000
1997.................................................................. 1,000,000
1998.................................................................. 1,000,000
1999.................................................................. 1,000,000
Thereafter............................................................ 274,992,036
-------------
$ 280,242,036
=============
</TABLE>
Financial Accounting Standards No. 107, Disclosures about Fair Value of
Financial Instruments, requires that OneComm disclose estimated fair values for
its financial instruments. As of December 31, 1994, the estimated fair value of
the Notes was approximately $147,043,000. This value is based on quoted market
values as of December 31, 1994.
During 1993, OneComm, N.A. entered into an agreement with The Chase
Manhattan Bank, National Association ("Chase") to provide up to $125 million in
financing for capital expenditures and working capital requirements related to
the build-out of the Company's Digital Mobile networks (the "Chase Facility").
The commitment was amended on January 13, 1994 to provide up to $115 million.
The Chase Facility is secured by substantially all of the assets of OneComm,
N.A., a pledge of all of the outstanding stock of OneComm, N.A. and a guarantee
by OneComm. At December 31, 1994, there were no borrowings outstanding under the
Chase Facility. Borrowings under the Chase Facility are conditioned upon, among
other things, achieving certain subscriber levels and attaining certain levels
of contributed equity. The Company does not anticipate that OneComm, N.A. will
have met these requirements or be eligible to borrow funds under the Chase
Facility prior to 1996. Under the Chase Facility, Chase requires that the
Company continue to own 100% of the outstanding stock of OneComm, N.A.
Accordingly, the Merger with Nextel, which will result in Nextel owning all of
the stock of OneComm, N.A. may permit Chase to terminate its commitment to
provide financing under the Chase Facility.
F-74
<PAGE> 239
ONECOMM CORPORATION AND SUBSIDIARIES
(FORMERLY CENCALL COMMUNICATIONS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1994 AND 1993
(4) LONG-TERM DEBT (CONTINUED)
The terms and conditions of both the Indenture and Chase Facility include
several covenants, including those whereby the Company agrees to the maintenance
of certain levels of operating cash flow, debt service coverage ratios and
operating ratios, and limitations on other indebtedness. Additionally, the Chase
Facility prohibits dividends or other cash distributions from OneComm, N.A. to
OneComm prior to March 31, 1999, and after such date OneComm N.A. may only pay
dividends and make such distributions to OneComm in certain limited
circumstances. In addition to the foregoing customary events of default, an
event of default will occur if Motorola defaults in any material respect in the
performance of any of its obligations under agreements with the Company to
provide infrastructure equipment, installation services and subscriber units for
its Digital Mobile networks.
(5) STOCKHOLDERS' EQUITY
(A) INITIAL PUBLIC OFFERING AND STOCK SPLIT
On August 17, 1993, the Company issued 5,462,500 shares of its common stock
for proceeds of approximately $94.8 million in an initial public offering. In
connection with the initial public offering, the Company converted all of its
issued and outstanding preferred stock to common stock and concurrently effected
a 25.5:1 split of its common stock. All share and per share amounts included in
the accompanying consolidated financial statements have been restated to reflect
the stock split as if it had occurred at the beginning of the earliest period
presented.
(B) COMMON STOCK AND PREFERRED STOCK
The Company's Amended and Restated Certificate of Incorporation authorizes
the issuance of up to 40,000,000 shares of $0.001 par value common stock and up
to 1,000,000 shares of $0.001 par value preferred stock. The preferred stock can
be issued in one or more series, each with different rights or designations as
set forth in the Amended and Restated Certificate of Incorporation. Only common
stock is outstanding at December 31, 1994.
(C) REDEEMABLE PREFERRED STOCK
Until it was amended and restated in August 1993 in connection with the
Company's IPO, the Company's Certificate of Incorporation authorized the
issuance of up to 517,034 shares of $0.001 par value preferred stock, designated
as follows: 56,875 shares of Series A preferred stock, 25,000 shares of Series B
preferred stock, 192,544 shares of Series C preferred stock, 72,615 shares of
Series D preferred stock and 170,000 shares of Series E preferred stock. These
shares could be issued in one or more series, each with different rights or
designations as determined by the Board of Directors.
On August 17, 1993, all outstanding preferred shares in the amount of
$37,831,041 were converted into common stock in connection with the consummation
of the Company's IPO.
(D) INCENTIVE STOCK OPTION PLAN
The Company sponsors an Incentive Stock Option Plan (the "Plan") whereby,
at the discretion of the Board of Directors (the "Board"), the Company may grant
stock options to employees of and consultants to the Company. The Plan further
provides for the automatic grant of options to each person who is elected a
non-employee director of the Company on or after the date the stockholders
approved the Plan. The option price is determined by the Board at the time the
option is granted, but in no event is it less than the fair market
F-75
<PAGE> 240
ONECOMM CORPORATION AND SUBSIDIARIES
(FORMERLY CENCALL COMMUNICATIONS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1994 AND 1993
(5) STOCKHOLDERS' EQUITY (CONTINUED)
value of the Company's common stock at the date of grant, as determined by the
Board. The options expire between five and seven years from the date of grant.
As of December 31, 1994, 257,497 options, granted pursuant to the Plan, have
been exercised since the Plan's inception.
The following table summarizes Plan option activity:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
--------- --------- -------
<S> <C> <C> <C>
Options outstanding at beginning of period......... 1,041,103 569,441 138,389
Options granted at $21.75 to $26.00 per share...... 746,093 -- --
Options granted at $3.92 to $19.00 per share....... 40,570 473,662 --
Options granted at $3.04 per share................. -- -- 431,052
Options exercised during the period................ (255,497) (2,000) --
--------- --------- -------
Options outstanding at end of period............... 1,572,269 1,041,103 569,441
========= ========= =======
</TABLE>
As of December 31, 1994, 205,673 options had vested and were exercisable at
exercise prices ranging from $.78 to $26.00 per share. Additionally, options
have been granted to certain outside directors of the Company entitling the
holders to purchase 15,300 shares of the Company's common stock at an exercise
price of $1.57 per share, and 28,000 shares of the Company's common stock at an
exercise price of $21.75 per share. Pursuant to the SRMW Transaction described
in Note 1, the Company granted an option to acquire shares of OneComm common
stock to an officer and director of SRMW entitling the holder to purchase
34,762.6 shares of the Company's common stock at an exercise price of $13.70 per
share.
(E) WARRANTS TO PURCHASE COMMON STOCK
In connection with the commitment to provide financing under the Chase
Facility, the lenders under the Chase Facility received warrants to purchase up
to 490,170 shares of the Company's common stock and Motorola received warrants
to purchase up to 5,000 shares of the Company's common stock, exercisable at
$19.00 per share. Certain other warrants to purchase up to 38,522 shares at
$3.04 per share were also outstanding as of December 31, 1994.
(6) BUSINESS COMBINATIONS
During 1994 and 1993, the Company acquired or commenced the acquisition of
certain of the net assets of several SMR companies for cash, preferred stock,
common stock and debt. All of the acquisitions were accounted for using the
purchase method of accounting and the results of operations of the acquired
F-76
<PAGE> 241
ONECOMM CORPORATION AND SUBSIDIARIES
(FORMERLY CENCALL COMMUNICATIONS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1994 AND 1993
(6) BUSINESS COMBINATIONS (CONTINUED)
businesses have been included in the Company's consolidated statements of
operations from the date of acquisition. Summary information regarding the
acquisitions is as follows:
1994
<TABLE>
<CAPTION>
ACQUISITION APPROXIMATE TOTAL
BUSINESS ASSETS ACQUIRED DATE ACQUISITION COST
------------------------------------------------- ----------------- -----------------
<S> <C> <C>
St. Louis Specialized Mobile Radio (A division of
St. Louis Electronics, Inc.)................... January 28, 1994 $16,320,000
A & E Electronics Corp........................... January 28, 1994 4,410,000
Tangible and intangible assets owned by Richard
A. Matheis and Sandra L. Matheis............... January 28, 1994 4,481,000
Airtime Rentals, Inc............................. February 1, 1994 3,086,000
Do-All Electronics, Inc.......................... December 6, 1994 6,800,000
Others........................................... Various 12,835,000
-----------
$47,932,000
===========
</TABLE>
Other acquisitions represent numerous transactions, none of which exceed $2
million in approximate total acquisition cost.
The 1994 aggregate price was allocated based upon fair values as follows:
<TABLE>
<S> <C>
Federal Communications Commission licenses........................... $ 38,401,000
Covenants not to compete............................................. 5,483,000
Property and equipment............................................... 4,048,000
------------
$ 47,932,000
============
</TABLE>
1993
<TABLE>
<CAPTION>
ACQUISITION APPROXIMATE TOTAL
BUSINESS ASSETS ACQUIRED DATE ACQUISITION COST
-------------------------------------------------- --------------- -----------------
<S> <C> <C>
Specialized Mobile Radio (A division of
SMR Network, Inc.).............................. April 19, 1993 $17,236,000
Enid-2-Way Communications, Inc. and Affiliates.... May 7, 1993 2,145,000
Rydax 2-Way (A Division of Colorado Carphone
Corporation).................................... May 28, 1993 2,127,000
CLC Specialized Mobile Radio (A division of
CLC Communications, Inc.)....................... June 10, 1993 10,128,000
Others............................................ Various 7,681,000
-----------
$39,317,000
===========
</TABLE>
Other acquisitions represent numerous transactions, none of which exceed $2
million in approximate total acquisition cost.
F-77
<PAGE> 242
ONECOMM CORPORATION AND SUBSIDIARIES
(FORMERLY CENCALL COMMUNICATIONS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1994 AND 1993
(6) BUSINESS COMBINATIONS (CONTINUED)
The 1993 aggregate price was allocated based upon fair values as follows:
<TABLE>
<S> <C>
Federal Communications Commission licenses........................... $26,582,000
Covenants not to compete............................................. 6,759,000
Property and equipment............................................... 5,976,000
-----------
$39,317,000
===========
</TABLE>
Pro forma information for the years ended December 31, 1994 and 1993 is not
presented as the pro forma results are not significantly different from the
Company's historical operations.
Deposits for business combinations in progress represent cash payments to
sellers for SMR system acquisitions which have not been consummated as of the
balance sheet date. Acquisition costs payable represent payments, both in cash
and stock, due to sellers upon final closing. Amounts representing stock
payments have been recorded at fair market value at the date the liability
becomes due and, therefore, may be adjusted when the stock is delivered at final
closing. The approximate total acquisition cost for each acquisition includes
all initial deposits and payments, final acquisition payments, and the Company's
costs and expenses incurred in connection with the particular acquisition.
(7) INCOME TAXES
As of December 31, 1994, the Company had net operating loss carryforwards
for income tax purposes of approximately $90,000,000 which, if not utilized to
reduce taxable income in future periods, expire at various dates through the
year 2009. Approximately $6,000,000 of these net operating loss carryforwards
are subject to Section 382 of the Internal Revenue Code which places limitations
on their annual usage.
The tax effect of significant temporary differences that result in deferred
tax assets as of December 31, 1994 are as follows:
<TABLE>
<CAPTION>
1994 1993
------------ -----------
<S> <C> <C>
Accounts receivable, primarily due to differences in
accounting for bad debts............................... $ 110,000 $ 41,000
Property and equipment, primarily due to differences in
depreciation........................................... 394,000 344,000
Intangible assets, primarily due to differences in
amortization........................................... (671,000) 109,000
Provision for inventory valuation........................ 1,977,000 --
Net operating loss carryforwards......................... 35,138,000 4,144,000
------------ -----------
Total net deferred tax assets.................. 36,948,000 4,638,000
Less valuation allowance................................. (36,948,000) (4,638,000)
------------ -----------
Net deferred tax assets........................ $ -- $ --
============ ===========
</TABLE>
(8) COMMITMENTS
The Company leases its network tower sites and office facilities under
operating leases. The total annual commitment for network site leases is
approximately $5,089,000 at December 31, 1994. In the normal course of business,
it is expected that network tower site leases that expire will be replaced by
other leases. Accordingly, tower site rent expense subsequent to December 31,
1994 is not expected to decrease.
F-78
<PAGE> 243
ONECOMM CORPORATION AND SUBSIDIARIES
(FORMERLY CENCALL COMMUNICATIONS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1994 AND 1993
(8) COMMITMENTS (CONTINUED)
Future minimum office lease payments under noncancelable operating leases
are as follows:
<TABLE>
<S> <C>
Year Ending December 31:
1995........................................................... $3,860,000
1996........................................................... 3,648,000
1997........................................................... 3,465,000
1998........................................................... 3,245,000
1999........................................................... 3,293,000
</TABLE>
Total rent expense for the years ended December 31, 1994, 1993, and 1992
was approximately $2,920,000, $1,399,000, and $252,000, respectively.
(9) SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental information and significant non-cash financing and investing
activities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1994 1993 1992
----------- ----------- ----------
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow
Information:
Cash paid for interest..................... $ 1,061,831 $ 721,666 $ 385,064
=========== =========== ==========
Supplemental Schedule of Non-Cash Financing
and Investing Activities:
Stock issued to acquire assets in business
combinations............................ $11,907,916 -- --
=========== =========== ==========
Liabilities incurred to acquire equipment
and inventory........................... $46,202,172 $10,733,450 --
=========== =========== ==========
Liabilities incurred to acquire assets in
business combinations................... $15,445,825 $ 1,635,000 --
=========== =========== ==========
Liabilities incurred to acquire intangible
assets.................................. $ 7,154,400 -- --
=========== =========== ==========
Conversion of notes payable and accrued
interest to redeemable preferred
stock................................... -- -- $1,285,630
=========== =========== ==========
</TABLE>
F-79
<PAGE> 244
ONECOMM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 98,581,782 $119,348,050
Short-term investments................................................. -- 15,351,928
Inventory, net of valuation allowance of $5,070,335.................... 8,760,933 10,490,905
Accounts receivable, net of allowance for doubtful accounts of $380,471
and $284,640, in 1995 and 1994, respectively......................... 3,062,877 2,243,564
Prepaid expenses and other assets...................................... 1,869,467 2,143,755
------------- ------------
Total current assets............................................ 112,275,059 149,578,202
Property and equipment:
Land................................................................... 117,941 117,941
Buildings and leasehold improvements................................... 5,446,066 4,787,337
Equipment.............................................................. 188,015,504 175,101,540
Furniture and fixtures................................................. 4,414,631 3,891,805
------------- ------------
197,994,142 183,898,623
Less accumulated depreciation.......................................... (18,488,101) (12,535,840)
------------- ------------
Net property and equipment...................................... 179,506,041 171,362,783
Intangible assets:
Federal Communications Commission licenses............................. 97,194,271 94,585,121
Covenants not to compete............................................... 13,832,000 13,762,000
Debt issuance costs.................................................... 13,682,982 13,928,214
Organization costs and other........................................... 621,059 621,059
------------- ------------
125,330,312 122,896,394
Less accumulated amortization.......................................... (11,712,187) (9,802,368)
------------- ------------
Net intangible assets........................................... 113,618,125 113,094,026
Deposits for business combinations in progress........................... 4,251,032 5,358,923
Prepaid warranty costs................................................... 4,388,984 12,005,006
Other assets............................................................. 1,009,753 1,264,025
------------- ------------
$ 415,048,994 $452,662,965
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $ 58,238,017 $ 71,974,911
Cash overdraft......................................................... -- 4,969,272
Acquisition costs payable.............................................. 19,806,324 24,235,225
Other accrued liabilities.............................................. 15,309,026 7,845,096
Deferred revenue....................................................... 808,874 833,434
Current portion of long-term debt...................................... 1,000,000 1,250,000
------------- ------------
Total current liabilities....................................... 95,162,241 111,107,938
Long-term debt, net of discount, less current portion.................... 284,933,042 278,992,036
------------- ------------
Total liabilities............................................... 380,095,283 390,099,974
Non-consolidated interests in Spectrum Resources of the Midwest, Inc..... 2,437,986 2,513,852
Stockholders' equity:
Preferred stock, nonvoting, $.001 par value
Authorized 1,000,000 shares; none issued............................. -- --
Common stock, voting, $.001 par value
Authorized 40,000,000 shares; issued and outstanding 18,298,128 and
18,184,759 at March 31, 1995 and December 31, 1994, respectively..... 18,298 18,185
Additional paid-in capital............................................. 154,304,180 154,169,654
Accumulated deficit.................................................... (121,806,753) (94,138,700)
------------- ------------
Total stockholders' equity...................................... 32,515,725 60,049,139
------------- ------------
$ 415,048,994 $452,662,965
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-80
<PAGE> 245
ONECOMM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Revenue:
Network........................................................ $ 2,734,891 $ 2,521,911
Equipment sales................................................ 1,563,915 226,616
Maintenance, installation and other............................ 608,132 415,192
------------ -----------
4,906,938 3,163,719
Operating costs and expenses:
Network........................................................ 6,827,623 894,668
Equipment...................................................... 1,969,691 548,164
Maintenance, installation and other............................ 349,403 252,392
------------ -----------
9,146,717 1,695,224
------------ -----------
Gross profit (loss).................................... (4,239,779) 1,468,495
Selling, general and administrative expenses..................... 9,695,252 3,834,324
Corporate expenses............................................... 814,206 1,598,121
Depreciation and amortization of property and equipment.......... 6,326,626 663,582
Amortization of intangible assets................................ 1,909,819 959,657
------------ -----------
18,745,903 7,055,684
------------ -----------
Operating loss......................................... (22,985,682) (5,587,189)
Other expense (income):
Interest expense............................................... 5,586,335 5,762,284
Interest income................................................ (1,638,655) (1,871,468)
Merger costs................................................... 906,989 --
Other.......................................................... (172,298) (198,661)
------------ -----------
4,682,371 3,692,155
------------ -----------
Net loss............................................... (27,668,053) (9,279,344)
============ ===========
Weighted average common shares outstanding....................... 18,277,253 17,439,708
============ ===========
Net loss per common share........................................ $ (1.51) $ (0.53)
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-81
<PAGE> 246
ONECOMM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1994 AND THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
---------- ------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1994....... 17,164,201 $17,164 $133,246,762 $ (12,400,062) $ 120,863,864
Issuance of common stock in
business combinations........... 399,930 400 11,907,516 -- 11,907,916
Issuance of common stock and
option for investment in
subsidiary...................... 365,131 365 8,192,250 -- 8,192,615
Issuance of common stock for
options exercised............... 255,497 256 823,126 -- 823,382
Net loss.......................... -- -- -- (81,738,638) (81,738,638)
---------- ------- ------------ ------------- -------------
Balances at December 31, 1994..... 18,184,759 $18,185 $154,169,654 $ (94,138,700) $ 60,049,139
Issuance of common stock for
options and warrants
exercised....................... 113,369 113 134,526 -- 134,639
Net loss.......................... -- -- -- (27,668,053) (27,668,053)
---------- ------- ------------ ------------- -------------
Balances at March 31, 1995........ 18,298,128 $18,298 $154,304,180 $(121,806,753) $ 32,515,725
========== ======= ============ ============= =============
</TABLE>
See accompanying notes to consolidated financial statements
F-82
<PAGE> 247
ONECOMM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(27,668,053) $ (9,279,344)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization............................ 8,236,445 1,623,239
Non-cash interest expense, net........................... 5,321,114 5,469,358
Accrued interest receivable included in short-term
investments............................................ -- (1,381,698)
Net decrease (increase) in operating assets.............. 1,184,947 (766,759)
Net increase (decrease) in operating liabilities......... (1,528,398) 575,672
Other.................................................... 451,488 --
------------ -------------
Net cash used by operating activities............... (14,002,457) (3,759,532)
Cash flows from investing activities:
Acquisitions of net assets in business combinations...... -- (11,518,199)
Additions of property and equipment...................... (14,459,847) (13,445,698)
Additions to intangible and other assets................. (1,467,602) (475,217)
Deposits on business combinations in progress............ (103,657) (1,363,102)
Purchase of short-term investments....................... -- (447,054,485)
Maturities of short-term investments..................... 15,351,928 240,713,539
------------ -------------
Net cash used by investing activities............... (679,178) (233,143,162)
Cash flows from financing activities:
Decrease in cash overdraft............................... (4,969,272) --
Proceeds from notes payable and long-term debt........... -- 249,999,763
Repayments of notes payable and long-term debt........... (1,250,000) (1,250,000)
Debt issuance costs...................................... -- (9,184,724)
Non-consolidated interests' purchase of stock in
subsidiary............................................. -- 3,770,000
Proceeds from issuance of common and preferred stock,
net.................................................... 134,639 --
Other.................................................... -- (204,841)
------------ -------------
Net cash provided (used) by financing activities.... (6,084,633) 243,130,198
Net increase (decrease) in cash and cash equivalents........ (20,766,268) 6,227,504
Cash and cash equivalents at beginning of period............ $119,348,050 $ 18,318,824
------------ -------------
Cash and cash equivalents at end of period.................. $ 98,581,782 $ 24,546,328
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-83
<PAGE> 248
ONECOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND DECEMBER 31, 1994 AND THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(1) BASIS OF PRESENTATION
The consolidated balance sheet as of March 31, 1995, the consolidated
statements of operations for the three-month periods ended March 31, 1995 and
March 31, 1994, the consolidated statement of stockholders' equity for the
three-month period ended March 31, 1995, and the consolidated statements of cash
flows for the three-month periods ended March 31, 1995 and 1994 have been
prepared by the Company without audit. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the financial position, results of operations and cash flows as
of March 31, 1995 and for the periods ended March 31, 1995 and March 31, 1994
have been included.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's Form 10-K, as amended. The results of
operations for interim periods presented are not necessarily indicative of the
operating results for an entire year.
Certain prior year amounts have been reclassified to conform to the 1995
presentation.
(2) MERGER AGREEMENT
On July 13, 1994, the Company signed a definitive agreement (as amended,
the "Merger Agreement") to effect a tax-free merger (the "Merger") of the
Company with and into Nextel Communications, Inc. ("Nextel"). Nextel will be the
surviving corporation of the Merger. Like the Company, Nextel provides Digital
Mobile and Specialized Mobile Radio ("SMR") services to customers within its
service areas. The Merger Agreement supersedes the previously publicly announced
non-binding letter of understanding, executed October 18, 1993, between OneComm
and Nextel, concerning Nextel's proposed transfer of certain SMR assets to
OneComm in exchange for shares of OneComm common stock. In connection with the
Merger Agreement the Company accrued approximately $900,000 in additional
professional fees, primarily investment banking related, in the first quarter of
1995.
Pursuant to the Merger Agreement, each fully diluted share of OneComm's
common stock, par value $0.001 per share (the "Common Stock"), will be converted
into the right to receive approximately 1.067 shares of Class A common stock of
Nextel, par value $0.001 per share, assuming 21,143,730 shares of OneComm common
stock are outstanding, on a fully diluted basis, at the closing of the Merger.
Based on that assumption, Nextel will issue 22,550,000 shares of its Class A
common stock and stock equivalents in exchange for the outstanding stock and
stock equivalents of OneComm upon consummation of the Merger. On January 10,
1995, OneComm and Nextel entered into a first amendment to the Merger Agreement,
providing that Nextel, at its discretion, may elect whether to make a cash
payment in lieu of any fractional share interests to which OneComm stockholders
otherwise would be entitled under the terms of the Merger Agreement or to
deliver, in lieu thereof, a whole number of shares of Nextel common stock
determined by rounding up to the nearest whole share.
Closing of the Merger is subject to a number of significant conditions,
including, among others, the receipt of approval from the Federal Communications
Commission (the "FCC") of the transfer of control of certain SMR licenses to
Nextel, the filing of certain information with the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the Federal Trade
Commission pursuant to the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976
(the "HSR Act") and the expiration or termination of all applicable waiting
periods thereunder. The required waiting period under the HSR Act was terminated
by the Antitrust Division on August 12, 1994. The FCC granted the necessary
approval of the transfer of control of the Company's constructed SMR licenses to
Nextel, and requested additional information regarding
F-84
<PAGE> 249
ONECOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) MERGER AGREEMENT (CONTINUED)
OneComm's unconstructed licenses on February 17, 1995. OneComm submitted the
required showing relating to its unconstructed licenses on March 20, 1995. On
that same day, a petition for reconsideration of the FCC's grant of authority
regarding the transfer of control applications was filed with the FCC. In the
petition, the parties challenging the grant of the applications stated their
intention to challenge the sufficiency of the showing as well. Such challenge
was filed on April 7, 1995 and OneComm filed its opposition to the petition for
reconsideration and the challenge on April 17, 1995. To date, the FCC has not
ruled on the OneComm showing or the petition for reconsideration.
Further, the Merger is contingent on approval by the stockholders of each
of the Company and Nextel, compliance with certain provisions of each of
OneComm's public bond Indenture, dated as of January 13, 1994 (the "Indenture")
and Nextel's public bond Indentures, dated as of August 15, 1993 and February
15, 1994, respectively (collectively the "Nextel Indentures", and together with
the Indenture, the "Bond Indentures")(or, in lieu of such compliance, receipt of
the necessary consent of holders of the outstanding bonds under each of the Bond
Indentures), and the satisfaction of certain other conditions. There can be no
assurance as to whether or when the additional conditions to consummation of the
Merger will be satisfied. Currently, it is anticipated that the final closing of
the Merger will take place near the end of the second quarter of 1995, provided
that all of the closing conditions have been satisfied. The Merger Agreement
provides that, if the Merger has not closed by June 30, 1995, either party may
terminate the Merger Agreement.
On October 22, 1993, OneComm announced that it had signed an agreement in
principle with Motorola, Inc. ("Motorola") to purchase Motorola's 800 MHz SMR
business, systems and licenses in a number of states in OneComm's operating
regions, as well as certain additional states in exchange for 11.5 million
shares of OneComm's common stock (the "Motorola/OneComm Letter Agreement").
Under the terms of the Motorola/OneComm Letter Agreement, OneComm would acquire
Motorola's SMR assets in Arizona, Colorado, Idaho, southern Illinois, Iowa,
Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota,
Oklahoma, Oregon, South Dakota, Washington and Wyoming. However, pursuant to the
terms of an agreement subsequently entered into between Motorola and Nextel (the
"Nextel/Motorola Agreement"), Motorola has agreed to transfer Motorola's SMR
assets in these markets to Nextel, contingent upon the prior consummation of the
Merger. There is at present, no intention to enter into a definitive agreement
between OneComm and Motorola with respect to the transactions contemplated by
the Motorola/OneComm Letter Agreement. If the Merger is not consummated,
Motorola and OneComm may pursue further negotiation of a definitive agreement
regarding the proposed acquisition of Motorola's SMR assets described in the
Motorola/OneComm Letter Agreement or, if Motorola so elects, Motorola may
transfer its SMR assets in OneComm's operating regions to Nextel pursuant to the
Nextel/Motorola Agreement.
(3) BUSINESS ACQUISITIONS
During 1994, the Company acquired or commenced the acquisition of certain
of the net assets of several SMR companies. All of the acquisitions were
accounted for using the purchase method of accounting and the results of
operations of the acquired businesses have been included in the Company's
consolidated statements of operations from the date of acquisition. The Company
did not acquire or commence to acquire significant assets during the first three
months of 1995. Pro forma information for the three months ended March 31, 1995
and 1994 is not presented as the pro forma results are not significantly
different from the Company's historical operations.
Deposits for business combinations in progress represent cash payments to
sellers for SMR system acquisitions which have not consummated as of the balance
sheet date. Acquisition costs payable represent payments, both in cash and
stock, due to sellers upon final closing. Amounts representing stock payments
have been recorded at fair market value at the date the liability becomes due
and, therefore, may be adjusted when
F-85
<PAGE> 250
ONECOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) BUSINESS ACQUISITIONS (CONTINUED)
the stock is delivered at final closing. The approximate total acquisition cost
for each acquisition includes all initial deposits and payments, final
acquisition payments, and the Company's costs and expenses incurred in
connection with the particular acquisition.
(4) INVESTMENT IN SPECTRUM RESOURCES OF THE MIDWEST, INC.
During 1994, the Company issued shares of common stock and an option to
acquire shares of common stock of OneComm to certain holders of Spectrum
Resources of the Midwest, Inc. ("SRMW") stock and the holder of an option to
acquire shares of SRMW stock in exchange for their shares of SRMW stock and such
option in a transaction that increased the Company's ownership of SRMW to
approximately 80%. Additionally, the Company granted an option to acquire shares
of OneComm common stock to an officer and director of SRMW entitling the holder
to purchase 34,763 shares of the Company's common stock at an exercise price of
$13.70 per share. The Company provides management services to SRMW under the
terms and conditions of a management agreement.
Also during 1994, the Company entered into an agreement evidencing the
Company's exercise of its option to purchase 34,200 shares of the outstanding
common stock of SRMW from the holders thereof for a total purchase price of $3.0
million. Due to restrictions under the OneComm Indenture limiting OneComm's
ability to make cash investments in stock, the Company assigned its rights to
acquire the 34,200 shares of common stock of SRMW, representing approximately 20
percent of SRMW's outstanding capital stock, to Nextel, and Nextel consummated
that purchase on August 31, 1994. The Company has the option to purchase, and
Nextel has the right to require the Company to purchase, such shares of SRMW
common stock from Nextel if the Merger is not consummated.
(5) LONG-TERM DEBT
During 1994, the Company issued $409,876,000 of its Senior Redeemable
Discount Notes (the "Notes") due in January 2004 pursuant to the Indenture. The
net proceeds to the Company were approximately $240,000,000. Cash interest will
not accrue on the Notes prior to January 15, 1999. Commencing July 15, 1999,
cash interest on the Notes will be payable semi-annually at a rate of 10.125%
per annum. The Notes are general, unsecured obligations of the Company. The
Company's subsidiaries are not directly obligated under the Notes.
Long-term debt is summarized as follows:
<TABLE>
<S> <C>
Notes......................................................... $ 409,876,000
Unamortized discount.......................................... (127,942,958)
Promissory note............................................... 4,000,000
-------------
Total............................................... 285,933,042
Less current portion.......................................... 1,000,000
-------------
$ 284,933,042
=============
</TABLE>
Future principal payments are as follows:
<TABLE>
<S> <C>
1996.......................................................... $ 1,000,000
1997.......................................................... 1,000,000
1998.......................................................... 1,000,000
1999.......................................................... 1,000,000
2000.......................................................... --
Thereafter.................................................... 281,933,042
-------------
$ 285,933,042
=============
</TABLE>
F-86
<PAGE> 251
ONECOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCENTIVE STOCK OPTION PLAN
The Company sponsors an Incentive Stock Option Plan (the "Plan") whereby,
at the discretion of the Board of Directors (the "Board"), the Company may grant
stock options to employees of and consultants to the Company. The Plan further
provides for the automatic grant of options to each person who is elected a
non-employee director of the Company on or after the date the stockholders
approved the Plan. The option price is determined by the Board at the time the
option is granted, but in no event is less than the fair market value of the
Company's common stock at the date of grant, as determined by the Board.
In January 1995, the Compensation Committee met to vote on a possible
one-time repricing of all outstanding stock options previously granted to
employees pursuant to the Company's Stock Options Plan at an exercise price
greater than $15.00 per share to an exercise price of $15.00 per share. At such
meeting, the Committee discussed the fact that the decline in the market price
of the Company's Common Stock to its level at the end of January 1995 of below
$10.00 per share had moved a very large percentage of the Company's employees'
options $10.00 to $20.00 out-of-the-money and thereby eliminated a critical
component of the Company's employee incentive and retention capability. The
Committee also discussed the recent departures of employees and the active
recruitment efforts of competing and emerging wireless companies, and concluded
that, as a result, the Company could face potential significant employee losses.
Based on the foregoing, the Committee voted to offer all current employees the
opportunity to elect to amend their existing Incentive Stock Option Agreements
to reprice any Incentive Stock Options previously granted at an exercise price
greater than $15.00 per share, to a reduced exercise price of $15.00 per share,
an amount in excess of the fair market value of the Company's Common Stock on
the date of the repricing. In the case of employees who had certain accelerated
vesting privileges, the Committee required such employees to waive their
respective rights to accelerated vesting of repriced options as a condition of
the repricing.
The options expire between five and seven years from the date of grant. As
of March 31, 1995, 370,265 options, granted pursuant to the plan, have been
exercised since the plan's inception.
The following table summarizes Plan option activity:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1995
------------------
<S> <C>
Options outstanding at December 31, 1994................... 1,572,269
Options granted at $14.50 per share........................ 30,225
Options exercised during 1995.............................. (112,768)
Options canceled during 1995............................... (113,113)
---------
Options outstanding at March 31, 1995...................... 1,376,613
=========
</TABLE>
Additionally, options have been granted to certain outside directors of the
Company entitling the holders to purchase 15,300 shares of the Company's common
stock at an exercise price of $1.57 per share and 20,000 shares of the Company's
common stock at an exercise price of $21.75 per share. As of March 31, 1995,
232,834 options had vested and were exercisable at exercise prices from $1.57 to
$19.00 per share.
F-87
<PAGE> 252
ONECOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental information and significant non-cash financing and investing
activities are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
MARCH 31, 1995 MARCH 31, 1994
-------------- --------------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest................................ $ 265,221 $ 265,873
========== ===========
Supplemental Schedule of Non-Cash Financing and
Investing Activities:
Stock issued to acquire assets in business
combinations....................................... -- $11,907,916
===========
Liabilities incurred to acquire equipment............. $1,855,087 --
==========
</TABLE>
(8) SUBSEQUENT EVENT -- BUSINESS COMBINATION
On April 11, 1994, OneComm signed definitive agreements with Advanced
MobilComm, Inc., ("AMI"), two of AMI's wholly owned subsidiaries (collectively
with AMI "AMI-Midwest") and AMI's partner in certain SMR ventures, Radio
Communications Company ("RCC"), to acquire by purchase or merger the 800 MHz SMR
business, systems and licenses of AMI-Midwest and RCC in exchange for
approximately 452,500 shares of OneComm Common Stock (the "AMI Transactions").
Such SMR systems and assets are located in Minnesota and Wisconsin. The
transactions with AMI-Midwest and RCC were consummated on April 21, 1995.
F-88
<PAGE> 253
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Dial Page, Inc.:
We have audited the accompanying consolidated balance sheets of Dial Page,
Inc. and subsidiaries as of December 31, 1993 and 1994, and the related
consolidated statements of operations, stockholders'/partners' equity (deficit),
and cash flows for each of the years in the three-year period ended December 31,
1994. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dial Page,
Inc. and subsidiaries as of December 31, 1993 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1994 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Greenville, South Carolina
February 17, 1995
F-89
<PAGE> 254
DIAL PAGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1994
-------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 63,967 $ 59,855
Cash in escrow account................................................ 25,000 --
Marketable securities................................................. -- 117,129
Trade accounts receivable, net of allowance for uncollectible accounts
of $259 at December 31, 1994....................................... 57 1,712
Other current assets.................................................. 5 4,051
-------- ---------
Total current assets............................................... 89,029 182,747
-------- ---------
Property and equipment, at cost (note 4)................................ 1,629 98,421
Less accumulated depreciation and amortization........................ (51) (1,180)
-------- ---------
Property and equipment, net........................................... 1,578 97,241
-------- ---------
Intangible assets, net of accumulated amortization of $179 and $87,731
at December 31, 1993 and 1994, respectively (notes 3 and 5)........... 15,634 619,053
Other assets............................................................ 4,525 2,929
-------- ---------
$110,766 $ 901,970
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................... $ 722 $ 16,455
Note payable (note 6)................................................. 2,500 --
Accrued expenses...................................................... 1,340 2,737
Assets and liabilities of discontinued operations, net (note 2)....... 36,433 43,311
-------- ---------
Total current liabilities............................................. 40,995 62,503
-------- ---------
Deferred income taxes (note 8).......................................... -- 126,749
Long-term debt (note 7)................................................. 67,855 394,655
-------- ---------
Total liabilities.................................................. 108,850 583,907
-------- ---------
Stockholders' equity (notes 3, 7, 9, 10, and 12):
Preferred stock, $.01 par value, 20,000,000 shares authorized; none
issued............................................................. -- --
Common stock, $.01 par value, 250,000,000 shares authorized, 8,344,434
and 19,425,291 shares issued and outstanding December 31, 1993 and
1994, respectively................................................. 84 194
Class A nonvoting common stock, $.01 par value, 10,000,000 shares
authorized, 838,141 shares issued and outstanding at December 31,
1993 and 1994...................................................... 8 8
Additional paid-in capital............................................ 12,535 439,915
Accumulated deficit................................................... (10,711) (122,054)
-------- ---------
Total stockholders' equity............................................ 1,916 318,063
Commitments and contingencies (notes 2, 7, 10, and 12)
-------- ---------
$110,766 $ 901,970
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-90
<PAGE> 255
DIAL PAGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1992 1993 1994
------- -------- ---------
<S> <C> <C> <C>
Revenues:
SMR network services......................................... $ -- $ 110 $ 7,532
SMR equipment sales and maintenance.......................... -- 42 6,633
------- -------- ---------
Total revenues............................................ -- 152 14,165
------- -------- ---------
Costs and expenses:
SMR operations, excluding depreciation and amortization...... -- 183 10,424
Cost of SMR equipment sold................................... -- 33 3,055
Sales and advertising........................................ -- 55 1,859
General and administrative................................... -- 1,484 12,973
Depreciation and amortization................................ -- 230 88,227
------- -------- ---------
Total costs and expenses.................................. -- 1,985 116,538
------- -------- ---------
Operating loss............................................ -- (1,833) (102,373)
Interest expense............................................... -- (45) (31,097)
Interest income................................................ -- 55 9,816
Other expenses, net............................................ -- -- (392)
------- -------- ---------
Loss from continuing operations before income taxes....... -- (1,823) (124,046)
Income tax benefit (note 8).................................... -- -- 19,888
------- -------- ---------
Loss from continuing operations........................... -- (1,823) (104,158)
Loss from discontinued operations (note 2)..................... (9,661) (8,247) (7,185)
------- -------- ---------
Net loss.................................................. $(9,661) $(10,070) $(111,343)
======= ======== =========
Net loss per common share (note 1(b)):
Loss from continuing operations.............................. $ -- $ (0.24) $ (6.32)
Loss from discontinued operations............................ (1.85) (1.06) (0.44)
------- -------- ---------
Net loss per common share................................. $ (1.85) $ (1.30) $ (6.76)
======= ======== =========
Weighted average shares outstanding............................ 5,223 7,769 16,482
======= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-91
<PAGE> 256
DIAL PAGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'/PARTNERS' EQUITY (DEFICIT)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A
NONVOTING
COMMON STOCK COMMON STOCK
------------------ ---------------- ADDITIONAL ACCUMULATED PARTNERS'
SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL DEFICIT DEFICIT TOTAL
--------- ------ ------- ------ --------------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Partners' (deficit) at
December 31, 1991................ -- $-- -- $-- $ -- $ -- $(28,553) $ (28,553)
Net loss for the period from
January 1, 1992 through November
12, 1992......................... -- -- -- -- -- -- (9,020) (9,020)
---------- ---- ------- --- -------- --------- -------- ---------
Partners' (deficit) at
November 12, 1992................ -- -- -- -- -- -- (37,573) (37,573)
Issuance of common shares in
exchange for partnership units
(note 1(b))...................... 4,211,660 42 788,340 8 (37,623) -- 37,573 --
Issuance of common shares in
initial public stock offering,
net of offering costs of $4,134
(note 1(b))...................... 1,770,911 18 -- -- 15,328 -- -- 15,346
Net loss for the period from
November 13, 1992 through
December 31, 1992................ -- -- -- -- -- (641) -- (641)
---------- ---- ------- --- -------- --------- -------- ---------
Stockholders' (deficit) at
December 31, 1992................ 5,982,571 60 788,340 8 (22,295) (641) -- (22,868)
Issuance of common shares and
warrants in private placement
transaction, net of offering
costs of $1.109 (note 9(b))...... 2,154,199 22 49,801 -- 26,695 -- -- 26,717
Issuance of common shares in
business combination (note 3).... 191,664 2 -- -- 5,605 -- -- 5,607
Exercise of warrants to acquire
common stock (note 9(b))......... 16,000 -- -- -- 208 -- -- 208
Issuance of warrants in connection
with issuance of Dial Call
long-term debt (note 7(a))....... -- -- -- -- 2,322 -- -- 2,322
Net loss.......................... -- -- -- -- -- (10,070) -- (10,070)
---------- ---- ------- --- -------- --------- -------- ---------
Stockholders' equity at
December 31, 1993................ 8,344,434 84 838,141 8 12,535 (10,711) -- 1,916
Issuance of common shares in
business combinations (note 3)... 11,069,257 110 -- -- 419,882 -- -- 419,992
Issuance of warrants in connection
with issuance of Dial Call
long-term debt (note 7(b))....... -- -- -- -- 7,369 -- -- 7,369
Exercise of options to acquire
common stock (note 9(c))......... 11,600 -- -- -- 129 -- -- 129
Net loss.......................... -- -- -- -- -- (111,343) -- (111,343)
---------- ---- ------- --- -------- --------- -------- ---------
Stockholders' equity at
December 31, 1994................ 19,425,291 $194 838,141 $ 8 $439,915 $(122,054) $ -- $ 318,063
========== ==== ======= === ======== ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-92
<PAGE> 257
DIAL PAGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1992 1993 1994
--------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $ (9,661) $(10,070) $(111,343)
Adjustments to reconcile net loss to net cash
used in operating activities:
Discontinued operations....................... 9,661 8,247 7,185
Depreciation and amortization................. -- 230 88,227
Deferred income tax benefit................... -- -- (19,888)
Accretion of original issue discount on
long-term
debt included in interest expense, net of
amount
capitalized................................. -- 177 30,149
(Increase) decrease in:
Trade accounts receivable................... -- (57) (524)
Other assets................................ -- (5) (5,839)
Increase (decrease) in:
Accounts payable............................ -- 348 3,051
Accrued expenses............................ -- 170 927
-------- -------- ---------
Net cash used in continuing operations...... -- (960) (8,055)
Net cash used in discontinued operations.... (13,906) (835) (307)
-------- -------- ---------
Net cash used in operating activities......... (13,906) (1,795) (8,362)
-------- -------- ---------
Cash flows from investing transactions:
Purchases of marketable securities............... -- -- (280,092)
Maturities of marketable securities.............. -- -- 162,963
Additions to property and equipment, excluding
construction in progress...................... -- (23) (6,866)
Additions to construction in progress............ -- (721) (72,449)
Business combinations............................ -- (6,727) (108,529)
Deposits on pending acquisitions................. -- (4,525) --
-------- -------- ---------
Net cash used in investing activities......... -- (11,996) (304,973)
-------- -------- ---------
Cash flows from financing transactions:
Issuance of common stock and warrants to acquire
common stock.................................. 15,346 29,251 7,497
Advances under note payable...................... -- 2,500 21,500
Repayment of note payable........................ -- -- (24,000)
(Increase) decrease in cash in escrow account.... -- (25,000) 25,000
Issuance of long-term debt....................... -- 67,678 292,631
Increase in deferred financing costs............. -- (2,824) (13,405)
-------- -------- ---------
Net cash provided by financing activities..... 15,346 71,605 309,223
-------- -------- ---------
Net increase (decrease) in cash and cash
equivalents...................................... 1,440 57,814 (4,112)
Cash and cash equivalents -- beginning of period... 4,713 6,153 63,967
-------- -------- ---------
Cash and cash equivalents -- end of period......... $ 6,153 $ 63,967 $ 59,855
======== ======== =========
Interest paid by continuing operations............. $ -- $ -- $ 639
======== ======== =========
</TABLE>
F-93
<PAGE> 258
DIAL PAGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SIGNIFICANT NONCASH INVESTING AND FINANCING TRANSACTIONS:
On August 31, 1993, Dial Page, Inc. issued 191,664 shares of common stock
in exchange for management agreements and options to purchase specialized mobile
radio ("SMR") licenses. These agreements were immediately assigned by Dial Page,
Inc. to Dial Call Communications, Inc. The value of the agreements acquired was
approximately $5.6 million based on the price of Dial Page, Inc.'s common stock
at closing (note 3).
On May 5, 1994, Dial Page, Inc. acquired two corporations engaged in the
SMR business by merger in consideration of 10,927,257 shares of common stock.
The stock of these two businesses, was contributed by Dial Page, Inc. to Dial
Call Communications, Inc. The value of the stock acquired was approximately
$415.2 million based on the price of Dial Page, Inc.'s common stock at closing
(note 3).
See accompanying notes to consolidated financial statements.
F-94
<PAGE> 259
DIAL PAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1994
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES
AND SHARE AND PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION AND PRESENTATION
Dial Page, Inc. together with its subsidiaries ("Dial Page or the Company")
was formed on November 22, 1991 to provide paging services in the southeastern
United States.
During 1993, the Company formed Dial Call Communications, Inc. together
with its subsidiaries ("Dial Call") to provide integrated wireless communication
services utilizing SMR spectrum. Dial Call is in the process of constructing a
digital mobile network and also provides analog SMR dispatch and interconnect
services. Dial Call is a holding company that conducts substantially all of its
business through subsidiaries.
The digital mobile SMR business involves a high degree of risk, and there
can be no assurance that it will be economically successful. The construction
and implementation of the Company's digital mobile SMR network will require a
significant capital investment by the Company. To date, the Company has obtained
the funds required to finance its acquisition program, capital expenditures, and
working capital requirements through proceeds from equity offerings and from the
issuance of long-term debt.
In February 1995, the Company entered into an agreement to sell its paging
business. The consolidated financial statements included herein have been
retroactively restated to reflect the operations of the paging business as
discontinued operations.
(B) CONVERSION TO CORPORATE FORM
On November 13, 1992, all the assets of Dial Page Holdings, L.P. (DPH) and
Dial Page, L.P. ("DPL") -- (other than DPH's general partnership interest in
DPL), subject to liabilities, were transferred to the Company in exchange for
five million shares of common stock of the Company (Conversion), all of which
was distributed to the partners of DPH and DPL who became the stockholders of
the Company. DPH and DPL were subsequently liquidated. Accordingly, the
historical cost basis of the assets and liabilities of DPH and DPL became the
basis of the assets and liabilities of the Company. Simultaneously with the
Conversion, the Company sold 1,770,911 shares of its common stock in an initial
public offering at $11 per share, resulting in proceeds to the Company of
$15,346, net of offering costs of $4,134. The accompanying financial statements
include the consolidated results of operations of DPH and subsidiary through
November 12, 1992 and the Company and subsidiaries from November 13, 1992
through December 31, 1992 which are classified as discontinued operations. Net
loss per common share information for 1992 reflects the pro forma effect of the
conversion as if it had taken place on January 1, 1992.
(C) CONSOLIDATION POLICY
The consolidated financial statements include the accounts of Dial Page and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(D) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include amounts on deposit with commercial banks,
amounts invested in a money market mutual fund and amounts invested in
commercial paper and municipal bonds with original maturities of 90 days or
less. The Company classifies all highly liquid investments with original
maturities of 90 days or less as cash and cash equivalents.
F-95
<PAGE> 260
DIAL PAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(E) MARKETABLE SECURITIES
The Company accounts for marketable securities in accordance with Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," ("Statement 115"). Under Statement 115,
investments in equity and debt securities are classified as held to maturity,
trading, or available for sale securities. Trading securities are reported at
fair value, with changes in fair value included in the statement of operations,
while available for sale securities are reported at fair value, with net
unrealized gains or losses included as a component of stockholder's equity. Held
to maturity securities are reported at amortized cost. Unrealized losses on all
securities that are other than temporary are reported in the statement of
operations upon determination that the loss is other than temporary.
Marketable securities consist of commercial paper, certificates of deposit,
and United States and Eurodollar time deposits with original maturities of
greater than 90 days. Investments in commercial paper of industrial firms and
financial institutions are rated A-1, P-1, or better. Investments in
certificates of deposit and time deposits are made only with banks having
combined capital and surplus of at least $500 million.
Marketable securities are carried at amortized cost, held to maturity, and
are classified as current assets in the accompanying consolidated balance sheet
as all investments in marketable securities have original maturities of less
than one year.
Marketable securities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------------------------------
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Marketable securities........................... $117,129 $1,353 $(93) $118,389
======== ======== ======== ========
</TABLE>
Market values have been determined through information obtained from quoted
market sources.
(F) REVENUE RECOGNITION
SMR network services revenues include all revenues derived from providing
analog dispatch and interconnect services to customers and are recognized as the
services are performed. SMR equipment sales and maintenance revenues include all
revenues derived from the sale of SMR equipment to customers and from providing
maintenance and repair services to customers. SMR equipment sales revenues are
recognized as the equipment is delivered to customers while SMR maintenance
revenues are recognized as the services are performed.
Paging service revenues which are included within loss from discontinued
operations include all revenues derived from providing radio paging rental,
dispatch, and other services to customers and are recognized as services are
performed. Paging equipment sales revenues include all revenues derived from
paging equipment sold to customers and are recognized as the paging equipment is
delivered to customers.
Unearned revenues and deposits primarily represent payments received from
customers for services billed in advance.
F-96
<PAGE> 261
DIAL PAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(G) PROPERTY AND EQUIPMENT
Property and equipment are depreciated over the estimated useful lives of
the respective assets using the straight-line method. The estimated useful lives
generally assigned by the Company are as follows:
<TABLE>
<S> <C>
Buildings............................................................ 40 years
Leasehold improvements............................................... 7 years
Furniture and fixtures............................................... 7 years
Paging equipment..................................................... 4 years
Computer software and equipment...................................... 3 years
Towers, switching, and other fixed station equipment................. 5-10 years
Vehicles............................................................. 3 years
</TABLE>
Construction in progress includes all costs associated with the build out
of the Company's digital mobile SMR network and will be depreciated beginning
when the network is placed in service. The components of construction in
progress include equipment costs, construction costs, consulting fees, direct
labor costs, and capitalized interest. Interest capitalized during the year
ended December 31, 1994 was $2,958.
(H) INTANGIBLE ASSETS
(i) Intangible assets include FCC licenses, goodwill, deferred financing
costs, and acquisition costs.
Costs associated with acquiring and maintaining Federal Communications
Commission (FCC) licenses and amounts allocated to FCC licenses in connection
with applying the purchase method of accounting to business combinations are
being amortized using the straight-line method over five years commencing when
the related channels are placed in service.
Goodwill recorded in connection with business combinations of Dial Call is
being amortized using the straight-line method over a period of five years.
Deferred financing costs represent underwriting, legal, accounting, and
printing costs incurred in connection with the issuance of long-term debt or
amendments to existing long-term debt agreements and are being amortized using
the interest method over the respective lives of the long-term debt.
Amortization of deferred financing costs is included in interest expense in the
accompanying statements of operations.
Acquisition costs include brokerage, legal, accounting, consulting, and
other fees directly attributable to pending business combinations. These amounts
have been allocated to the fair values of the underlying assets acquired and
liabilities assumed.
(ii) Intangible assets classified within assets and liabilities of
discontinued operations, net, include deferred financing costs, customer lists,
goodwill, and state certificates and trade names.
Customer lists acquired in connection with significant business
combinations completed in 1989 are being amortized using the income forecast
method over a period of 11 years. The income forecast method is based upon
historical turnover rates and effectively accelerates amortization such that
approximately 80% of the intangible asset is amortized within a four-year
period. Customer lists acquired in business combinations subsequent to 1989 are
amortized using the straight-line method over a period of 45 months from the
effective date of the combination.
Goodwill recorded in connection with business combinations related to
discontinued operations is being amortized on a straight-line basis over a
period of ten years from the effective date of the combination.
F-97
<PAGE> 262
DIAL PAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
State certificates and trade names are being amortized on a straight-line
basis over 40 years.
(iii) The carrying value of intangible assets is periodically reviewed by
the Company for impairment which would be recognized if the expected
undiscounted future cash flows expected to be derived from such intangible
assets are less than their carrying value.
(I) INCOME TAXES
Effective November 1992, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement 109"). The cumulative effect of that change in the method of
accounting for the income taxes did not impact the Company's 1992 financial
statements. Under the asset and liability method of Statement 109, deferred
income tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred income
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on deferred
income tax assets and liabilities of a change in tax rates is recognized in the
statement of operations in the period that includes the enactment date.
(J) CLASSES OF COMMON STOCK
Holders of Class A nonvoting common stock are not entitled to vote on any
matter unless otherwise required by law. Shares of nonvoting common stock may be
converted by the holders into an equivalent number of shares of common stock
without further consideration.
(K) NET LOSS PER SHARE
Net loss per share is computed based upon the weighted average number of
common shares outstanding. Outstanding options and warrants to acquire common
stock have been excluded because they are antidilutive to the computations.
(L) RECLASSIFICATIONS
Certain amounts in the 1993 and 1992 consolidated financial statements and
notes have been reclassified to conform with the 1994 presentation.
(2) DISCONTINUED OPERATIONS
In August 1994, the Company signed a letter of intent with NEXTEL
Communications, Inc. ("Nextel") to merge in a tax-free transaction. In February
1995, the Company entered agreements to merge with Nextel and to sell its paging
business to MobileMedia Communications, Inc. (see note 13). The Company has
included the results of operations and the assets and liabilities, net
associated with the paging business being sold as discontinued operations in the
accompanying 1994 consolidated financial statements and has restated the 1993
and 1992 consolidated financial statements to conform with this presentation.
F-98
<PAGE> 263
DIAL PAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993 AND 1994
(2) DISCONTINUED OPERATIONS -- (CONTINUED)
The following is a condensed summary of the results of operations of the
paging business as included in loss from discontinued operations in the
accompanying consolidated statements of operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Revenues...................................................... $56,065 $64,939 $77,981
------- ------- -------
Costs and expenses, excluding depreciation and amortization... 36,008 43,356 51,421
Depreciation and amortization................................. 17,456 16,817 20,160
------- ------- -------
Total costs and expenses.................................... 53,464 60,173 71,581
------- ------- -------
Operating income............................................ 2,601 4,766 6,400
Interest expense.............................................. 10,984 11,619 13,871
Other expenses (income), net.................................. 1,278 (184) (286)
------- ------- -------
Loss before extraordinary item.............................. (9,661) (6,669) (7,185)
Extraordinary item............................................ -- (1,578) --
------- ------- -------
Net loss.................................................... $(9,661) $(8,247) $(7,185)
======= ======= =======
</TABLE>
The assets and liabilities relating to the paging business being sold have
been segregated in the accompanying consolidated balance sheets from their
historic classifications to separately identify them as discontinued operations.
Such amounts at December 31, 1993 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
-------- --------
<S> <C> <C>
Trade accounts receivable.............................................. $ 6,284 $ 4,809
Property and equipment, net............................................ 29,676 37,142
Intangible assets, net................................................. 30,433 49,041
Other assets........................................................... 2,845 3,146
-------- --------
Total assets......................................................... 69,238 94,138
-------- --------
Accounts payable....................................................... 1,641 3,898
Accrued expenses....................................................... 5,884 5,814
Unearned revenues and deposits......................................... 1,901 3,255
Long-term debt......................................................... 96,245 124,482
-------- --------
Total liabilities.................................................... 105,671 137,449
-------- --------
Assets and liabilities of discontinued operations, net............... $(36,433) $(43,311)
======== ========
</TABLE>
F-99
<PAGE> 264
DIAL PAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993 AND 1994
(2) DISCONTINUED OPERATIONS -- (CONTINUED)
The Company expects to recognize a pretax gain on the sale of the paging
business during the second half of 1995 which will approximate the amount shown
below:
<TABLE>
<S> <C>
Estimated cash proceeds from the sale of assets and the assumption
of current liabilities, subject to adjustment................... $103,500
Assumption of long-term debt by buyer............................. 85,000
--------
188,500
Less estimated transaction costs, including brokerage, legal,
and accounting............................................... (1,550)
--------
Proceeds from sale, net........................................... 186,950
--------
Assets and liabilities of discontinued operations, net as shown
above........................................................... (43,311)
Adjustment for term credit facility............................... 39,200
Adjustment for long-term debt..................................... 85,000
--------
Less the Company's adjusted basis in assets and liabilities of
discontinued operations, net................................. (80,889)
--------
Estimated pretax gain to be recognized upon consummation of
the transaction............................................. $106,061
========
</TABLE>
The Company expects to utilize its net operating loss carryforwards and
anticipated losses in 1995 to substantially reduce the income taxes on the
estimated gain on the sale of the paging business.
(3) BUSINESS COMBINATIONS
On August 31, 1993, the Company issued 191,664 shares of common stock in
exchange for management agreements and options to purchase FCC licenses
throughout the southern United States. The common stock issued and options to
acquire channels were valued at $5.6 million based on the price of the Company's
common stock at closing. The purchase price has been allocated to intangible
assets (FCC licenses).
On May 5, 1994, the Company acquired all of the common stock of Transit
Communications Corporation and Advanced MobileComm of North Carolina, Inc. in
mergers in which 10,927,257 shares of the Company's common stock valued at
$415.2 million was issued.
The more significant assets and liabilities recorded as a result of this
combination are summarized as follows:
<TABLE>
<S> <C>
Current assets................................................. $ 8,657
Property and equipment......................................... 6,418
Intangible assets -- FCC licenses.............................. 402,415
Intangible assets -- goodwill.................................. 153,143
Current liabilities............................................ (2,255)
Deferred income taxes.......................................... (153,143)
---------
Fair value of common stock issued and net assets acquired.... $ 415,235
=========
</TABLE>
F-100
<PAGE> 265
DIAL PAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993 AND 1994
(3) BUSINESS COMBINATIONS -- (CONTINUED)
On June 1, 1994, the Company acquired the assets of York Communications,
Inc. for $7.1 million. The purchase price included $2.3 million in cash and
142,000 shares of common stock valued at $4.8 million on that date.
Substantially all of the purchase price has been allocated to intangible assets
(FCC licenses).
On August 2, 1994, the Company completed its acquisition of the assets of
Advanced Radio Communication Services of Florida, Inc., subject to certain
liabilities, for $70.4 million in cash. Substantially all of the purchase price
has been allocated to intangible assets (FCC licenses).
On August 5, 1994, the Company completed its acquisition of the assets of
Comm 800, Inc., subject to certain liabilities, for $18.2 million in cash.
Substantially all of the purchase price has been allocated to intangible assets
(FCC licenses).
All of the business combinations described above have been accounted for
using the purchase method of accounting and the results of operations of the
businesses acquired have been included in the accompanying consolidated
statements of operations since the effective date of the combination.
The unaudited pro forma results of operations of the Company as if the
combinations described above had been effected on January 1, 1993 are summarized
below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1993 1994
--------- ---------
<S> <C> <C>
Revenues............................................. $ 13,318 $ 19,729
========= =========
Loss from continuing operations...................... $(160,274) $(152,868)
========= =========
Net loss............................................. $(168,521) $(160,053)
========= =========
Net loss per common share:
Loss from continuing operations.................... $ (8.45) $ (7.55)
Loss from discontinued operations.................. (0.43) (0.35)
--------- ---------
Net loss per common share....................... $ (8.88) $ (7.90)
========= =========
Average shares outstanding........................... 18,967 20,253
========= =========
</TABLE>
The pro forma results do not necessarily represent results which would have
occurred if the business combinations had taken place on the date indicated nor
are they necessarily indicative of the results of future operations.
The Company completed a number of other business combinations during 1993
and 1994 which are not included above because either their impact on the
Company's financial position and results of operations is not significant or
they relate to discontinued operations.
F-101
<PAGE> 266
DIAL PAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993 AND 1994
(4) PROPERTY AND EQUIPMENT
Property and equipment balances consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1994
------ -------
<S> <C> <C>
Land...................................................... $ -- $ 598
Buildings and leasehold improvements...................... -- 3,155
Furniture and fixtures.................................... -- 872
Computer software and equipment........................... -- 3,046
Towers, switching, and other.............................. 892 5,645
Vehicles.................................................. 16 853
Construction in progress.................................. 721 84,252
------ -------
1,629 98,421
Less accumulated depreciation and amortization............ 51 1,180
------ -------
$1,578 $97,241
====== =======
</TABLE>
(5) INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-------------------------------------
ACCUMULATED
COST AMORTIZATION NET
-------- ----------- --------
<S> <C> <C> <C>
FCC licenses...................................... $ 11,064 $ (179) $ 10,885
Deferred financing costs.......................... 2,824 -- 2,824
Acquisition costs................................. 1,925 -- 1,925
-------- ----------- --------
$ 15,813 $ (179) $ 15,634
======== ========= ========
<CAPTION>
DECEMBER 31, 1994
-------------------------------------
ACCUMULATED
COST AMORTIZATION NET
-------- ----------- --------
<S> <C> <C> <C>
FCC licenses...................................... $544,816 $ (67,558) $477,258
Goodwill.......................................... 146,638 (19,888) 126,750
Deferred financing costs.......................... 15,330 (285) 15,045
-------- ----------- --------
$706,784 $ (87,731) $619,053
======== ========= ========
</TABLE>
(6) NOTE PAYABLE
In December 1993, Dial Call and a wholly owned subsidiary entered into a
borrowing arrangement with Motorola Credit Corporation (the "MCC Credit
Facility") which provided for financing up to $30 million. All advances under
the MCC Credit Facility were guaranteed by Dial Call. Interest on the facility
compounded monthly at an annual rate of 2% above prime and was payable
quarterly.
At December 31, 1993, $2,500 had been advanced to the Company under the MCC
Credit Facility as described above. The MCC Credit Facility was paid in full and
terminated in April 1994.
F-102
<PAGE> 267
DIAL PAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993 AND 1994
(7) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1994
------- --------
<S> <C> <C>
Dial Call senior discount notes due 2005(a)..................... $67,855 $ 75,664
Dial Call senior redeemable discount notes due 2004(b).......... -- 317,928
Other notes payable............................................. -- 1,063
------- --------
Total long-term debt.......................................... $67,855 $394,655
======= ========
</TABLE>
Cash repayments of long-term debt due for the next five years and
thereafter is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
------------------------------------------------------------------
<S> <C>
1995.................................................... $ 239
1996.................................................... 224
1997.................................................... 200
1998.................................................... 200
1999.................................................... 200
Thereafter.............................................. 656,995
--------
658,058
Less unaccreted original issue discount................. 263,403
--------
$394,655
========
</TABLE>
(A) DIAL CALL SENIOR DISCOUNT NOTES DUE 2005
On December 22, 1993, Dial Call and the Company issued 115,165 units
consisting of $115,165 at maturity of senior discount notes due 2005 (the "2005
Notes") and warrants to purchase 177,700 shares of the Company's common stock.
Proceeds from the issuance of the units were $70,000 with $67,678 and $2,322
allocated to the 2005 Notes and the warrants, respectively, based upon their
respective estimated fair values at the date of issuance.
The 2005 Notes are general unsubordinated obligations of Dial Call and rank
pari passu with all other unsubordinated indebtedness of Dial Call. The 2005
Notes are not guaranteed by Dial Page.
The effective interest rate on the 2005 Notes approximates 10 1/4%. Cash
interest accrues on the 2005 Notes at a rate of 10 1/4% beginning December 15,
1998 through maturity with interest payable to holders semiannually on each June
15 and December 15 thereafter.
The 2005 Notes are redeemable at the option of Dial Call at any time on or
after December 15, 1998 at the redemption prices indicated below plus accrued
and unpaid interest to the date of redemption.
<TABLE>
<CAPTION>
REDEMPTION PRICE
12-MONTH EXPRESSED AS
PERIOD BEGINNING A PERCENTAGE OF
DECEMBER 15, PRINCIPAL AMOUNT
- ---------------- ----------------
<S> <C>
1998.................................................................. 105.1%
1999.................................................................. 103.4
2000.................................................................. 101.7
2001 and thereafter................................................... 100.0
</TABLE>
F-103
<PAGE> 268
DIAL PAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993 AND 1994
(7) LONG-TERM DEBT -- (CONTINUED)
In the event of a change in control, as defined, the holders of the 2005
Notes may require Dial Call to repurchase the 2005 Notes at 101% of the accreted
value thereof or after December 15, 1998 at 101% of the principal amount
thereof, plus accrued and unpaid interest.
The indenture related to the 2005 Notes contains certain covenants which,
among other things, restrict Dial Call and its restricted subsidiaries from
incurring additional indebtedness; paying dividends or making distributions or
certain other restricted payments; creating liens; entering into transactions
with affiliates or related persons; selling certain assets; engaging in any
business other than the telecommunications business and related activities; or
consolidating, merging, or selling all or substantially all of its assets.
The warrants issued in connection with the sale of the 2005 Notes are
exercisable at $46.20 per share (subject to adjustment) at any time beginning 60
days after their issuance through December 22, 1998.
All of the warrants were outstanding at December 31, 1994.
(B) DIAL CALL SENIOR REDEEMABLE DISCOUNT NOTES DUE 2004
On April 25, 1994, Dial Call and the Company issued 541,830 units
consisting of $541,830 at maturity of senior redeemable discount notes due 2004
(the "2004 Notes") and warrants to purchase 1,195,277 shares of the Company's
common stock. Proceeds from the issuance of the units were $300,000 with
$292,631 and $7,369 allocated to the 2004 Notes and the warrants, respectively,
based upon their respective estimated fair values at the date of issuance.
The 2004 Notes are general unsubordinated obligations of Dial Call and rank
pari passu with all other unsubordinated indebtedness of Dial Call. The 2004
Notes are not guaranteed by Dial Page.
The effective interest rate on the 2004 Notes approximates 12 1/4%. Cash
interest accrues on the 2004 Notes at a rate of 12 1/4% beginning April 15, 1999
through maturity with interest payable to holders semiannually on each April 15
and October 15 thereafter.
The 2004 Notes are redeemable at the option of Dial Call at any time on or
after April 15, 1999 at the redemption prices indicated below plus accrued and
unpaid interest to the date of redemption.
<TABLE>
<CAPTION>
REDEMPTION PRICE
12-MONTH EXPRESSED AS
PERIOD BEGINNING A PERCENTAGE OF
APRIL 15, PRINCIPAL AMOUNT
- ---------------- ----------------
<S> <C>
1999.................................................................. 107.125%
2000.................................................................. 105.350
2001.................................................................. 103.570
2002.................................................................. 101.790
2003 and thereafter................................................... 100.000
</TABLE>
In the event of a change in control, as defined, the holders of the 2004
Notes may require Dial Call to repurchase the 2004 Notes at 101% of the accreted
value thereof or after April 15, 1999 at 101% of the principal amount thereof,
plus accrued and unpaid interest.
The indenture related to the 2004 Notes contains certain covenants which,
among other things, restrict Dial Call and its restricted subsidiaries from
incurring additional indebtedness; paying dividends or making distributions or
certain other restricted payments; creating liens; entering into transactions
with affiliates or related persons; selling certain assets; engaging in any
business other than the telecommunications business and related activities; or
consolidating, merging, or selling all or substantially all of its assets.
F-104
<PAGE> 269
DIAL PAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993 AND 1994
(7) LONG-TERM DEBT -- (CONTINUED)
The warrants issued in connection with the sale of the 2004 Notes are
exercisable at $34.65 per share (subject to adjustment) at any time beginning
one year after their issuance through April 25, 1999.
All of the warrants were outstanding at December 31, 1994.
(8) INCOME TAXES
The Company adopted Statement 109 in November 1992 when the Company's tax
status changed by converting from partnership to corporate form. No provision
for income taxes has been made in the Company's consolidated financial
statements for periods prior to November 1992 as all taxable losses flowed
through and were reported on the income tax returns of the individual partners.
Under Statement 109, a deferred income tax asset or liability is recognized for
temporary differences at the date that the partnership converts to corporate
form and the effect of recognizing a deferred income tax asset or liability is
included in income from continuing operations. On the adoption date, no deferred
income tax asset or liability was recognized.
Income tax benefit consists of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
--------------------------------
CURRENT DEFERRED TOTAL
------- -------- -------
<S> <C> <C> <C>
U.S. Federal........................................... $-- $ 16,828 $16,828
State and local........................................ -- 3,060 3,060
--- -------- -------
$-- $ 19,888 $19,888
=== ======== =======
</TABLE>
The Company's income tax benefit differed from the amounts computed by
applying the U.S. Federal income tax rate of 34% to loss from continuing
operations before income taxes as a result of the following:
<TABLE>
<CAPTION>
1993 1994
----- --------
<S> <C> <C>
Computed "expected" tax benefit.................................. $ 620 $ 42,176
Increase (reduction) in income taxes resulting from:
Change in valuation allowance for deferred income tax assets
allocated to income tax benefit............................. (590) (16,046)
Amortization of goodwill....................................... -- (8,806)
State and local income taxes, net of Federal income tax
effect...................................................... -- 2,020
Other.......................................................... (30) 544
----- --------
$ -- $ 19,888
===== ========
</TABLE>
F-105
<PAGE> 270
DIAL PAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993 AND 1994
(8) INCOME TAXES -- (CONTINUED)
The tax effect of temporary differences and carryforwards that give rise to
the Company's deferred income tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
------- ---------
<S> <C> <C>
Deferred income tax assets:
Property and equipment, principally due to differences in
depreciation and differing bases as a result of business
combinations.............................................. $ 6,013 $ 2,858
Original issue discount on long-term debt.................... -- 9,498
Net operating loss carryforwards............................. 9,495 21,336
Unearned revenue received in advance of services being
performed................................................. 493 939
Other........................................................ -- 1,213
------- ---------
Total deferred income tax assets.......................... 16,001 35,844
Less valuation allowance..................................... 15,434 31,480
------- ---------
Net deferred income tax assets............................ 567 4,364
------- ---------
Deferred income tax liabilities:
Intangible assets, principally due to differing bases as a
result of business combinations........................... (337) (129,857)
Other........................................................ (230) (1,256)
------- ---------
Total deferred income tax liabilities..................... (567) (131,113)
------- ---------
Net deferred income tax liability......................... $ -- $(126,749)
======= =========
</TABLE>
The valuation allowance for deferred income tax assets as of December 31,
1993 and 1994 was $15,434 and $31,480, respectively. The net change in the
valuation allowance for the years ended December 31, 1993 and 1994 was an
increase of $4,159 and $16,046, respectively. In assessing the recoverability of
deferred income tax assets, the Company considers whether it is more likely than
not that some portion or all of the deferred income tax assets will not be
realized. The ultimate realization of deferred income tax assets is dependent
upon the generation of taxable income during the periods in which those
temporary differences become deductible. The Company considers the scheduled
reversal of deferred income tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. In order to fully realize
the deferred income tax asset, the Company will need to generate future taxable
income of approximately $55 million prior to the expiration of the net operating
loss carryforwards in 2009. Because of the uncertainties with respect to the
Company's ability to generate taxable income in the future sufficient to realize
the benefits of the deferred income tax assets at December 31, 1994, the Company
has provided a valuation allowance against substantially all of the deferred
income tax assets at December 31, 1994.
At December 31, 1994, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $55 million which are available to
offset future taxable income, if any, through 2008.
(9) STOCKHOLDERS' EQUITY
(A) AMENDMENT TO THE CERTIFICATE OF INCORPORATION
In May 1994, the stockholders amended the Company's certificate of
incorporation to increase the number of authorized common shares from 15,000,000
to 250,000,000, to increase the number of authorized
F-106
<PAGE> 271
DIAL PAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993 AND 1994
(9) STOCKHOLDERS' EQUITY -- (CONTINUED)
Class A nonvoting common shares from 3,000,000 to 10,000,000, and to increase
the number of authorized $.01 par value preferred shares from 1,000,000 to
20,000,000.
(B) PRIVATE PLACEMENT
On July 30, 1993, the Company sold 2,154,199 shares of common stock, 49,801
shares of Class A nonvoting common stock, warrants to acquire 511,000 shares of
common stock, and warrants to acquire 40,000 shares of Class A nonvoting common
stock in a private placement transaction. The transaction resulted in proceeds
to the Company of $26,717, net of offering costs of $1,109. The proceeds were
transferred to Dial Call as a capital contribution to use in building its SMR
business. In September 1993, warrants to acquire 16,000 shares of common stock
were exercised, resulting in proceeds to the Company of $208.
The Company also issued warrants to acquire 110,000 shares of common stock
to certain professionals and advisers for their services with respect to
completing the transaction.
The warrants are exercisable at any time at $13 per share and expire in
July 1998.
At December 31, 1994, warrants to acquire 605,000 shares of common stock
and 40,000 shares of Class A nonvoting common stock remained outstanding with
respect to the private placement transaction described herein.
(C) EQUITY INCENTIVE PLAN
The 1992 Dial Page, Inc. Equity Incentive Plan (the "Equity Plan") is
designed to enhance the Company's ability to attract, retain, and reward
employees and others who are in a position to make significant contributions to
the success of the Company through ownership of the Company's common stock.
In May 1994, the Company's stockholders approved an amendment to the
Company's Equity Plan to increase the number of shares of common stock reserved
for future issuance from 1,250,000 shares to 3,000,000 shares. The Equity Plan
is administered by the Company's Compensation Committee and the vesting,
expiration, and exercise price of options granted under the Equity Plan are
determined within the provisions of the plan at the discretion of the
Compensation Committee. The following table summarizes the plan activity related
to options granted to the Company's employees for the years ended December 31,
1992, 1993, and 1994.
F-107
<PAGE> 272
DIAL PAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993 AND 1994
(9) STOCKHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS
---------
<S> <C>
Outstanding at December 31, 1991........................................ --
Granted at $11.00 per share............................................. 1,008,000
---------
Outstanding at December 31, 1992 -- $11.00 per share.................... 1,008,000
Granted at $11.00 - $46.00 per share.................................... 489,900
Canceled at $11.00 per share............................................ (4,750)
---------
Outstanding at December 31, 1993 -- $11.00 - $46.00 per share........... 1,493,150
Granted at $14.00 - $44.00 per share.................................... 616,700
Canceled at $11.00 - $44.00 per share................................... (8,250)
Exercised at $11.00 per share........................................... (11,600)
---------
Outstanding at December 31, 1994 -- $11.00 - $46.00 per share........... 2,090,000
=========
Exercisable at December 31, 1994 at $11.00 - $46.00 per share........... 1,042,416
=========
</TABLE>
In November 1994, a one-time repricing of all outstanding options held by
Dial Call employees to an exercise price of $15.00 per share, an amount in
excess of the fair value of the Company's common stock at the date of the
repricing, in exchange for the holder's agreement to waive certain accelerated
vesting privileges in the case of Dial Call officers who had such privileges.
Of the 2,090,000 options outstanding at December 31, 1994, 539,000 were
held by Dial Call employees and are subject to this repricing.
(D) RESTRICTED NET ASSETS
The long-term debt of Dial Call restricts its ability to pay dividends,
loan, or advance funds to Dial Page. The 1994 consolidated balance sheet
includes restricted net assets related to Dial Call and its wholly owned
subsidiaries of approximately $358,256.
F-108
<PAGE> 273
DIAL PAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993 AND 1994
(10) COMMITMENTS, PENDING BUSINESS COMBINATIONS, AND CONTINGENCIES
(A) LEASE COMMITMENTS
The Company has entered into cancelable and noncancelable operating lease
agreements primarily for the use of tower and other transmission equipment and
office facilities. Future minimum lease payments related to continuing
operations for the next five years and thereafter under all noncancelable
operating lease agreements with remaining terms greater than one year are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1995............................................................ $ 4,436
1996............................................................ 4,599
1997............................................................ 4,736
1998............................................................ 4,699
1999............................................................ 3,740
Thereafter...................................................... 9,336
-------
$31,546
=======
</TABLE>
Total rent expense included in continuing operations under cancelable and
noncancelable operating lease agreements was $115 and $2,553 for the years ended
December 31, 1993 and 1994, respectively.
(B) EQUIPMENT PURCHASE COMMITMENTS
Dial Call has entered a master equipment purchase agreement with Motorola,
Inc. to provide Enhanced Specialized Mobile Radio System equipment and services
for $75,472, of which $44,083 had been paid at December 31, 1994.
Dial Call has entered into a subscriber equipment purchase agreement with
Motorola, Inc. which commits Dial Call to purchase approximately $70 million of
subscriber equipment in the two years following the initiation of commercial
service on Dial Call's digital mobile SMR network.
Additionally, Dial Call has commitments for equipment and other purchases
with other vendors which total approximately $24.1 million at December 31, 1994.
(C) PENDING BUSINESS COMBINATIONS
Dial Call has entered into acquisition and other agreements to acquire
businesses, FCC licenses, or rights to FCC licenses for 800 MHz channels
throughout the southern United States. The Company's commitment with respect to
pending business combinations at December 31, 1994 was approximately $27.9
million in cash. All of these business combinations are subject to customary
closing conditions, including due diligence, receipt of all necessary
governmental, regulatory, and third-party approvals and, in certain cases,
termination of the Hart-Scott-Rodino Antitrust Improvements Act waiting period
or other clearance, stockholder approval, and financing. There can be no
assurance that any of the business combinations will be consummated.
(D) REVOLVING CREDIT FACILITY
In September 1994, Dial Call and a wholly owned subsidiary received a
commitment letter from a commercial bank for a $100 million revolving term
credit facility with principal reductions beginning in 1998 and interest at a
base rate or LIBOR plus margins ranging from 2% to 3.5%, subject to the terms of
the commitment. The commitment is subject to execution of a definitive agreement
and other terms and
F-109
<PAGE> 274
DIAL PAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993 AND 1994
(10) COMMITMENTS, PENDING BUSINESS COMBINATIONS, AND
CONTINGENCIES -- (CONTINUED)
conditions and expires on March 31, 1995. The Company expects to execute a
definitive agreement before expiration of the commitment letter in March 1995.
(E) CONTINGENCIES
The Company is involved in various lawsuits arising in the normal course of
its business. In the opinion of management, the ultimate outcome of these
lawsuits will not have a material adverse effect on the financial position or
results of operations of the Company.
(11) EMPLOYEE BENEFIT PLAN
The Company maintains a contributory retirement plan qualifying under
Section 401(k) of the Internal Revenue Code for the benefit of all eligible
employees. The Company provides a matching contribution equal to 50% of a
participant's contribution up to a maximum of 2% of the participant's
compensation during the year. The Company has provided for contributions to the
plan through a charge to continuing operations of $61 for the year ended
December 31, 1994.
(12) FINANCIAL INSTRUMENTS
The Company values financial instruments as required by Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair Values of
Financial Instruments." The carrying amounts of cash and cash equivalents, cash
in escrow account, short-term borrowing, and other notes payable within the
long-term debt approximate fair value. The Company estimates the fair value of
its long-term fixed rate debt using information from market sources.
The carrying amounts and fair values of the Company's financial instruments
as of December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------
CARRYING FAIR
VALUE VALUE
-------- --------
<S> <C> <C>
Marketable securities.......................................... $117,129 $118,389
======== ========
Long-term debt, excluding other notes payable.................. $393,592 $212,200
======== ========
</TABLE>
At December 31, 1993, the carrying value of the Company's long-term, fixed
rate debt of $67,855 approximated fair value.
(13) SUBSEQUENT EVENTS (UNAUDITED)
In February 1995, the Company entered into an agreement to merge with
NEXTEL Communications, Inc. (Nextel) in a tax-free transaction. Under the terms
of the agreement, the Company's stockholders will receive 1.0704 shares of
Nextel common stock for each Dial Page share outstanding at the time of the
merger, subject to adjustment as defined in the agreement. Completion of the
transaction is subject to material closing conditions, including, among others,
receipt of all necessary governmental and regulatory approvals, including
approval by stockholders of Dial Page and Nextel.
Also in February 1995, the Company entered into an agreement to sell its
paging business to MobileMedia Communications, Inc. ("MobileMedia") in exchange
for approximately $103.5 million in cash and the assumption of $85 million in
long-term debt, subject to adjustment as defined in the agreement. The
F-110
<PAGE> 275
DIAL PAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993 AND 1994
(13) SUBSEQUENT EVENTS (UNAUDITED) -- (CONTINUED)
agreement provides for the repayment of the outstanding balance under the term
credit facility of the paging business at closing from proceeds to be received
by the Company or for MobileMedia to assume and repay the term credit facility
with the consent of the lenders and for the cash purchase price to be reduced by
the same amount. Completion of the transaction is subject to customary closing
conditions, including, among others, receipt of all necessary governmental and
regulatory approvals.
F-111
<PAGE> 276
DIAL PAGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1995 1994
-------- -------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Revenues:
Network services...................................................... $ 3,105 $ 80
Equipment sales and maintenance....................................... 2,149 266
-------- -------
Total revenues................................................ 5,254 346
-------- -------
Costs and expenses:
Operations, excluding depreciation and amortization................... 3,260 420
Cost of equipment sold and maintenance................................ 1,558 134
Sales and advertising................................................. 1,421 77
General and administrative............................................ 5,293 1,526
Depreciation and amortization......................................... 34,633 312
-------- -------
Total costs and expenses...................................... 46,165 2,469
-------- -------
Operating loss................................................ (40,911) (2,123)
Interest expense........................................................ 9,460 2,247
Interest income......................................................... (2,263) (774)
-------- -------
Loss from continuing operations before income taxes................... (48,108) (3,596)
Income tax benefit...................................................... (8,188) --
-------- -------
Loss from continuing operations....................................... (39,920) (3,596)
Loss from discontinued operations..................................... (3,094) (1,486)
-------- -------
Net loss.............................................................. $(43,014) $(5,082)
======== =======
Net loss per common share:
Loss from continuing operations....................................... $ (1.97) $ (0.39)
Loss from discontinued operations..................................... (0.15) (0.16)
-------- -------
Net loss per common share..................................... $ (2.12) $ (0.55)
======== =======
Weighted average shares outstanding..................................... 20,264 9,183
======== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-112
<PAGE> 277
DIAL PAGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994
-------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 36,129 $ 59,855
Marketable securities....................................... 81,819 117,129
Trade accounts receivable, net.............................. 1,780 1,712
Other current assets........................................ 3,551 4,051
-------- --------
Total current assets................................ 123,279 182,747
-------- --------
Property and equipment, net................................... 15,519 12,989
Construction in progress...................................... 110,310 84,252
Intangible assets, net........................................ 596,962 619,053
Other assets.................................................. 2,893 2,929
-------- --------
Total assets........................................ $848,963 $901,970
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installment of long-term debt....................... $ 200 $ --
Accounts payable............................................ 1,649 16,455
Accrued expenses............................................ 3,175 2,737
Assets and liabilities of discontinued operations, net...... 43,829 43,311
-------- --------
Total current liabilities........................... 48,853 62,503
-------- --------
Deferred income taxes......................................... 118,561 126,749
Long-term debt, excluding current installment................. 406,501 394,655
-------- --------
Total liabilities................................... 573,915 583,907
-------- --------
Stockholders' equity.......................................... 275,048 318,063
-------- --------
Total liabilities and stockholders' equity.......... $848,963 $901,970
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-113
<PAGE> 278
DIAL PAGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in continuing operations............................ $ (7,506) $ (832)
Net cash used in discontinued operations.......................... (2,576) (1,069)
-------- --------
Net cash used in operating activities................................ (10,082) (1,901)
-------- --------
CASH FLOWS FROM INVESTING TRANSACTIONS:
Purchases of marketable securities................................ (57,487) (25,054)
Maturities of marketable securities............................... 92,797 --
Additions to property and equipment............................... (3,251) (997)
Additions to construction in progress............................. (33,746) (1,007)
Acquisitions of businesses........................................ (5,687) (3,893)
Additions to intangible assets.................................... (3,080) --
Deposits on pending acquisitions.................................. -- (25,250)
-------- --------
Net cash used in investing activities................................ (10,454) (56,201)
-------- --------
CASH FLOWS FROM FINANCING TRANSACTIONS:
Issuance of note payable.......................................... -- 21,500
Increase in deferred financing costs.............................. (3,190) --
Other financing activities........................................ -- (430)
-------- --------
Net cash provided by (used in) financing activities.................. (3,190) 21,070
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS.............................. (23,726) (37,032)
Cash and cash equivalents-beginning of period.......................... 59,855 63,967
-------- --------
Cash and cash equivalents-end of period................................ $ 36,129 $ 26,935
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-114
<PAGE> 279
DIAL PAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF FINANCIAL STATEMENT PREPARATION
The accompanying unaudited consolidated financial statements of Dial Page,
Inc. and Subsidiaries (together, "Dial Page" ) have been prepared in accordance
with the instructions to Form 10-Q and therefore do not include all information
and footnotes necessary for a fair presentation of financial position, results
of operations, and cash flows in conformity with generally accepted accounting
principles. These financial statements should be used in conjunction with the
consolidated financial statements and related notes contained in the 1994 Annual
Report on Form 10-K. All adjustments, consisting of normal recurring accruals,
which, in the opinion of management, are necessary for a fair presentation of
financial position and results of operations for the periods covered by this
report have been included. The results for the periods shown are not necessarily
indicative of results for the full fiscal year.
2. DISCONTINUED OPERATIONS
In February 1995, the Company entered agreements to merge with Nextel and
to sell its paging business to MobileMedia. The Company has included the results
of operations and the assets and liabilities, net associated with the paging
business being sold as discontinued operations in the accompanying condensed
consolidated financial statements and has restated the 1994 condensed
consolidated financial statements to conform with this presentation.
The following is a condensed summary of the results of operations of the
paging business as included in loss from discontinued operations in the
accompanying consolidated statements of operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revenues......................................................... $20,435 $17,588
------- -------
Costs and expenses, excluding depreciation and amortization...... 13,881 12,069
Depreciation and amortization.................................... 6,187 3,961
------- -------
Total costs and expenses............................... 20,068 16,030
------- -------
Operating income....................................... 367 1,558
Interest expense................................................. 3,459 2,869
Other expenses, net.............................................. 2 175
------- -------
Net loss............................................... $(3,094) $(1,486)
======= =======
</TABLE>
F-115
<PAGE> 280
DIAL PAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
2. DISCONTINUED OPERATIONS (CONTINUED)
The assets and liabilities relating to the paging business being sold have
been segregated in the accompanying condensed consolidated balance sheets from
their historic classifications to separately identify them as discontinued
operations. Such amounts at March 31, 1995 and December 31, 1994 are summarized
as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Trade accounts receivable............................ $ 5,241 $ 4,809
Property and equipment, net.......................... 37,473 37,142
Intangible assets, net............................... 46,262 49,041
Other assets......................................... 3,566 3,146
-------- --------
Total assets............................... 92,542 94,138
-------- --------
Accounts payable..................................... 2,397 3,898
Accrued expenses..................................... 3,057 5,814
Unearned revenues and deposits....................... 3,695 3,255
Long-term debt....................................... 127,222 124,482
-------- --------
Total liabilities.......................... 136,371 137,449
-------- --------
Assets and liabilities of discontinued operations,
net................................................ $(43,829) $(43,311)
======== ========
</TABLE>
The Company expects to recognize a pretax gain on the sale of the paging
business during the second half of 1995 which will approximate $106 million. The
Company expects to utilize its net operating loss carryforwards and anticipated
losses in 1995 to substantially reduce the income taxes on the estimated gain on
the sale of the paging business.
3. ACQUISITIONS
On April 29, 1994, Dial Page acquired certain paging operations and assets
of American Mobilphone, Inc. ("Mobilphone") for approximately $27.6 million.
Dial Page accounted for the transaction using the purchase method of accounting,
with the results of operations of Mobilphone's business included in Dial Page's
consolidated financial statements commencing April 29, 1994.
On May 5, 1994, Dial Page acquired two SMR businesses, Transit
Communications Corporation ("Transit") and Advanced MobileComm of North
Carolina, Inc. ("AMI") by merger in consideration of 10,927,257 shares of Dial
Page common stock with a value of $415.2 million at the date of closing. Dial
Page contributed the assets of Transit and AMI to its wholly-owned subsidiary
Dial Call Communications, Inc. ("Dial Call"). Dial Page accounted for the
transaction using the purchase method of accounting, with the results of
operations of Transit and AMI included in Dial Page's consolidated financial
statements commencing May 5, 1994.
On August 2, 1994, Dial Call acquired the assets of Advanced Radio
Communications Services of Florida ("ARCS") for $70,360,000 in cash. Dial Page
accounted for the transaction using the purchase method of accounting, with the
results of operations of the ARCS business included in Dial Page's consolidated
financial statements commencing August 2, 1994.
On August 5, 1994, Dial Call acquired the assets of Comm 800, Inc. for
$18,150,000 in cash. Dial Page accounted for the transaction using the purchase
method of accounting, with the results of operations of the Comm 800 business
included in Dial Page's consolidated financial statements commencing August 5,
1994.
F-116
<PAGE> 281
DIAL PAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
3. ACQUISITIONS (CONTINUED)
The following unaudited condensed pro forma financial information presents
the unaudited results of operations of the Company for the three months ended
March 31, 1994 as if the acquisitions of Mobilphone assets, Transit and AMI, and
the assets of ARCS and Comm 800, Inc. had taken place on January 1, 1994:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1994
------------------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C>
Revenue.................................................... $ 4,032
========
Loss from continuing operations............................ $(38,125)
========
Net loss................................................... $(40,385)
========
Net loss per common share:
Loss from continuing operations.......................... $ (1.89)
Loss from discontinued operations........................ (0.12)
--------
Net loss per common share.................................. $ (2.01)
========
Average shares outstanding................................. 20,133
========
</TABLE>
Additionally, Dial Call completed several other acquisitions during 1994
and the first quarter of 1995. The results of operations of these acquisitions
are not significant to the presentation of the pro forma financial information.
4. REVOLVING CREDIT FACILITY
On March 31, 1995, a wholly-owned subsidiary of Dial Call entered into a
revolving term credit facility with a commercial bank under which the subsidiary
may borrow up to $100 million. Borrowing under the facility is limited based on,
among other things, tests relating to (i) indebtedness and (ii) certain
expenditures compared to a calculation of the number of analog and digital
subscribers. Also, there are various other conditions which must be satisfied to
permit borrowing under the facility.
5. EQUIPMENT PURCHASE COMMITMENTS
Dial Call has an equipment purchase agreement with Motorola, Inc. to
provide Enhanced Specialized Mobile Radio System equipment and services for
$75.5 million, of which $45.1 million had been paid at March 31, 1995.
Dial Call has entered into a subscriber equipment purchase agreement with
Motorola, Inc. which commits Dial Call to purchase 100,000 units of subscriber
equipment (approximately $70 million at current prices) in the two years
following the first commercial service of Dial Call's digital mobile network.
Additionally, Dial Call has commitments for equipment purchases with
various other vendors which total approximately $21.8 million at March 31, 1995.
6. PENDING ACQUISITIONS
As of March 31, 1995, Dial Call was a party to various acquisition
agreements which would require Dial Call to pay an aggregate of approximately
$22.3 million in cash. Additionally, Dial Call and Dial Page have an agreement
to acquire an SMR business in consideration of the issuance of Dial Page common
stock. Dial Page would contribute the acquired business to Dial Call.
7. PENDING TRANSACTIONS
In February 1995, the Company entered agreements to merge with Nextel and
to sell its paging business to MobileMedia.
F-117
<PAGE> 282
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Transit Communications Corporation:
We have audited the accompanying consolidated combined balance sheets of
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES (a Georgia corporation,
formerly Transit Communications Atlanta, L.P., a Georgia limited partnership)
AND CERTAIN ASSETS AND LIABILITIES OF TRANSIT SALES AND SERVICE, INC. (a Georgia
corporation) as of December 31, 1992 and 1993 and the related consolidated
combined statements of operations, changes in stockholders' equity/partners'
capital, and cash flows for each of the three years in the period ended December
31, 1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Transit Communications
Corporation and subsidiaries and certain assets and liabilities of Transit Sales
and Service, Inc. as of December 31, 1992 and 1993 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN L.L.P.
Atlanta, Georgia
February 28, 1994
F-118
<PAGE> 283
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
AND CERTAIN ASSETS AND LIABILITIES OF TRANSIT SALES AND SERVICE, INC.
CONSOLIDATED COMBINED BALANCE SHEETS AS OF DECEMBER 31, 1992 AND 1993
<TABLE>
<CAPTION>
ASSETS 1992 1993
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................................... $ 861,137 $ 526,781
Trade accounts receivable, net of allowance for doubtful accounts of $13,042 and
$132,017 in 1992 and 1993, respectively........................................... 173,296 632,377
Accounts receivable from related parties............................................ 0 62,399
Inventory........................................................................... 72,767 508,039
Prepaid expenses.................................................................... 80,404 267,175
Notes receivable from related party................................................. 0 35,000
----------- -----------
Total current assets.............................................................. 1,187,604 2,031,771
----------- -----------
PROPERTY AND EQUIPMENT:
Land................................................................................ 183,912 290,412
Buildings........................................................................... 55,000 162,897
Machinery and equipment............................................................. 3,526,125 5,163,379
Construction in progress............................................................ 0 1,037,986
----------- -----------
3,765,037 6,654,674
Less accumulated depreciation....................................................... (1,416,609) (2,030,429)
----------- -----------
Net property and equipment........................................................ 2,348,428 4,624,245
----------- -----------
OTHER ASSETS:
Intangible assets, net of accumulated amortization of $4,504,149 and $6,785,755 in
1992 and 1993,
respectively (Note 2)............................................................. 8,115,047 39,907,523
Organizational costs and deferred loan costs, net of accumulated amortization of
$157,305 and $12,250 in 1992 and 1993, respectively............................... 42,951 40,944
Deferred merger costs (Note 17)..................................................... 0 380,000
Due from related party.............................................................. 52,268 0
Restricted cash..................................................................... 5,577,492 0
----------- -----------
Total other assets................................................................ 13,787,758 40,328,467
----------- -----------
Total assets...................................................................... $17,323,790 $46,984,483
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY/PARTNERS' CAPITAL
CURRENT LIABILITIES:
Trade accounts payable.............................................................. $ 283,384 $ 495,135
Accounts payable to related parties................................................. 9,838 28,677
Accrued interest.................................................................... 85,570 0
Due to Crystal Communications (Note 3).............................................. 74,642 40,500
Accrued property taxes.............................................................. 37,350 0
Accrued legal expenses (Notes 17 and 18)............................................ 0 1,166,000
Other accrued expenses.............................................................. 35,558 168,617
Long-term debt, current portion (Note 6)............................................ 26,868 34,261
Borrowings under credit agreement with related party, current portion (Note 5)...... 150,000 0
Capital lease obligation, current................................................... 0 10,902
----------- -----------
Total current liabilities......................................................... 703,210 1,944,092
----------- -----------
BORROWINGS UNDER CREDIT AGREEMENT WITH RELATED PARTY, net of current portion
(Note 5)............................................................................ 5,964,375 0
----------- -----------
LONG-TERM DEBT, net of current portion (Note 6)....................................... 15,906 123,158
----------- -----------
CAPITAL LEASE OBLIGATIONS, net of current portion..................................... 0 25,884
----------- -----------
DEFERRED TAXES (Note 16).............................................................. 0 8,878,800
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 11, 17 and 18)................................... 0 0
----------- -----------
STOCKHOLDERS' EQUITY/PARTNERS' CAPITAL:
Transit Communications Corporation common stock, no par value; 30,000,000 shares
authorized, 10,260,291 shares issued and outstanding at December 31, 1993......... 0 40,790,647
Accumulated deficit................................................................. 0 (4,232,511)
Partners' deficit--general partners................................................. (1,702,950) 0
Partners' capital--limited partners................................................. 12,682,262 0
Nonallocated losses (Note 1)........................................................ (339,013) (545,587)
----------- -----------
Total stockholders' equity/partners' capital...................................... 10,640,299 36,012,549
----------- -----------
Total liabilities and stockholders' equity/partners' capital...................... $17,323,790 $46,984,483
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated combined
balance sheets.
F-119
<PAGE> 284
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
AND CERTAIN ASSETS AND LIABILITIES OF
TRANSIT SALES AND SERVICE, INC.
CONSOLIDATED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
<TABLE>
<CAPTION>
1991 1992 1993
---------- ---------- ----------
<S> <C> <C> <C>
NET REVENUES:
Dispatch sales.................................. $ 1,758,009 $ 1,815,358 $ 2,782,294
Equipment sales and service revenues............ 198,724 589,922 1,757,224
Interconnect sales.............................. 527,214 498,347 600,817
Other revenues.................................. 83,972 221,258 240,479
----------- ----------- -----------
Total revenues............................... 2,567,919 3,124,885 5,380,814
----------- ----------- -----------
OPERATING EXPENSES:
Site location costs............................. 707,716 1,035,557 1,468,456
Equipment sales and service costs............... 186,555 329,344 1,301,301
Site location and equipment sales and service
operating payroll costs paid to related
parties...................................... 177,100 232,100 311,300
Management fees and other general and
administrative expenses paid to related
parties...................................... 406,500 429,700 1,050,500
Selling, general and administrative expenses.... 312,050 473,378 2,039,539
Depreciation and amortization................... 2,252,043 2,486,550 4,021,936
----------- ----------- -----------
Total operating expenses..................... 4,041,964 4,986,629 10,193,032
----------- ----------- -----------
OPERATING LOSS.................................... (1,474,045) (1,861,744) (4,812,218)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense................................ (532,413) (438,216) (373,283)
Interest income................................. 41,686 35,828 89,148
Other, net...................................... 4,280 12,673 (14,774)
----------- ----------- -----------
Other expense, net........................... (486,447) (389,715) (298,909)
----------- ----------- -----------
NET LOSS BEFORE BENEFIT FOR INCOME TAXES.......... (1,960,492) (2,251,459) (5,111,127)
BENEFIT FOR INCOME TAXES.......................... 0 0 306,200
----------- ----------- -----------
NET LOSS.......................................... $(1,960,492) $(2,251,459) $(4,804,927)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated combined
statements.
F-120
<PAGE> 285
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
AND CERTAIN ASSETS AND LIABILITIES OF TRANSIT SALES AND SERVICES, INC.
CONSOLIDATED COMBINED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY/PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
-------------------------------------
COMMON STOCK
----------------------- ACCUMULATED
SHARES AMOUNT DEFICIT
---------- ----------- ------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1990........... 0 $ 0 $ 0
Sale of partnership interests
on February 8, 1991............... 0 0 0
Sale of partnership interests
on May 23, 1991................... 0 0 0
Syndication costs................... 0 0 0
Allocation of net loss.............. 0 0 0
---------- ----------- -----------
BALANCE, DECEMBER 31, 1991........... 0 0 0
Sale of partnership interests
on November 4, 1992............... 0 0 0
Syndication costs................... 0 0 0
Allocation of net loss.............. 0 0 0
---------- ----------- -----------
BALANCE, DECEMBER 31, 1992........... 0 0 0
Net loss, January 1 to February 28,
1993.............................. 0 0 0
Issuance of common stock in exchange
for partnership capital........... 1,000,000 10,613,470 0
Stock split (5 for 1)............... 5,000,000 0 0
Stock dividend...................... 300,000 0 0
Cash contribution from Partnership.. 0 1,222,222 0
Shares sold under stock purchase
agreement with investor, net...... 2,378,289 16,440,000 0
Shares sold under stock and warrant
purchase agreement to partners,
net............................... 793,463 6,970,773 0
Shares issued in merger with
JCC Holdings, Inc. ............... 777,026 5,439,182 0
Shares sold under employment
agreement......................... 11,513 105,000 0
Net loss, March 1 to December 31,
1993.............................. 0 0 (4,232,511)
---------- ----------- -----------
BALANCE, DECEMBER 31, 1993........... 10,260,291 $40,790,647 $(4,232,511)
========== =========== ===========
<CAPTION>
PARTNERS' CAPITAL
-----------------------------------------------------
LIMITED PARTNERS
GENERAL ---------------------------------------
PARTNER CLASS A CLASS B CLASS C
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1990........... $ (712,423) $1,087,579 $ 0 $ 0
Sale of partnership interests
on February 8, 1991............... 0 66,883 7,001,000 0
Sale of partnership interests
on May 23, 1991................... 0 0 700,000 0
Syndication costs................... 0 0 (698,948) 0
Allocation of net loss.............. (500,577) (373,873) (953,647) 0
----------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1991........... (1,213,000) 780,589 6,048,405 0
Sale of partnership interests
on November 4, 1992............... 0 0 0 7,550,000
Syndication costs................... 0 0 0 (100,995)
Allocation of net loss.............. (489,950) (393,413) (1,086,554) (115,770)
----------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1992........... (1,702,950) 387,176 4,961,851 7,333,235
Net loss, January 1 to February 28,
1993.............................. (38,500) (60,251) (167,153) (99,938)
Issuance of common stock in exchange
for partnership capital........... (1,741,450) (326,925) (4,794,698) (7,233,297)
Stock split (5 for 1)............... 0 0 0 0
Stock dividend...................... 0 0 0 0
Cash contribution from Partnership.. 0 0 0 0
Shares sold under stock purchase
agreement with investor, net...... 0 0 0 0
Shares sold under stock and warrant
purchase agreement to partners,
net............................... 0 0 0 0
Shares issued in merger with
JCC Holdings, Inc. ............... 0 0 0 0
Shares sold under employment
agreement......................... 0 0 0 0
Net loss, March 1 to December 31,
1993.............................. 0 0 0 0
----------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1993........... $ 0 $ 0 $ 0 $ 0
=========== ========== =========== ===========
<CAPTION>
UNALLOCATED
LOSSES TOTAL
----------- ----------
<S> <C> <C>
BALANCE, DECEMBER 31, 1990............. $ (40,846) $ 334,310
Sale of partnership interests
on February 8, 1991................. 0 7,067,883
Sale of partnership interests
on May 23, 1991..................... 0 700,000
Syndication costs..................... 0 (698,948)
Allocation of net loss................ (132,395) (1,960,492)
---------- -----------
BALANCE, DECEMBER 31, 1991............. (173,241) 5,442,753
Sale of partnership interests
on November 4, 1992................. 0 7,550,000
Syndication costs..................... 0 (100,995)
Allocation of net loss................ (165,772) (2,251,459)
--------- -----------
BALANCE, DECEMBER 31, 1992............. (339,013) 10,640,299
Net loss, January 1 to February 28,
1993................................ (34,429) (400,271)
Issuance of common stock in exchange
for partnership capital............. 0 0
Stock split (5 for 1)................. 0 0
Stock dividend........................ 0 0
Cash contribution from Partnership.... 0 1,222,222
Shares sold under stock purchase
agreement with investor, net........ 0 16,440,000
Shares sold under stock and warrant
purchase agreement to partners,
net................................. 0 6,970,773
Shares issued in merger with
JCC Holdings, Inc. ................. 0 5,439,182
Shares sold under employment
agreement........................... 0 105,000
Net loss, March 1 to December 31,
1993................................ (172,145) (4,404,656)
--------- -----------
BALANCE, DECEMBER 31, 1993............. $(545,587) $36,012,549
========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated combined
statements.
F-121
<PAGE> 286
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.) AND
CERTAIN ASSETS AND LIABILITIES OF TRANSIT SALES AND SERVICE, INC.
CONSOLIDATED COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
<TABLE>
<CAPTION>
1991 1992 1993
------------ ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $ (1,960,492) $(2,251,459) $ (4,804,927)
------------ ----------- ------------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................ 2,252,043 2,486,550 4,021,936
Deferred tax benefit......................... 0 0 (306,200)
Changes in operating assets and liabilities:
Trade accounts receivable.................. (73,031) (12,397) (84,824)
Accounts receivable from related parties... 77,904 0 (62,399)
Inventory.................................. 8,110 (25,071) (86,368)
Prepaid expenses........................... (176,250) 99,884 (143,989)
Trade accounts payable..................... (32,592) 192,333 208,059
Accounts payable to related parties........ (25,653) 5,330 18,839
Accrued interest........................... 40,458 (16,278) (85,570)
Accrued legal expenses related to operating
activities.............................. 0 0 786,000
Other accrued expenses..................... (2,250) 113,404 (240,598)
------------ ----------- ------------
Total adjustments................................. 2,068,739 2,843,755 4,024,886
------------ ----------- ------------
Net cash provided by (used in) operating
activities...................................... 108,247 592,296 (780,041)
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in restricted cash....................... 0 (5,577,493) 5,577,492
Acquisition of JCC Holdings, Inc., net of cash
acquired..................................... 0 0 (20,270,811)
Acquisition of other SMR Businesses............. (10,594,552) (1,152,969) (838,000)
Purchases of property and equipment............. (189,109) (183,611) (1,548,474)
Purchases of intangible assets.................. (58,312) (136,748) (379,666)
Change in deferred merger and other costs and
other assets................................. 331,541 (44,969) (363,160)
Accrued legal expenses reflected as deferred
merger costs (Note 17)....................... 0 0 380,000
Change in amounts due from related parties...... (286,250) 62,722 17,268
------------ ----------- ------------
Net cash used in investing activities............. (10,796,682) (7,033,068) (17,425,351)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt..................... 6,502,292 0 0
Repayments of long-term debt.................... (2,652,258) (338,441) (6,866,959)
Net proceeds from issuance of partnership
interests and warrant........................ 7,002,052 7,449,005 0
Cash contribution from partnership.............. 0 0 1,222,222
Net proceeds from issuance of common stock...... 0 0 23,515,773
------------ ----------- ------------
Net cash provided by financing activities......... 10,852,086 7,110,564 17,871,036
------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... 163,651 669,792 (334,356)
CASH AND CASH EQUIVALENTS, beginning of year...... 27,694 191,345 861,137
------------ ----------- ------------
CASH AND CASH EQUIVALENTS, end of year............ $ 191,345 $ 861,137 $ 526,781
============ =========== ============
CASH PAID DURING THE YEAR FOR INTEREST............ $ 491,955 $ 461,978 $ 373,283
============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated combined
statements.
F-122
<PAGE> 287
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
AND CERTAIN ASSETS AND LIABILITIES OF TRANSIT SALES AND SERVICE, INC.
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1991, 1992 AND 1993
1. ORGANIZATION
Transit Communications Atlanta, L.P. (the "Partnership"), formerly
Diversified Communications Holdings, Ltd., was organized pursuant to the
provisions of the Georgia Limited Partnership Act on January 13, 1988. On March
1, 1993, Transit Communications Corporation ("TCC" or the "Company") was
incorporated in the state of Georgia and all of the assets and liabilities of
the Partnership were transferred to TCC at their historical costs in exchange
for 1,000,000 shares of the no par value common stock of TCC. The Company
provides specialized mobile radio ("SMR") services in the southern United
States. SMR licenses are provided by the Federal Communications Commission
("FCC") as prescribed by Part 90 of the FCC rules and regulations established as
a result of FCC Docket No. 18262. The Company provides SMR services to end users
who are eligible to operate radio systems under the FCC regulations governing
land mobile radio services.
In February 1991, Transit Sales and Service, Inc. ("Sales and Service") was
incorporated in Georgia as an S corporation to acquire the assets used in the
equipment sales and service operations in LaGrange, Georgia, from Transit
Communications USA, L.P. ("Transit, USA"), a related party through common
ownership, at the historical cost of the assets. In October 1991, Sales and
Service opened an equipment sales and service operation in Alpharetta, Georgia.
The equipment sales and service operations (collectively, the "Sales and Service
Shops") sell radios and parts used by SMR customers and provide related
services, including installation and maintenance of SMR-related equipment. In
conjunction with the potential merger (Note 17), the Sales and Service Shops
will be transferred to TCC. Accordingly, the Sales and Service Shops have been
combined with TCC in the accompanying consolidated combined financial
statements. The liabilities of the Sales and Service Shops exceed the related
assets, resulting in a deficit, and the Sales and Service Shops will be
dependent upon TCC for operating and capital funding. The unallocated losses of
the Sales and Service Shops represent the deficit that will be assumed by TCC
upon the transfer and, accordingly, have not been allocated to the partners or
included in accumulated deficit of TCC in the accompanying balance sheets.
All activities of TCC and the Sales and Service Shops (collectively, the
"Combined Entities") were managed by Transit Communications Services, L.P.
("Transit, GP"), the general partner through July 1993. Administrative services
are provided to the Partnership and the Company by Transit General Partner, Inc.
("Transit, Inc."), the general partner of Transit, GP. Such services are
provided under management agreements with each of the Combined Entities. Charges
under the management agreements and other allocated expenses for the years ended
December 31, 1991, 1992, and 1993 consisted of the following:
<TABLE>
<CAPTION>
1991 1992 1993
-------- -------- ----------
<S> <C> <C> <C>
Management fees paid to Transit, GP by the
Partnership................................... $113,300 $100,000 $ 54,200
Salaries and related benefits allocated to the
Combined Entities and paid to Transit, Inc.... 368,300 478,800 1,219,900
Common general and administrative expenses
allocated to the Combined Entities and paid to
Transit, GP................................... 102,000 83,000 87,700
-------- -------- ----------
$583,600 $661,800 $1,361,800
======== ======== ==========
</TABLE>
Charges under the management agreement were as specified in the partnership
agreement. During 1991 and 1992, payroll expenses and common general and
administrative expenses were allocated based on the
F-123
<PAGE> 288
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
AND CERTAIN ASSETS AND LIABILITIES OF TRANSIT SALES AND SERVICE, INC.
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1991, 1992 AND 1993
1. ORGANIZATION -- (CONTINUED)
percentage of total revenues of the related entities. During 1993, such expenses
were allocated based on management's estimates of actual efforts incurred on
behalf of the related entities.
On February 8, 1991, the Partnership acquired certain SMR businesses (Note
3) at a total cost of $9,633,622. The acquisitions were financed in part by a
recapitalization of the Partnership. In connection with the Partnership's
recapitalization, the partnership agreement was amended and restated to provide
for two classes of limited partners (Class A and Class B). The recapitalization
included the sale of $7,000,000 of Class B limited partnership interests, the
sale of a $1,000 Class B warrant (Note 9), and the establishment of a $6,750,000
long-term bank financing facility (Note 5). Proceeds of the recapitalization
were used to repay all of the $2,436,128 in notes payable of the Partnership
outstanding at December 31, 1990, brokerage commissions, legal fees, and other
costs of the acquisitions. The Partnership incurred $698,948 of fees and
expenses related to the sale of partnership interests. These costs have been
reflected as a reduction in the Class B partners' accounts in the accompanying
financial statements. The remaining proceeds of the sale of limited partnership
interests and debt financing were used for working capital purposes, including
the financing of certain amounts with a related party (Note 8).
The acquisitions on February 8, 1991 included the transfer of certain SMR
equipment from a related party (Note 8). In addition, the Partnership purchased
the SMR business from Atlanta Trunking Associates, Inc. ("Southland") (Note 3)
on May 23, 1991 at a total cost of $960,930 financed in part by the sale of
$700,000 of additional Class B limited partnership interests (Note 9).
On November 4, 1992, the partnership agreement was amended and restated to
provide for an additional class of limited partners (Class C). The
recapitalization included the sale of $7,550,000 of Class C limited partnership
interests. The Partnership incurred $100,995 of fees and expenses related to the
sale of the partnership interests. These costs have been reflected as a
reduction in the Class C partners' accounts in the accompanying financial
statements. Proceeds of the recapitalization were set aside in an
interest-bearing money market account in the amount of $5,550,000 as a Class C
reserve for future operations, growth, and expansion of the Company's business
(Note 2). The Class C reserve funds could be withdrawn upon the approval of a
majority of the board of directors of Transit, GP. Such funds were utilized in
1993 (Note 2). The remaining proceeds of the sale of limited partnership
interests could be used for working capital purposes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND COMBINATION
The financial statements presented reflect the consolidated and combined
accounts and operations of the Company and its subsidiaries and the Sales and
Service Shops for the periods presented, after elimination of all significant
intercompany accounts and transactions.
REVENUE RECOGNITION
The Combined Entities earn revenues by providing communication from SMR and
conventional radios installed in motor vehicles or portable units ("dispatch
sales") and interconnecting SMR units to the local telephone exchange carrier
("interconnect sales"). Dispatch sales are based on a flat fee billed in
advance. Interconnect sales consist of a base fee which includes varying minutes
of usage depending on the sales contract plus per minute charges for usage above
the contracted amount. Equipment sales and service revenues include equipment
sales and installation and maintenance revenues. Other operating revenues
F-124
<PAGE> 289
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
AND CERTAIN ASSETS AND LIABILITIES OF TRANSIT SALES AND SERVICE, INC.
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1991, 1992 AND 1993
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
include subfleet charges, paging revenues, and other miscellaneous revenues. All
revenues are recognized when earned as services are performed.
The Company obtains customers through referrals from SMR equipment sellers
and installers. The Company pays commissions to equipment sellers and installers
for customers referred. These commissions are included in selling, general, and
administrative expenses in the accompanying statements of operations.
SITE LOCATION COSTS
Site location costs include telephone interconnect expenses and system
maintenance costs as well as site location rentals paid to property owners where
the Company's SMR systems are located. Site location costs are paid monthly
under agreements which may be canceled with 30 days' notice by either party.
PROPERTY AND EQUIPMENT
Property and equipment consist substantially of SMR systems and
transmission and switching equipment.
Property and equipment are recorded at cost, less accumulated depreciation,
and are depreciated over the estimated useful life of the related asset (15
years for buildings and 5 to 7 years for equipment) using the straight-line
method of depreciation. Depreciation expense was $410,573, $490,800, and
$711,991 in 1991, 1992, and 1993, respectively.
The Company removes the cost and accumulated depreciation upon retirement
and recognizes the related gain or loss upon the dispositions of assets.
INCOME TAXES
The Partnership is not considered a taxable entity for federal and state
income tax purposes. All taxable income or loss is included in the separate tax
returns of the partners in accordance with the terms of the partnership
agreement. Accordingly, no provision for income taxes is included in the
accompanying financial statements for the operations of the Partnership.
Transit Sales and Service, Inc. has filed elections with the Internal
Revenue Service and certain state taxing authorities to be treated as an S
corporation. As an S corporation, Transit Sales and Service, Inc. generally will
not be subject to corporate-level taxes on its net income or loss because such
income or loss will be attributed to its stockholders.
In conjunction with the incorporation of the Company, TCC adopted Statement
of Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for
Income Taxes." SFAS No. 109 requires the determination of deferred income taxes
using the liability method under which deferred tax assets and liabilities are
determined based on the differences between the financial accounting and tax
bases of assets and liabilities. Deferred tax assets or liabilities at the end
of each period are determined using the tax rate expected to apply to taxable
income in the period in which the deferred tax asset or liability is expected to
be settled or realized.
F-125
<PAGE> 290
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
AND CERTAIN ASSETS AND LIABILITIES OF TRANSIT SALES AND SERVICE, INC.
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1991, 1992 AND 1993
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
INTANGIBLE ASSETS
Intangible assets consist of assets acquired in connection with SMR
businesses. A summary of intangible assets as of December 31, 1992 and 1993 is
as follows:
<TABLE>
<CAPTION>
1992
-------------------------------------
ACCUMULATED USEFUL
COST AMORTIZATION NET LIVES
---------- ------------ --------- -------------
<S> <C> <C> <C> <C>
Noncompete agreements.................... $ 3,915,000 $(2,253,711) $1,661,289 3-5 years
Customer base............................ 1,958,000 (400,476) 1,557,524 11 years
FCC licenses............................. 4,289,614 (825,477) 3,464,137 10 years
Consulting agreements.................... 1,085,000 (533,435) 551,565 4 years
Goodwill and other....................... 1,371,582 (491,050) 880,532 5-10 years
----------- ----------- ----------
$12,619,196 $(4,504,149) $8,115,047
=========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
1993
--------------------------------------
ACCUMULATED USEFUL
COST AMORTIZATION NET LIVES
---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Noncompete agreements................... $ 3,010,000 $(2,063,765) $ 946,235 2-5 years
Customer base........................... 2,685,385 (640,700) 2,044,685 7-11 years
FCC licenses............................ 29,110,187 (2,124,431) 26,985,756 10 years
Consulting agreements................... 1,210,000 (911,826) 298,174 3-5 years
Goodwill................................ 10,677,706 (1,045,033) 9,632,673 5-10 years
----------- ----------- -----------
$46,693,278 $(6,785,755) $39,907,523
=========== =========== ===========
</TABLE>
The noncompete agreements, customer base, FCC licenses, and consulting
agreements represent the allocated costs of acquired SMR businesses (Note 3).
FCC licenses also include the costs of acquiring such licenses from the FCC,
primarily legal and consulting costs. The cost and related accumulated
amortization of the intangible assets are removed from the books when fully
amortized.
Goodwill represents the remaining cost of acquired SMR businesses.
Subsequent to its acquisition, the Company continually evaluates whether later
events and circumstances have occurred that indicate that the remaining
estimated useful life of goodwill may warrant revision or that the remaining
balance of goodwill may not be recoverable. When factors indicate that goodwill
should be evaluated for possible impairment, the Company uses an estimate of the
related business segment's undiscounted net income (or an alternative acceptable
measure) over the remaining life of the goodwill in measuring whether the
goodwill is recoverable.
INVENTORIES
Inventories, consisting primarily of two-way radios and related replacement
parts, are stated at lower of cost (first-in, first-out method) or market.
F-126
<PAGE> 291
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
AND CERTAIN ASSETS AND LIABILITIES OF TRANSIT SALES AND SERVICE, INC.
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1991, 1992 AND 1993
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
RESTRICTED CASH
At December 31, 1992, the Partnership held restricted cash from the sale of
Class C limited partnership interests (Note 2) totaling $5,550,000 in an
interest-bearing money market account for future operations, growth and
expansion of the Partnership's business in accordance with the second amended
and restated partnership agreement. Funds, including interest earned, may be
withdrawn from the account only with the approval of a majority of the board of
directors of Transit, Inc. The restricted cash was utilized during 1993 in
connection with the merger with JCC Holdings, Inc. (Note 4).
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with current
year presentation.
3. ACQUISITIONS
During 1990, Transit, GP entered into agreements to acquire the SMR
businesses of Television-Electronics Company d.b.a. Atlanta Communications
Company, Jack's Two-Way Radio Service, Inc., Marietta Communications Service,
Inc., and McDougald Communications (collectively, the "SMR Businesses").
On February 8, 1991, Transit, GP assigned its right to acquire the SMR
businesses to the Partnership. The acquisitions of the SMR Businesses were
completed on February 8, 1991 at a total cost of $9,633,622 and were financed by
the sale of $7,000,000 of Class B partnership interests and the establishment of
a $6,750,000 long-term bank financing facility (Note 1). The acquisitions were
accounted for as a purchase as follows:
<TABLE>
<S> <C>
Current assets............................................. $ 148,774
Property and equipment..................................... 1,063,000
Intangible assets.......................................... 8,321,848
Other assets............................................... 100,000
----------
Purchase price............................................. $9,633,622
==========
</TABLE>
Concurrent with the above transaction, Transit, USA contributed two
five-channel SMR systems and intangible assets and related liabilities at
historical costs to the Partnership in exchange for Class A limited partnership
interests (Note 8).
On May 23, 1991, the Partnership purchased the SMR business from Southland
at a total cost of $960,930. The acquisition was financed in part by the sale of
$700,000 of Class B partnership interests (Note 1) and was accounted for as a
purchase as follows:
<TABLE>
<S> <C>
Property and equipment....................................... $110,000
Intangible assets............................................ 850,930
--------
Purchase price............................................... $960,930
========
</TABLE>
F-127
<PAGE> 292
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
AND CERTAIN ASSETS AND LIABILITIES OF TRANSIT SALES AND SERVICE, INC.
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1991, 1992 AND 1993
3. ACQUISITIONS -- (CONTINUED)
On November 6, 1992, the Partnership purchased ten SMR channels in
Jacksonville, Florida, from Eagle Communications at a cost of $993,000. The
Partnership also purchased five SMR channels in Jacksonville, Florida, from
Crystal Communications at a total cost of $115,000, $75,000 of which had not
been paid at December 31, 1992. Legal and other fees incurred in connection with
the purchases totaled $44,969 and have been included in the total purchase
price. These acquisitions were financed by the sale of $7,550,000 of Class C
partnership interests (Note 1) and were accounted for as a purchase as follows:
<TABLE>
<S> <C>
Property and equipment..................................... $ 135,000
Intangible assets.......................................... 1,017,969
----------
Purchase price............................................. $1,152,969
==========
</TABLE>
On January 28, 1993, the Partnership purchased SMR systems from Baker's
Electronics and Communications, Inc. and Network Trunking Systems, Inc. at a
cost of $208,000 and $630,000, respectively. Restricted cash was utilized to
fund these acquisitions which were accounted for as a purchase as follows:
<TABLE>
<S> <C>
Property and equipment....................................... $175,000
Intangible assets............................................ 663,000
--------
Purchase price............................................... $838,000
========
</TABLE>
The SMR systems purchased in 1993 are not material to the operating results
of the Combined Entities, and pro forma results are not presented.
F-128
<PAGE> 293
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
AND CERTAIN ASSETS AND LIABILITIES OF TRANSIT SALES AND SERVICE, INC.
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1991, 1992 AND 1993
4. MERGER WITH JCC HOLDINGS, INC.
On September 2, 1993, TCC Merger Corporation, a wholly owned subsidiary of
TCC, merged with and into JCC Holdings, Inc. ("JCC"), which provides SMR
services in the Atlanta, Georgia, metropolitan area and the central Florida and
Memphis, Tennessee, areas, and JCC became a wholly owned subsidiary of TCC (the
"JCC Merger"). In accordance with the agreement and plan of merger by and among
JCC, TCC, and TCC Merger Corporation, TCC Merger Corporation acquired all of the
outstanding shares of JCC common stock and convertible preferred stock for total
cost consideration of $20,302,032 (including $5,000,000 which had been advanced
to JCC during the period prior to the acquisition and was forgiven at the date
of acquisition) and 777,026 shares of TCC common stock valued at $5,439,182. The
JCC Merger was financed by a recapitalization of TCC (Note 10) and was accounted
for as a purchase. The total purchase price of $25,888,580, including legal fees
totaling $147,366, was allocated as follows:
<TABLE>
<S> <C>
Current assets............................................ $ 919,529
Property and equipment.................................... 1,271,710
FCC licenses and other intangible assets.................. 24,978,780
Goodwill.................................................. 9,185,000
Other assets.............................................. 39,033
Current liabilities....................................... (1,157,555)
Long-term debt and capital lease obligations, net of
current portion......................................... (162,917)
Deferred taxes............................................ (9,185,000)
-----------
Purchase price............................................ $25,888,580
===========
</TABLE>
The deferred tax assets and liabilities acquired in the JCC Merger are
summarized as follows:
<TABLE>
<S> <C>
Deferred tax liabilities:
FCC licenses................................................ $(9,185)
Other....................................................... (179)
-------
(9,364)
-------
Deferred tax assets:
Net operating loss carryforwards............................ 2,926
Other....................................................... 179
-------
Total deferred tax assets................................ 3,105
-------
Valuation allowance........................................... (2,926)
-------
$(9,185)
=======
</TABLE>
The net operating loss ("NOL") carryforwards acquired in the JCC Merger are
subject to substantial limitations under the Internal Revenue Code. Accordingly,
no income tax benefit related to these NOLs was recorded.
F-129
<PAGE> 294
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
AND CERTAIN ASSETS AND LIABILITIES OF TRANSIT SALES AND SERVICE, INC.
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1991, 1992 AND 1993
4. MERGER WITH JCC HOLDINGS, INC. -- (CONTINUED)
The following unaudited pro forma condensed statement of operations for the
year ended December 31, 1993 give effect to the JCC Merger as if it had occurred
on January 1, 1993 (in thousands):
<TABLE>
<S> <C>
Net revenues.................................................. $ 8,572
=======
Net loss...................................................... $ 8,868
=======
</TABLE>
5. BORROWINGS UNDER CREDIT AGREEMENT WITH RELATED PARTY
On February 8, 1991, the Partnership entered into a $6,750,000 credit
agreement (the "Credit Agreement") with Chase Manhattan Bank ("Chase"), a Class
B limited partner. The Partnership borrowed $6,425,000 under the Credit
Agreement in connection with the acquisition of certain SMR businesses (Note 3)
and repaid the $2,436,128 of notes payable outstanding at December 31, 1990. On
October 27, 1992, the Credit Agreement was amended to revise the interest rate,
the principal repayment schedule, management fee limitations, and the various
financial ratios, as defined. The note payable bears interest at Chase's prime
rate ("Prime") plus 1.75% or the London Interbank Borrowing Rate ("LIBOR") plus
3%. At December 31, 1992, the Partnership had $14,375 at the Prime rate option
and $6,100,000 at the LIBOR rate option which were 7.75% and 6.31%,
respectively. On September 3, 1993, the Partnership repaid the borrowings under
the Credit Agreement and related accrued interest (Note 4). Concurrently, the
Credit Agreement was terminated.
The borrowings under the Credit Agreement were secured by all of the assets
of the Partnership at December 31, 1992.
6. LONG-TERM DEBT
Long-term debt as of December 31, 1992 and 1993 consisted of the following:
<TABLE>
<CAPTION>
1992 1993
------- --------
<S> <C> <C>
Notes payable; interest at varying rates from 10%
to 14.5% plus principal payable monthly through
2004............................................ $42,774 $157,419
Less current maturities of long-term debt......... (26,868) (34,261)
------- --------
$15,906 $123,158
======= ========
</TABLE>
Maturities of long-term debt as of December 31, 1993 are as follows:
<TABLE>
<S> <C>
1994.................................................... $ 34,261
1995.................................................... 11,629
1996.................................................... 9,142
1997.................................................... 10,155
1998.................................................... 11,280
Thereafter.............................................. 80,952
--------
Total................................................. $157,419
========
</TABLE>
F-130
<PAGE> 295
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
AND CERTAIN ASSETS AND LIABILITIES OF TRANSIT SALES AND SERVICE, INC.
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1991, 1992 AND 1993
7. CAPITAL LEASES
The Company leases a portion of its equipment under capital leases which
expire at various dates through 1997. Following is a schedule of future minimum
payments under capital leases, together with the present value, calculated at
the Company's incremental borrowing rate at the inception of the leases:
<TABLE>
<S> <C>
1994..................................................... $15,588
1995..................................................... 11,556
1996..................................................... 11,556
1997..................................................... 8,389
-------
Total minimum lease payments........................... 47,089
Less amount representing interest........................ 10,303
-------
Present value of net minimum lease payments.............. 36,786
Less current maturities of capital lease obligations... 10,902
-------
Obligations under capital leases, net of current
maturities............................................. $25,884
=======
</TABLE>
At December 31, 1993, assets under capital leases had a cost of
approximately $53,000 and a net book value of approximately $30,000.
8. RELATED-PARTY TRANSACTIONS
The Company provides maintenance services to Transit, USA. Revenues from
these services totaled $8,427 and $34,751 in 1991 and 1992, respectively. There
were no revenues from these services in 1993.
The Combined Entities incurred legal expenses during the period from a
related party who has a partnership interest in Transit, GP. Such legal expenses
totaled approximately $408,000, $40,000, and $250,000 during 1991, 1992, and
1993, respectively.
The Partnership has a consulting agreement with a limited partner which
expired in 1993. The Partnership paid the limited partner $30,000 under this
agreement during 1991 and 1992 and $1,250 in 1993.
The Partnership entered into an interest rate protection agreement with a
Class B limited partner at a cost of $73,271 which was capitalized as
organizational costs and deferred loan costs and was being amortized over three
years. In September 1993, the related credit agreement was repaid (Note 5) and
the unamortized portion of the cost was expensed.
In connection with the February 8, 1991 acquisition, the SMR business of
Transit, USA was contributed to the Partnership in a noncash transaction.
Transit, USA transferred two five-channel SMR systems and intangible assets at
an historical cost of $285,500 and notes payable relating to the SMR systems of
$188,456 in exchange for Class A limited partnership interests of $66,883 and
forgiveness of an amount due from the Partnership to Transit, USA of $30,161.
Transit, GP is a 50% owner (subject to certain preferences and other conditions)
of Transit, USA.
9. PARTNERS' CAPITAL
Under the partnership agreement, which was amended during 1991 to provide
for two classes of limited partners (Class A and Class B), income, gains and
losses of the Partnership were allocated between the general partner and Class A
and Class B limited partners, and between the limited partners within each
class,
F-131
<PAGE> 296
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
AND CERTAIN ASSETS AND LIABILITIES OF TRANSIT SALES AND SERVICE, INC.
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1991, 1992 AND 1993
9. PARTNERS' CAPITAL -- (CONTINUED)
based upon allocation methods defined in the partnership agreement. Class A
limited partners are entitled to a preferred return, as defined, in certain
circumstances, from 9% to 12%.
The partnership agreement was amended during 1992 to provide for an
additional class for limited partners (Class C). The partnership agreement, as
amended, included the Class C partners in the allocation of income, gain, and
losses based on methods defined in the partnership agreement.
As part of the recapitalization in conjunction with the February 8, 1991
acquisition (Notes 1 and 3), the Partnership sold one of the Class B limited
partners a warrant for $1,000. The warrant granted the limited partner the right
to purchase additional Class B limited partnership interests representing a
Class B capital contribution of $1,222,222 at par which approximated fair value.
The warrant was recorded at $1,000, the cash consideration received, and is
included in the respective partner's capital account. During 1993, the rights
under the warrant were exercised by the limited partner in full and $1,222,222
was contributed by the Partnership to the Company.
10. STOCKHOLDERS' EQUITY
On March 1, 1993, TCC was incorporated in the state of Georgia and
1,000,000 shares of no par value common stock were issued (Note 1). Subsequently
on April 22, 1993, the number of shares was increased to 6,000,000 pursuant to a
5 for 1 stock split, and on August 3, 1993, TCC declared and distributed a stock
dividend of 300,000 shares of common stock to the Partnership, the sole
stockholder at the date of declaration. On September 1, 1993, TCC entered into a
stock purchase agreement (the "Stock Purchase Agreement") with a third party to
issue and sell 2,378,289 shares of TCC's common stock at a price of
approximately $7.02 per share for proceeds of $16,690,000. Under the Stock
Purchase Agreement, TCC was required to pay all reasonable expenses related to
the agreement and a $250,000 fee to the purchaser. TCC also entered into a stock
and warrant purchase agreement (the "Stock and Warrant Purchase Agreement") with
certain limited partners of the Partnership under which such partners purchased
793,463 shares of TCC's common stock at a price of $9.12 per share for an
aggregate purchase price of approximately $7,236,400 (the "Stock and Warrant
Purchase Price"), generating net proceeds of approximately $6,970,773. In
accordance with the Stock and Warrant Purchase Agreement, certain of the limited
partners surrendered convertible notes payable totaling $2,500,000, accrued
interest of approximately $71,400, and related rights in partial satisfaction of
the Stock and Warrant Purchase Price. Additionally, the limited partners were
given warrants to purchase 64,601 shares of common stock of TCC at a price of
$9.12 per share. The warrants expire five years from the date of grant and can
be exercised at any time prior to the expiration date. As of December 31, 1993,
none of these warrants have been exercised. A portion of the proceeds from these
transactions was utilized to repay outstanding borrowings under the credit
agreement with a related party (Note 5).
Both the Stock Purchase Agreement and the Stock and Warrant Purchase
Agreement contain certain covenants which, among other things, restrict the
issuance and redemption of debt and equity securities and limit certain
investments, capital expenditures, and disposition of assets subsequent of the
JCC Merger. In connection with the JCC Merger, JCC issued 777,026 shares of
common stock (Note 4). Additionally, during September 1993, 11,513 shares were
issued to a certain executive in conjunction with an employment agreement (Note
15).
F-132
<PAGE> 297
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
AND CERTAIN ASSETS AND LIABILITIES OF TRANSIT SALES AND SERVICE, INC.
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1991, 1992 AND 1993
11. COMMITMENTS AND CONTINGENCIES
The Company has entered into system maintenance contracts renewable on a
monthly basis with an equipment manufacturer to provide maintenance for a
portion of the Company's SMR equipment. Under these agreements, the Company paid
approximately $26,000, $30,000, and $30,000 during 1991, 1992, and 1993,
respectively. During 1990, the Company entered into system maintenance contracts
renewable on a monthly basis with an affiliate to provide maintenance for
substantially all of the Company's SMR equipment. The Company paid approximately
$95,900 and $133,000 during 1991 and 1992, respectively, to the affiliate under
these agreements.
The Company has entered into noncancelable operating lease agreements for
the use of certain towers and buildings utilized in the operation of the SMR
network. These leases vary in length, but all expire in or before 2000. Several
of the leases contain provisions whereby lease payments in later years increase
based on expenses incurred or revenues generated. During 1991, 1992, and 1993,
the Company recorded expenses totaling approximately $198,000, $462,000, and
$975,000, respectively, related to these leases. Future minimum rental
commitments as of December 31, 1993 are as follows:
<TABLE>
<S> <C>
1994................................................... $ 866,000
1995................................................... 691,000
1996................................................... 657,000
1997................................................... 551,000
1998................................................... 324,000
Thereafter............................................. 807,000
----------
$3,896,000
==========
</TABLE>
12. FCC-LICENSED CHANNELS
The Company operates its SMR systems under licenses from the FCC on certain
assigned frequencies. Under the terms of the licenses with the FCC granted prior
to April 1993, the Company must meet certain customer loading requirements on
each frequency within five years of the granting of the license. If the loading
requirements are not met, the FCC may reclaim the channel. Two channels were
returned to the FCC in 1992. In management's opinion, all applicable FCC loading
requirements will be met by the Company within the time allowed under its
remaining licenses, in no case later than April 1997.
F-133
<PAGE> 298
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
AND CERTAIN ASSETS AND LIABILITIES OF TRANSIT SALES AND SERVICE, INC.
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1991, 1992 AND 1993
12. FCC-LICENSED CHANNELS -- (CONTINUED)
In addition, 20 of the Company's licensed SMR channels are operated by
Motorola Communications and Electronics, Inc. under operating agreements which
expire from 1997 to 1999. Under these agreements, the Company receives a net
fixed fee plus 25% to 30% of the net customer billings related to these
channels. The Company received $20,060, $15,560, and $15,720 in net fixed fees
for the fiscal years ended December 31, 1991, 1992, and 1993, respectively.
Future minimum fixed fees to be received as of December 31, 1993 are as follows:
<TABLE>
<S> <C>
1994..................................................... $15,120
1995..................................................... 15,120
1996..................................................... 15,120
1997..................................................... 14,520
1998..................................................... 6,540
Thereafter............................................... 1,300
-------
$67,720
=======
</TABLE>
At December 31, 1993, the Company had licenses for additional channels not
yet in service.
13. CONVERTIBLE PROMISSORY NOTES
During 1993, TCC issued $2,500,000 of 10% convertible promissory notes (the
"Convertible Notes") due on demand. The Convertible Notes plus any accrued
interest were convertible into redeemable convertible preferred stock of TCC,
together with warrants to acquire 625,000 shares of common stock of TCC, at a
conversion price of $100 per share of redeemable convertible preferred stock.
The Convertible Notes were subsequently utilized by the holders as a part of the
consideration to purchase additional common stock of TCC and warrants in
connection with the JCC Merger (Note 4).
14. STOCK OPTION PLAN
On August 17, 1993, the stockholders of TCC approved the stock option plan
of Transit Communications Corporation (the "Stock Option Plan"). Under the terms
of the Stock Option Plan, the option committee is authorized to grant options to
certain key employees to purchase up to 1,016,400 shares of TCC's common stock.
The options may be either "incentive stock options" within the meaning of
Sections 421, 422, and 424 of the Internal Revenue Code or nonqualified options.
The exercise price of options granted is to be determined by the option
committee and may not be less than the fair market value of the stock at the
date of grant (110% of fair market value for employees who are 10%
stockholders). Any options granted are exercisable over a period to be
determined by the option committee, not to exceed ten years (five years for
options granted to employees who are 10% shareholders).
Simultaneously, the option committee granted options to purchase 334,100
shares of common stock to certain key employees. The options were granted at an
exercise price of $9.12 per share (the estimated fair market value at the date
of grant) and vest ratably on a monthly basis beginning at August 1, 1993 over
terms ranging from three to four years and expiring five years after the date of
grant. The employees may receive additional options through an additional option
grant based on the total number of shares issued in connection
F-134
<PAGE> 299
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
AND CERTAIN ASSETS AND LIABILITIES OF TRANSIT SALES AND SERVICE, INC.
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1991, 1992 AND 1993
14. STOCK OPTION PLAN -- (CONTINUED)
with the JCC Merger (Note 4). The additional options have not been determined.
At December 31, 1993, 37,580 options have vested and are exercisable. No options
were exercised during 1993.
15. EMPLOYMENT AGREEMENTS
During June and July 1993, TCC entered into employment agreements with
certain of its executives. The agreements are for up to 4.5 years and provide
for the payments to these executives of up to 150% of their base salaries then
in effect plus continuation of certain benefits if (1) the executives are
terminated without cause, (2) the executives receive a constructive dismissal,
as defined, or (3) there is a change in control, as defined, and the executives
voluntarily terminate their employment within six months. The maximum contingent
liability under these agreements as of December 31, 1993 is approximately
$277,500 and decreases annually.
In conjunction with these employment agreements, an executive was given
options to purchase 11,513 shares of common stock of TCC at a price of $9.12 per
share (estimated fair market value at the date of grant) pursuant to a stock
bonus plan contained in the employment agreement. During September 1993, the
executive exercised these options and acquired 11,513 shares of common stock for
total consideration of $105,000.
16. INCOME TAXES
In conjunction with the incorporation of the Company, TCC adopted SFAS No.
109. SFAS No. 109 requires the determination of deferred income taxes using the
liability method under which deferred tax assets and liabilities are determined
based on the differences between the financial accounting and tax bases of
assets and liabilities. Deferred tax assets or liabilities at the end of each
period are determined using the tax rate expected to apply to taxable income in
the period in which the deferred tax asset or liability is expected to be
settled or realized.
As of December 31, 1993, the temporary differences and carryforwards which
give rise to a significant portion of deferred tax assets and liabilities are as
follows (in thousands):
<TABLE>
<S> <C>
Deferred tax liabilities:
FCC licenses (Note 4)....................................... $(8,879)
Property and equipment...................................... (120)
Other....................................................... (195)
-------
(9,194)
Deferred tax assets:
Net operating losses........................................ 4,104
Intangible assets........................................... 177
Other....................................................... 138
-------
4,419
-------
Valuation allowance........................................... (4,104)
-------
Net deferred tax liability.................................... $(8,879)
=======
</TABLE>
F-135
<PAGE> 300
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
AND CERTAIN ASSETS AND LIABILITIES OF TRANSIT SALES AND SERVICE, INC.
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1991, 1992 AND 1993
16. INCOME TAXES -- (CONTINUED)
At December 31, 1993, the Company had NOL carryforwards totaling
approximately $10,800,000 which expire in various years through 2008, including
approximately $7,700,000 of NOL carryforwards acquired in the JCC Merger (Note
4) which are subject to substantial limitations under the Internal Revenue Code.
Income tax benefits have not been recorded for any of the NOLs.
For the year ended December 31, 1993, a reconciliation of the income tax
benefits based on the statutory federal income tax rate to the recorded income
tax expense is as follows (in thousands):
<TABLE>
<S> <C>
Federal income tax benefit at the statutory rate.............. $(1,738)
State income taxes, net of federal income tax benefit......... (204)
Amortization of intangibles, not deductible for tax
purposes.................................................... 494
Deferred tax benefit due to amortization of FCC licenses (Note
4).......................................................... 306
Net operating losses attributable to TCC with no current tax
benefit..................................................... 1,178
Net operating losses attributable to the Partnership and Sales
and Service (an S corporation).............................. 217
Other......................................................... 53
-------
$ 306
=======
</TABLE>
17. PROPOSED MERGER WITH DIAL PAGE, INC.
On September 2, 1993, TCC and its stockholders entered into a plan of
merger and plan of reorganization agreement (the "Dial Page Merger Agreement")
with Dial Page, Inc. ("Dial Page") and its wholly owned subsidiaries, Dial
Merger I, Inc. ("Dial Sub I"), Dial Merger II, Inc., and Advanced MobileComm,
Inc. ("AMI"), whereby Dial Sub I, a wholly owned subsidiary of Dial Page, will
be merged with and into TCC and TCC will become a wholly owned subsidiary of
Dial Page (the "Dial Page Merger"). Dial Page operates SMR, paging, and
messaging services primarily in metropolitan areas in the Southeast. In
accordance with the Dial Page Merger Agreement, each outstanding share of TCC
common stock (other than shares held by dissenting stockholders of TCC) will be
converted into the right to receive (1) 9,440,000 shares of Dial Page common
stock plus the number of shares of Dial Page common stock equal to the lesser of
TCC's cash balance at the closing date or $3,000,000 divided by $27.25, divided
by the then-outstanding shares of capital stock of TCC plus (2) the right to
purchase 200,000 additional shares of Dial Page common stock at an exercise
price per share of $27.25 divided by the then-outstanding shares of capital
stock of TCC. The Dial Page Merger will be accounted for as a purchase. The
transaction is subject to the approval of the stockholders of Dial Page, the
approval of certain regulatory authorities, and certain other conditions as
specified in the Dial Page Merger Agreement.
In connection with the proposed merger, the Partnership is required to
dissolve by December 31, 1994 and distribute all shares of Dial Page stock and
warrants owned by the Partnership to the respective partners.
In connection with the transactions contemplated by the Dial Page Merger
Agreement, Dial Page, TCC, and AMI formed SMR Southeast Limited Liability
Company ("SLLC"), a Delaware limited liability company, to file applications and
requests necessary for FCC licenses to operate jointly a wide area digital SMR
system in the southeastern United States (collectively, the "Wide Area Filings")
and to operate the digital mobile networks pursuant to such licenses. By this
arrangement, Dial Page, AMI, and TCC have sought to provide for Wide Area
Filings and related matters in a manner consistent with the obligations of the
F-136
<PAGE> 301
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
AND CERTAIN ASSETS AND LIABILITIES OF TRANSIT SALES AND SERVICE, INC.
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1991, 1992 AND 1993
17. PROPOSED MERGER WITH DIAL PAGE, INC. -- (CONTINUED)
parties to the Dial Page Merger Agreement prior to the consummation of the
mergers and to provide for utilization of the Wide Area Filings by Dial Page,
TCC, and AMI in the event that either or both mergers are not consummated. SLLC
has made the Wide Area Filings for the digital FCC licenses in 12 southern
states. Waivers from the FCC that would permit Dial Page, AMI, and TCC through
SLLC to convert their analog SMR systems to a wide area digital mobile network
have been granted, and the FCC has granted individual applications of channels
to SLLC in connection with these waivers.
Dial Page, TCC, and AMI have a 40%, 50%, and 10%, respectively, interest in
SLLC. Provisions governing the management and control of SLLC are set forth in
the Members Agreement and Agreement Concerning Wide Area Filing ("Members
Agreement"). It provides that SLLC's board of directors be comprised of three
directors, one designated by each member. A quorum for action by the board
requires the presence of all directors. Action by the board generally requires a
majority vote, but a unanimous vote is required to effect certain actions,
including, among others, matters relating to Wide Area Filings and the
determination by the SLLC to pursue businesses unrelated to the Wide Area
Filings and the holding and maintaining of the digital FCC licenses and the
related digital SMR system.
Since its formation, SLLC has been inactive and therefore has no separate
operations, revenues, or expenses. All activities related to obtaining wide area
filing licenses from the FCC have to date been conducted by Transit, Dial Page,
and AMI on behalf of SLLC. Through December 31, 1993, Transit has incurred
approximately $482,000 of costs, primarily legal and consulting costs, related
to the Wide Area Filings pending and/or granted to SLLC. Such amounts are
capitalized as license costs in the accompanying balance sheets (Note 2). As of
December 31, 1993, the wide area filing licenses are not in service, and
accordingly, no amortization of the capitalized license costs is required.
If the Dial Page Merger is not consummated, the parties have agreed
pursuant to the Members Agreement to agree unanimously to continue to conduct
their digital SMR operations through SLLC or to establish a separate entity for
each of the regional operating areas ("MTAs") within the SLLC's operating area,
to divide their digital SMR business by MTA, and to jointly operate these
businesses. If the mergers are not consummated, TCC will be unable to construct
a digital SMR network itself, and pursuant to the Members Agreement, it will be
required to operate its digital SMR business jointly with Dial Page and AMI or
through such regional entities (the "Regional Entities").
If the Dial Page Merger is not consummated, it is uncertain how the digital
SMR business of the parties will be operated, and there can be no assurance that
the parties will be able to operate the digital SMR business effectively in
either SLLC or the Regional Entities. Any decisions regarding the operation of
the digital SMR systems through SLLC or through each of the Regional Entities
would require the unanimous consent of all of the parties in the case of SLLC or
of all of the parties holding an interest in the respective regional entity.
The digital mobile SMR business involves a high degree of risk, and there
can be no assurance as to whether or not it will be economically successful. The
construction and implementation of digital mobile SMR networks will require
substantial additional debt or equity financing. To date, the Company has
obtained the necessary funds required to finance the acquisition of SMR licenses
and to finance capital expenditures primarily through the sale of equity
interests and long-term secured bank credit facilities. Since inception, the
Company has raised approximately $42,000,000 of equity through private
placements of limited partnership units, common stock, and warrants. The
Company's $6,040,000 in long-term secured debt outstanding to
F-137
<PAGE> 302
TRANSIT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
AND CERTAIN ASSETS AND LIABILITIES OF TRANSIT SALES AND SERVICE, INC.
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1991, 1992 AND 1993
17. PROPOSED MERGER WITH DIAL PAGE, INC. -- (CONTINUED)
Chase at December 31, 1992 was repaid in 1993. The Company's future capital
needs, including the design, implementation, and operation of the digital mobile
network, will require substantial additional debt and equity. The Company is
relying on the resources and ability of Dial Page following the mergers for its
capital requirements. Independent sources of capital have not been identified at
the present time, and there can be no assurance that such financing would be
available at all or when needed.
Through December 31, 1993, the Company has been billed for approximately
$380,000 in legal fees associated with the Dial Page Merger and the full amount
has been accrued and included in deferred merger costs in the accompanying
balance sheet. The Company is still discussing the amount of the billings and
the related payment terms with its attorneys.
18. LITIGATION
In November and December 1993, TCC, the Partnership, certain affiliated
companies, and certain individuals, including TCC's chairman and chief executive
officer (the "TCC Chairman and CEO") were named as defendants in lawsuits filed
in federal district court in northern Georgia. The actions alleged that certain
parties, including the TCC Chairman and CEO, appropriated opportunities to
acquire SMR licenses for C&D Communications, Inc. and its parent, Digital
TransService Corporation, corporations of which the TCC Chairman and CEO was
formerly president and chief executive officer, and provided these opportunities
to themselves and to TCC. The complaints charged that TCC aided and abetted and
conspired in the breach of the defendants' fiduciary duties to these companies.
In addition to substantial monetary damages and other relief from the
defendants, including TCC, the plaintiffs sought to impose a constructive trust
on certain SMR interests of TCC and to enjoin the transfer of these interests in
the proposed merger with Dial Page (Note 17).
In a consent order issued by the federal district court for northern
Georgia dated February 16, 1994, the plaintiffs and their counsel in the
lawsuits agreed that it is in the interests of all parties to have the proposed
merger between Dial Page, Inc. and Transit (Note 17) close, and therefore, it
was stipulated and ordered that the plaintiffs and their counsel agreed to
dismiss (a) any request for injunctive relief against the Dial Page Merger, (b)
any request for constructive trust on any of the assets of TCC or the
Partnership, and (c) any request for money damages against TCC or the
Partnership. TCC and the Partnership were therefore dropped as defendants. The
plaintiffs and their counsel also agreed not to seek to amend the complaints in
the lawsuits or to file any new actions seeking any such injunctive relief,
constructive trust, or monetary damages against TCC or the Partnership. The
lawsuits continue against the TCC Chairman and CEO and certain other affiliated
companies not involved in the Dial Page Merger. TCC and the Partnership have no
indemnification or other agreements regarding these lawsuits with the TCC
Chairman and CEO or the affiliated companies, and in the opinion of management,
the resolution of these lawsuits will not have a material adverse effect on
either TCC, the Partnership, or the Dial Page Merger.
The Company has expensed $586,000 in legal costs related to the above
litigation, which is included in selling, general, and administrative expenses
in the accompanying statement of operations. The Company has been billed for
such legal fees and the full amount has been accrued at December 31, 1993. The
Company is still discussing the amount of the billings and the related payment
terms with its attorneys.
F-138
<PAGE> 303
TRANSIT COMMUNICATIONS CORPORATION
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
---------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and temporary investments..................................................... $ 465,774 $ 520,097
Trade accounts receivable, net..................................................... 643,789 580,017
Accounts receivable from related parties........................................... 199,245 160,209
Inventory, net..................................................................... 352,549 426,954
Prepaid expenses................................................................... 210,232 259,266
Other current assets............................................................... 233,075 204,734
----------- -----------
Total current assets............................................................. 2,104,664 2,151,277
----------- -----------
PROPERTY AND EQUIPMENT:
Land............................................................................... 269,500 269,500
Buildings.......................................................................... 160,129 160,129
Automobiles and trucks............................................................. 85,578 85,578
Machinery and equipment............................................................ 4,967,557 4,965,755
Construction in progress........................................................... 1,369,920 1,037,986
----------- -----------
6,852,684 6,518,948
Less accumulated depreciation...................................................... (2,155,592) (1,933,816)
----------- -----------
Property and equipment, net...................................................... 4,697,092 4,585,132
----------- -----------
OTHER ASSETS:
Intangible assets, net............................................................. 38,490,189 39,851,397
Note receivable from related party, net of current portion......................... 359,454 359,454
Other.............................................................................. 856,910 412,187
----------- -----------
Total other assets............................................................... 39,706,553 40,623,038
----------- -----------
Total assets..................................................................... $46,508,309 $47,359,447
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................... $2,076,150 $ 411,747
Accrued expenses................................................................... 184,819 1,332,493
Capital lease obligation, current portion.......................................... 5,895 10,902
Long-term debt, current portion.................................................... 165,404 18,327
----------- -----------
Total current liabilities........................................................ 2,432,268 1,773,469
----------- -----------
LONG-TERM DEBT, net of current portion............................................... 0 123,158
----------- -----------
CAPITAL LEASE OBLIGATION, net of current portion..................................... 0 25,884
----------- -----------
DEFERRED TAXES....................................................................... 8,649,176 8,878,800
----------- -----------
COMMITMENTS AND CONTINGENCIES........................................................ 0 0
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, no par value; 30,000,000 shares authorized, 10,260,291 shares issued
and outstanding.................................................................. 40,790,647 40,790,647
Accumulated deficit................................................................ (5,363,782) (4,232,511)
----------- -----------
Total stockholders' equity....................................................... 35,426,865 36,558,136
----------- -----------
Total liabilities and stockholders' equity....................................... $46,508,309 $47,359,447
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
interim balance sheets.
F-139
<PAGE> 304
TRANSIT COMMUNICATIONS CORPORATION
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1994 1993
----------- ---------
(UNAUDITED)
<S> <C> <C>
NET REVENUES......................................................... $ 2,354,789 $ 709,238
OPERATING COSTS...................................................... 1,309,887 304,512
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES........................ 807,589 279,654
DEPRECIATION AND AMORTIZATION........................................ 1,606,215 642,661
----------- ---------
Operating loss.................................................. (1,368,902) (517,589)
OTHER INCOME (EXPENSES), net......................................... 237,631 (50,626)
----------- ---------
NET LOSS............................................................. $(1,131,271) $(568,215)
=========== =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
interim statements.
F-140
<PAGE> 305
TRANSIT COMMUNICATIONS CORPORATION
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1994 1993
----------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................... $(1,131,271) $(568,215)
----------- ---------
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization................................. 1,606,215 642,661
Changes in operating assets and liabilities:
Trade accounts receivable, net............................. (63,772) 11,560
Accounts receivable from related parties................... (39,036) (44,000)
Inventory.................................................. 74,406 (17,223)
Prepaid expenses........................................... 49,034 27,316
Other current assets....................................... (28,341) 3,620
Accounts payable........................................... 1,664,403 (50,202)
Accrued expenses........................................... (1,147,674) (88,849)
Deferred taxes............................................. (229,624) 0
----------- ---------
Total adjustments........................................ 1,885,611 484,883
----------- ---------
Net cash provided by (used in) operating activities...... 754,340 (83,332)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Receipt of restricted cash......................................... 0 359,200
Purchase of property and equipment................................. (333,737) (62,509)
Purchase of intangible assets...................................... (23,231) (35,610)
Acquisition of specialized mobile radio businesses................. 0 (838,000)
Deferred costs and other assets.................................... 393,154 0
Change in due from related party................................... (837,877) 0
----------- ---------
Net cash used for investing activities..................... (801,691) (576,919)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt....................................... (6,972) 0
----------- ---------
NET DECREASE IN CASH................................................. (54,323) (660,251)
CASH, beginning of period............................................ 520,097 850,344
----------- ---------
CASH, end of period.................................................. $ 465,774 $ 190,093
=========== =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
interim statements.
F-141
<PAGE> 306
TRANSIT COMMUNICATIONS CORPORATION
(FORMERLY TRANSIT COMMUNICATIONS ATLANTA, L.P.)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1994
(UNAUDITED)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated interim balance sheet as
of December 31, 1993 which was derived from audited financial statements (Note
2) and the unaudited condensed consolidated interim financial statements have
been prepared by Transit Communications Corporation ("TCC") pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements,
prepared in accordance with generally accepted accounting principles, have been
consolidated or omitted pursuant to such rules and regulations. Although
management believes that the disclosures are adequate to make the information
presented not misleading, it is suggested that these condensed consolidated
interim financial statements be read in conjunction with the Company's most
recent audited financial statements and notes thereto. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of the financial position, results of
operations, and cash flows for the interim periods presented have been made.
Operating results for the interim periods presented are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 1994.
2. MERGER WITH DIAL PAGE, INC.
On May 5, 1994, TCC merged with and into Dial Call Communications, Inc.
("Dial Call"), a wholly owned subsidiary of Dial Page, Inc. ("Dial Page").
Previous Dial Page and Dial Call registration statement filings have disclosed
the consolidated and combined accounts of TCC and its subsidiaries and certain
assets and liabilities of Transit Sales and Service, Inc. (the "Sales and
Service Shops") as the business to be merged. However, subsequent to March 31,
1994, the parties to the merger agreed to exclude the Sales and Service Shops
from the merger. Accordingly, the condensed consolidated interim financial
statements presented herein do not reflect the accounts of the Sales and Service
Shops. The audited consolidated combined balance sheets as of December 31, 1992
and 1993 and the related consolidated combined statements of operations, changes
in stockholders' equity/partners' capital, and cash flows for each of the three
years in the period ended December 31, 1993 have not been restated due to the
immateriality of the Sales and Service Shops in relation to the audited
consolidated combined financial statements taken as a whole.
F-142
<PAGE> 307
REPORT OF INDEPENDENT AUDITORS
Shareholder and Board of Directors
Questar Telecom, Inc.
We have audited the accompanying balance sheet of Questar Telecom, Inc. as
of December 31, 1993 and the related statements of operations and accumulated
deficit and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Questar Telecom, Inc. at
December 31, 1993 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Salt Lake City, Utah
March 8, 1994
F-143
<PAGE> 308
QUESTAR TELECOM, INC.
BALANCE SHEET
DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and short-term investments................................................. $ 539
Notes receivable................................................................ 338
Accounts receivable, less allowance for bad debts of $63,000.................... 3,771
Accounts receivable from related parties........................................ 276
Inventories..................................................................... 2,311
Prepaid expenses and other...................................................... 595
--------
7,830
Property, plant and equipment:
Buildings and towers............................................................ 796
Radio equipment................................................................. 11,524
Furniture and fixtures.......................................................... 2,112
Construction in progress........................................................ 1,595
--------
16,027
Accumulated depreciation........................................................ 4,561
--------
11,466
Intangible assets:
Subscriber base................................................................. 9,117
Noncompete agreements........................................................... 10,174
Federal Communication Commission licenses....................................... 1,508
Other........................................................................... 561
--------
21,360
Accumulated amortization........................................................ 7,867
--------
13,493
--------
$ 32,789
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Acquisition payables -- Note B.................................................. $ 622
Accounts payable and accrued expenses........................................... 3,145
Accounts payable to related parties............................................. 1,040
Deferred revenues............................................................... 546
Current portion of long-term debt............................................... 125
--------
5,478
Long-term debt, less current portion -- Note C.................................... 137
Deferred income taxes -- Note G................................................... 168
Commitments and contingencies -- Note E
Shareholder's equity:
Common stock, par value $1 per share, authorized 1,000,000 shares, 1,000 shares
issued and outstanding....................................................... 1
Additional paid-in capital...................................................... 39,899
Accumulated deficit............................................................. (12,894)
--------
27,006
--------
$ 32,789
========
</TABLE>
See accompanying notes.
F-144
<PAGE> 309
QUESTAR TELECOM, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C>
Revenues:
Radio service................................................................... $ 7,299
Equipment sales, maintenance and rentals........................................ 15,458
--------
22,757
Operating costs and expenses:
Radio service................................................................... 2,264
Equipment sales, maintenance and rentals........................................ 14,906
--------
17,170
--------
5,587
Selling, general and administrative expenses -- Note F............................ 6,940
Depreciation of property, plant and equipment..................................... 1,899
Amortization of intangible assets................................................. 3,018
--------
Operating loss.................................................................. (6,270)
Interest and other income......................................................... 349
Debt expense...................................................................... (449)
--------
Loss before income taxes........................................................ (6,370)
Income tax credit -- Note G....................................................... 1,280
--------
Net loss........................................................................ (5,090)
Accumulated deficit at beginning of year.......................................... (7,804)
--------
Accumulated deficit at end of year.............................................. $(12,894)
========
Net loss per share................................................................ $ (5,090)
========
</TABLE>
See accompanying notes.
F-145
<PAGE> 310
QUESTAR TELECOM, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<S> <C>
Operating Activities:
Net loss......................................................................... $(5,090)
Depreciation and amortization.................................................... 4,917
Deferred income taxes............................................................ (359)
-------
(532)
Changes in operating assets and liabilities:
Accounts receivable........................................................... (1,265)
Inventories................................................................... (702)
Prepaid expenses and other.................................................... (186)
Accounts payable and accrued expenses......................................... 3,477
-------
Net cash provided from operating activities.............................. 792
Investing Activities:
Capital expenditures:
Purchase of property, plant and equipment and intangible assets............... (2,931)
Acquisition of radio operations............................................... (3,509)
-------
(6,440)
Decrease in notes receivable..................................................... 477
Proceeds from disposition of property, plant, and equipment and intangible
assets........................................................................ 258
-------
Cash used in investing activities........................................ (5,705)
Financing Activities:
Repayment of long-term debt...................................................... (116)
Increase in notes payable to Questar............................................. 5,300
-------
Cash provided from financing activities.................................. 5,184
-------
Change in cash and short-term investments................................ 271
Cash and short-term investments at beginning of period............................. 268
-------
Cash and short-term investments at end of period................................... $ 539
=======
Noncash Transaction
Conversion of notes payable to Questar to common equity.......................... $18,700
=======
</TABLE>
See accompanying notes.
F-146
<PAGE> 311
QUESTAR TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A -- ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS -- Questar Telecom, Inc. (the Company) was
organized as a wholly owned subsidiary of Questar Corporation (Questar) in 1989.
The Company provides specialized mobile radio (SMR) wireless communication
services and sells and services mobile radios for business, government and
individual customers.
On October 18, 1993, Questar announced that it had agreed to sell the
Company to Nextel Communications, Inc. (Nextel) for common stock of Nextel. The
transaction is expected to be completed in the first half of 1994.
Prior to the agreement with Nextel, Questar had reached an agreement with
Advanced MobileComm West, Inc. (AMI), a subsidiary of Fidelity Capital, to
combine the Company's operations with those of AMI. This combination was
cancelled at the time that Questar and Fidelity Capital agreed to sell their SMR
operations to Nextel. The Company has operated AMI's SMR business since October
1993 under an operating agreement. The Company retains the cash flow from the
AMI operations except for a fee of 2% of recurring revenues that is paid to AMI.
CASH AND SHORT-TERM INVESTMENTS -- Short-term investments valued at cost
(approximates market), amounted to $915,000 at December 31, 1993. Short-term
investments consist of repurchase agreements with maturities of three months or
less.
CREDIT RISK -- The Company's primary market areas are the Pacific Coast and
Rocky Mountain regions of the United States. The Company's exposure to credit
risk may be impacted by the concentration of customers in these regions due to
changes in economic or other conditions. The Company's customers include
individuals and industries that may be impacted differently by changing
conditions. The Company believes that it has adequately reserved for potential
credit-related losses.
INVENTORIES -- Inventories consist of spare parts and mobile radios held
for sale and are stated at the lower of cost or market. Cost for spare parts is
determined using the average method and cost for mobile radios is determined
using the specific identification method.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated
at cost. The provision for depreciation is based upon rates that will amortize
costs of assets over their estimated useful lives on a straight-line basis.
These lives range from three to seven years.
INTANGIBLE ASSETS -- Intangible assets are recorded at cost and are
amortized over their estimated useful lives. Federal Communication Commission
licenses are amortized over 25 years, subscriber bases are amortized over 10
years, noncompete agreements are amortized over two to five years, and other
intangible assets are amortized over four to ten years.
REVENUES -- Radio service revenues include base access charges and periodic
charges based on utilization. Base access charges are billed in advance and
revenue is deferred and recorded in income over the period to which the advance
billing relates.
NET LOSS PER SHARE -- The net loss per share is based on 1,000 shares
outstanding during the period.
POSTEMPLOYMENT BENEFITS -- The Financial Accounting Standards Board issued
SFAS No. 112 on accounting for postemployment benefits effective January 1,
1994. The Company has a long-term disability plan for employees; however, no
employees are currently receiving benefits under the plan. At the present time
the Company does not expect to incur an expense related to SFAS No. 112.
F-147
<PAGE> 312
QUESTAR TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- BUSINESS COMBINATIONS
The Company acquired the net assets of several SMR companies during the
year ended December 31, 1993. All of these acquisitions were accounted for using
the purchase method of accounting. Accordingly, the results of operations for
the acquired companies are included in the Company's statement of operations
from the date of acquisition. Summary information regarding the acquisitions is
as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
BUSINESS ACQUIRED DATE COST
----------------- ----------- --------------
(IN THOUSANDS)
<S> <C> <C>
Valley......................................... June 30, 1993 $1,710
Various -- 3 transactions...................... Various 1993 558
</TABLE>
The aggregate price was allocated based on fair values as follows (in
thousands):
<TABLE>
<S> <C>
Intangible assets................................................... $1,401
Property, plant and equipment....................................... 865
Accounts receivable................................................. 2
------
$2,268
======
</TABLE>
In December 1993, the Company reached an agreement to acquire the SMR
operations of Bell Atlantic-Phoenix for $2,300,000. The transaction will be
completed and the purchase price paid at the time that the Federal Communication
Commission approves the transfer of licenses. The purchase price will be
allocated to intangible assets of $1,451,000 and property, plant and equipment
of $849,000. The Company has a management agreement to operate the Bell
Atlantic-Phoenix business until the purchase transaction is closed. The Company
retains all cash flow from these operations except for a $5,000 monthly payment
to Bell Atlantic.
The following unaudited condensed pro forma information presents the
results of operations of the Company as if the acquisitions had occurred on
January 1, 1993 (in thousands, except per share amounts):
<TABLE>
<S> <C>
Revenues........................................................... $23,205
=======
Net loss........................................................... $(5,221)
=======
Net loss per share................................................. $(5,221)
=======
</TABLE>
The pro forma results do not necessarily represent results which would have
occurred if the acquisitions had taken place on January 1, 1993, nor are they
necessarily indicative of the results of future operations.
The Company delays a portion of the payment for some acquisitions pending
the transfer of certain licenses. Such payables totaled $622,000 at December 31,
1993.
NOTE C -- DEBT
The Company borrowed short-term funds from Questar at rates based on an
average of Questar's short-term borrowing costs and short-term investment
returns. Questar contributed $18,700,000 to the Company in October 1993 by
converting notes payable of this amount into common equity.
F-148
<PAGE> 313
QUESTAR TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- DEBT (CONTINUED)
Long-term debt consists of notes payable to former owners of SMR properties
purchased by the Company. These notes have an interest rate of 10% and are due
in 1994 and 1996. Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
1994...................................... $125
1995...................................... 108
1996...................................... 29
</TABLE>
Cash paid for interest amounted to $449,000 for the year ended December 31,
1993.
NOTE D -- EMPLOYEE SAVINGS PLAN
The Company has a savings plan for substantially all employees, under which
employees can contribute up to 6% of their salary. The employee contribution is
matched by a 75% Company contribution. The Company's contribution totaled
$98,000 for the year ended December 31, 1993.
NOTE E -- OPERATING LEASES
The Company leases office facilities, antenna sites and vehicles under
agreements that qualify as operating leases for financial reporting purposes.
The majority of these leases have renewal options available or continue on a
month-to-month basis at the end of the initial lease term. Total lease expense
was $1,446,000 for the year ended December 31, 1993.
Future minimum lease payments under noncancelable operating leases with
remaining terms in excess of one year are as follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
1994...................................... $ 340
1995...................................... 280
1996...................................... 147
1997...................................... 67
1998...................................... 54
Thereafter................................ 306
------
$1,194
======
</TABLE>
NOTE F -- RELATED PARTY TRANSACTIONS
Questar charged the Company for certain administrative functions amounting
to $289,000 for the year ended December 31, 1993. These costs are included in
selling, general and administrative expenses and are allocated based on each
affiliated company's proportional share of revenues; property, plant and
equipment; and labor costs. Management believes that the allocation method is
reasonable and that the Company's expenses reflect all the costs of its
business. The Company assumed most of the administrative functions previously
performed by Questar beginning October 1, 1993.
Questar Service Corporation is an affiliated company that provides
communication and data processing services to the Company. The cost of these
services amounted to $255,000 for the year ended December 31, 1993.
F-149
<PAGE> 314
QUESTAR TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- INCOME TAXES
The components of income tax credits were as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Federal
Current..................................... $ 911
Deferred.................................... 366
State
Current..................................... 10
Deferred.................................... (7)
------
$1,280
======
</TABLE>
The difference between income tax credit and the tax computed by applying
the statutory federal income tax rate to loss before income taxes is explained
as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Federal income taxes at statutory rate...................... $2,230
State income taxes, net of federal income tax............... 3
Impact of change in federal tax rate on deferred income
taxes..................................................... (15)
Estimated nondeductible amortization for current and prior
years..................................................... (833)
Revision of estimates and other............................. (105)
------
$1,280
======
</TABLE>
Significant components of the Company's deferred tax liabilities and assets
are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Deferred tax liabilities
Property, plant and equipment.............................. $ 817
Other...................................................... 59
Deferred tax assets
Intangible assets.......................................... (380)
Alternative minimum tax carryforward....................... (189)
Other...................................................... (139)
-----
Net deferred tax liabilities................................. $ 168
=====
</TABLE>
Cash received for income taxes amounted to $1,527,000 for the year ended
December 31, 1993.
The Company is included in the consolidated tax return of Questar. The
income tax arrangement between the Company and Questar provided that amounts
paid to or received from Questar are substantially the same as would be paid or
received by the Company if it had filed a separate return except that the
Company was paid currently for tax benefits used in the consolidated tax return
even if such benefits would not have been usable had the Company filed a
separate tax return.
F-150
<PAGE> 315
QUESTAR TELECOM, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1994
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current Assets:
Cash......................................................................... $ 810
Notes receivable............................................................. 200
Accounts receivable.......................................................... 3,141
Allowance for bad debts...................................................... (67)
Accounts receivable from affiliates.......................................... 629
Federal income taxes receivable.............................................. 204
Inventories.................................................................. 2,449
Prepaid expenses and other................................................... 470
--------
7,836
Property, plant and equipment:
Buildings and towers......................................................... 959
Radio equipment.............................................................. 11,516
Furniture and fixtures....................................................... 2,211
Construction in progress..................................................... 1,179
--------
15,865
Accumulated depreciation..................................................... 5,486
--------
10,379
Intangible assets:
Subscriber base.............................................................. 9,117
Noncompete agreements........................................................ 10,174
Federal Communication Commission licenses.................................... 1,551
Other........................................................................ 728
--------
21,570
Accumulated amortization..................................................... 9,330
--------
12,240
Deferred tax asset............................................................. 208
--------
$ 30,663
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Acquisition payables......................................................... $ 218
Accounts payable and accrued expenses........................................ 2,585
Accounts payable to affiliated companies..................................... 1,060
Deferred revenues............................................................ 320
Current portion of long-term debt............................................ 51
--------
4,234
Long-term debt, less current portion........................................... 137
Shareholder's equity
Common stock................................................................. 1
Additional paid-in capital................................................... 40,999
Accumulated deficit.......................................................... (14,708)
--------
26,292
--------
$ 30,663
========
</TABLE>
See accompanying notes.
F-151
<PAGE> 316
QUESTAR TELECOM, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1993 1994
------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenues:
Radio service........................................................ $ 3,100 $ 5,538
Equipment sales, maintenance and rentals............................. 6,373 8,429
------- -------
9,473 13,967
Operating costs and expenses:
Radio service........................................................ 929 1,782
Equipment sales, maintenance and rentals............................. 6,232 8,152
------- -------
7,161 9,934
------- -------
2,312 4,033
Selling, general and administrative expenses........................... 2,432 4,167
Depreciation of property, plant and equipment.......................... 878 1,118
Amortization of intangible assets...................................... 1,495 1,506
------- -------
Operating loss....................................................... (2,493) (2,758)
Interest and other income (expense).................................... 120 55
Debt expense........................................................... (265) (13)
------- -------
Loss before income taxes............................................. (2,638) (2,716)
Income tax credit...................................................... 976 902
------- -------
Net loss............................................................. $(1,662) $(1,814)
======= =======
Net loss per share..................................................... $(1,662) $(1,814)
======= =======
</TABLE>
See accompanying notes.
F-152
<PAGE> 317
QUESTAR TELECOM, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1993 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Operating activities:
Net loss............................................................. $(1,662) $(1,814)
Depreciation and amortization........................................ 2,373 2,624
Deferred income taxes................................................ (376)
------- -------
711 434
Changes in operating assets and liabilities:
Accounts receivable............................................... (471) 344
Federal income taxes receivable................................... (56) (204)
Inventories....................................................... (674) (138)
Prepaid expenses and other........................................ (63) 125
Accounts payable and accrued expenses............................. 222 (766)
------- -------
Net cash provided from (used in) operating activities................ (331) (205)
Investing activities:
Capital expenditures:
Purchase of property, plant and equipment......................... (2,361) (597)
Acquisition of radio operations................................... (404)
------- -------
Total capital expenditures........................................... (2,361) (1,001)
(Increase) decrease in notes receivable.............................. 138
Proceeds (uses) from disposition of property, plant, and equipment
and intangible assets............................................. (3) 313
------- -------
Cash used in investing activities.................................... (2,364) (550)
Financing activities:
Contribution from Questar............................................ 1,100
Issuance of long-term debt...........................................
Repayment of long-term debt.......................................... (368) (74)
Increase in notes payable to Questar................................. 3,100
------- -------
Cash provided from financing activities.............................. 2,732 1,026
------- -------
Change in cash and short-term investments............................ 37 271
Cash and short-term investments at beginning of period................. 268 539
------- -------
Cash and short-term investments at end of period....................... $ 305 $ 810
======= =======
</TABLE>
See accompanying notes.
F-153
<PAGE> 318
QUESTAR TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1994
NOTE A -- BASIS OF PRESENTATION
The interim financial statements furnished reflect all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
results for the interim periods presented. All such adjustments are of a normal
recurring nature.
NOTE B -- SUBSEQUENT EVENT
On August 4, 1994, Questar Corporation completed the sale of Questar
Telecom, Inc. to Nextel Communications.
F-154
<PAGE> 319
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Advanced MobileComm Inc.:
We have audited the accompanying combined balance sheet of Advanced
MobileComm of Nevada, Inc., Advanced MobileComm of Southern California, Inc. and
Advanced MobileComm of Colorado, Inc. (collectively, Advanced MobileComm West)
as of December 31, 1993, and the related combined statements of operations,
stockholder's equity, and cash flows for the year ended December 31, 1993. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall combined financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Advanced
MobileComm West as of December 31, 1993, and the combined results of its
operations and its cash flows for the year ended December 31, 1993, in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the combined financial statements, for the year
ended December 31, 1993, the Advanced MobileComm West reporting entity has been
changed to include Advanced MobileComm of Colorado, Inc.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 7, 1994
F-155
<PAGE> 320
ADVANCED MOBILECOMM WEST
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 183,670 $ 144,108
Accounts receivable, net of the allowance for doubtful accounts of
$14,529 in 1994 and $5,471 in 1993 (Note 4)............................ 687,359 862,617
Rental inventory (Note 5)................................................ 87,265 121,346
Inventory, net (Note 5).................................................. 41,159 54,869
Deposits................................................................. 375,824 225,807
Prepaid expenses and other current assets................................ 46,979 69,781
----------- -----------
Total current assets.............................................. 1,422,256 1,478,528
Property, plant and equipment, net of accumulated depreciation and
amortization (Note 6).................................................... 2,233,231 3,799,284
Intangible assets, net of accumulated amortization (Note 7)................ 7,322,246 5,695,255
----------- -----------
Total assets...................................................... $10,977,733 $10,973,067
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................... 308,209 45,706
Accrued expenses......................................................... 22,034 118,687
Deferred compensation (Note 9)........................................... 346,000 346,000
Deferred revenue (Note 2)................................................ 20,004 20,000
Other current liabilities................................................ 10,225 21,202
Payable to Parent Company (Note 8)....................................... 848,114 994,705
Current portion of notes payable to Parent Company (Note 8).............. 53,336 100,584
----------- -----------
Total current liabilities......................................... 1,607,992 1,646,884
Other liabilities:
Notes payable to Parent Company (Note 8)................................. -- 15,797
Other liabilities........................................................ -- 10,462
----------- -----------
Total liabilities................................................. 1,607,922 1,673,143
----------- -----------
Commitments and contingencies (Notes 3 and 10)
Minority interests (Note 11)............................................. 502,107 617,941
----------- -----------
AMI-NV Common stock (25,000 no par voting shares authorized, 12,500 issued
and outstanding)......................................................... -- --
AMI-SC Common stock (1,000 $1 par voting shares authorized, 1,000 issued
and outstanding)......................................................... 1,000 1,000
AMI-CO Common stock (1,000 $1 par voting shares authorized, 1,000 issued
and outstanding)......................................................... 1,000 1,000
Additional paid-in capital................................................. 16,787,022 14,171,259
AMI-NV Cumulative preferred stock (100 no par shares authorized, 20 issued
and outstanding)......................................................... -- 1,000,000
Accumulated deficit........................................................ (7,921,318) (6,491,276)
----------- -----------
Total stockholders' equity........................................ 8,867,704 8,681,983
----------- -----------
Total liabilities and stockholders' equity.................. $10,977,733 $10,973,067
=========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-156
<PAGE> 321
ADVANCED MOBILECOMM WEST
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
SIX-MONTH PERIODS DECEMBER
ENDED JUNE 30, 31,
-------------------------- 1993
1994 1993 -----------
----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue:
Radio service revenue.............................. $ 453,351 $1,245,046 $ 2,002,750
Equipment sales, rentals and maintenance........... 323,342 2,352,805 4,397,538
----------- ---------- -----------
Total...................................... 776,693 3,597,851 6,400,288
----------- ---------- -----------
Operating costs and expenses:
Radio service...................................... 141,363 302,966 654,659
Equipment sales, rentals and maintenance........... 181,737 1,328,425 2,619,442
----------- ---------- -----------
Total...................................... 323,100 1,631,391 3,274,101
----------- ---------- -----------
Gross profit......................................... 453,593 1,966,460 3,126,187
----------- ---------- -----------
Other operating costs and expenses:
Selling, general and administrative................ 403,291 1,739,092 3,080,288
Depreciation and amortization...................... 1,227,024 1,079,481 2,292,520
----------- ---------- -----------
Total...................................... 1,630,315 2,818,573 5,372,808
----------- ---------- -----------
Operating loss..................................... (1,176,722) (852,113) (2,246,621)
----------- ---------- -----------
Other income (expense):
Interest expense................................... (5,263) (13,136) (18,133)
Other.............................................. (6,930) (12,741) (10,911)
Minority interest.................................. 75,842 68,062 127,257
----------- ---------- -----------
Total...................................... 63,649 42,185 98,213
----------- ---------- -----------
Loss before income taxes (Note 2).................... (1,113,073) (809,928) (2,148,408)
----------- ---------- -----------
Income taxes (Note 2)................................ -- -- --
----------- ---------- -----------
Net loss............................................. $(1,113,073) $ (809,928) $(2,148,408)
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-157
<PAGE> 322
ADVANCED MOBILECOMM WEST
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1993 AND
THE SIX-MONTH PERIOD ENDED JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
AMI-NV AMI-SC AMI-CO AMI-NV
COMMON STOCK COMMON STOCK COMMON STOCK ADDITIONAL PREFERRED STOCK
-------------- -------------- -------------- PAID-IN ------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT TOTAL
------ ------ ------ ------ ------ ------ ----------- ------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE -- JANUARY 1,
1992............... 12,500 1,000 $1,000 1,000 $1,000 $10,847,802 20 $ 1,000,000 $(4,329,668) $ 7,520,134
Net loss in 1993..... (2,148,408) (2,148,408)
Additional paid-in
capital............ 3,323,457 3,323,457
Preferred dividend... (13,200) (13,200)
------ -- ----- ----- ----- ----- ----------- --- ----------- ----------- ----------
BALANCE -- DECEMBER
31, 1993........... 12,500 -- 1,000 1,000 1,000 1,000 14,171,259 20 1,000,000 (6,491,276) 8,681,983
Net loss for the
six-month period
ended June 30,
1994............... (1,113,073) (1,113,073)
Additional paid-in
capital............ 2,615,763 2,615,763
Redemption of
preferred stock.... (20) (1,000,000) (1,000,000)
Charge related to
redemption of
preferred stock
(Note 14).......... (155,490) (155,490)
Preferred dividend... (161,479) (161,479)
------ -- ----- ------ ----- ----- ----------- --- ----------- ----------- -----------
BALANCE
(UNAUDITED) -- JUNE
30, 1994........... 12,500 -- 1,000 $1,000 1,000 $1,000 $16,787,022 -- -- $(7,921,318) $ 8,867,704
====== == ===== ====== ===== ====== =========== === =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-158
<PAGE> 323
ADVANCED MOBILECOMM WEST
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTH PERIODS
ENDED JUNE 30, YEAR ENDED
--------------------------- DECEMBER 31,
1994 1993 1993
----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operations:
Net loss................................................... $(1,113,073) $ (809,928) $(2,148,408)
Adjustments required to reconcile net loss to net cash from
operating activities:
Minority interest........................................ (75,842) (68,062) (127,257)
Depreciation and amortization............................ 1,277,024 1,079,481 2,292,520
Provisions for inventory obsolescence and bad debts...... 5,187 36,220 65,916
Other noncash income items, net.......................... (18,565) (8,098) (9,339)
Change in assets and liabilities:
Decrease (increase) in:
Accounts receivable................................. 166,200 (569,222) (345,160)
Inventory........................................... 34,081 (214,701) 432,270
Rental inventory.................................... 13,710 (47,117) (28,626)
Prepaid expenses and other current assets........... 22,802 (29,798) (3,634)
Increase (decrease) in:
Accounts payable.................................... 262,503 111,551 (107,014)
Accrued expenses.................................... (96,653) (53,853) (39,899)
Other liabilities................................... (21,439) (7,302) (32,009)
Payable to Parent Company........................... (146,591) 86,280 257,167
Amounts due to sellers.............................. -- (349,535) (485,000)
Deferred liabilities................................ 4 (30,292) 215,704
---------- ----------- -----------
Net cash (used) provided by operating
activities...................................... 259,347 (874,376) (62,769)
---------- ----------- -----------
Cash flows from investing activities:
Capital expenditures:
Additions to property, plant and equipment............... (157,039) (680,202) (1,202,827)
Additions to intangibles................................. (2,422,175) (165,113) (2,715,113)
Deposits on acquisitions................................. (31,810) 370,506 259,193
Proceeds from sale of property, plant and equipment...... -- 22,154 26,312
----------- ----------- -----------
Net cash used by investing activities............. (2,611,024) (452,655) (3,632,435)
----------- ----------- ------------
Cash flows from financing activities:
Notes payable to Parent Company............................ (63,045) (33,046) (59,216)
Notes payable.............................................. -- (33,569) (50,458)
Additional paid-in capital................................. 2,615,763 1,394,511 3,323,457
Minority interests......................................... -- -- 350,000
Dividends paid............................................. (161,479) (13,200) (13,200)
----------- ----------- -----------
Net cash provided by financing activities......... 2,391,239 1,314,696 3,550,583
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents......... 39,562 (12,335) (144,621)
Cash and cash equivalents, beginning of year................. 144,108 288,729 288,729
----------- ----------- -----------
Cash and cash equivalents, end of year....................... $ 183,670 $ 276,394 $ 144,108
=========== =========== ===========
Supplemental disclosure for cash flows:
Interest paid.............................................. $ -- $ 10,521 $ 20,214
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-159
<PAGE> 324
ADVANCED MOBILECOMM WEST
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE SIX-MONTH PERIODS
ENDED JUNE 30, 1994 AND 1993 IS UNAUDITED)
1. SUMMARY OF BUSINESS OPERATIONS:
Advanced MobileComm West ("AMI West" or the "Company") is comprised of
Advanced MobileComm of Nevada, Inc. ("AMI-NV"), Advanced MobileComm of Southern
California, Inc. ("AMI-SC") and Advanced MobileComm Colorado, Inc. ("AMI-CO"),
all majority-owned subsidiaries of Advanced MobileComm, Inc. ("AMI"), which is
itself ultimately a wholly owned subsidiary of FMR Corp. ("Parent Company"). The
financial statements of AMI-NV, AMI-SC and AMI-CO have been combined in
contemplation of the transaction described in Note 13. AMI West operates and
acquires specialized mobile radio ("SMR") systems throughout the Southern
California, Nevada and Colorado areas, and performs sales and servicing of
two-way radio equipment. AMI West also sells, leases, services and operates
pager systems. As of June 30, 1994 certain assets of AMI-NV and AMI-SC are being
operated under management agreements as identified in Note 4.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The combined financial statements of AMI West, as of December 31, 1993,
include the combined accounts of AMI-NV, AMI-SC and AMI-CO. AMI-SC owns a
controlling interest in a 50% joint venture with an otherwise unrelated party
which has been consolidated. All intercompany transactions have been eliminated.
As of June 30, 1994 AMI-SC purchased the remaining 50% of the joint venture from
the third party.
As of December 31, 1993 the Advanced MobileComm West reporting entity has
been changed, for the year ended December 31, 1993, to also include the accounts
of Advanced MobileComm of Colorado, Inc. The AMI-CO accounts were combined with
AMI-NV and AMI-SC in contemplation of the merger discussed in Note 13. The
AMI-CO net loss, on a separate entity basis, was $455,894, for the year ended
December 31, 1993.
Although the financial statements are presented on a combined basis, the
assets of AMI-NV, AMI-SC and AMI-CO, individually, are not available to satisfy
the obligations of the other entities.
Cash and Cash Equivalents
Cash and cash equivalents include currency on hand and on deposit in
commercial banks.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is provided
over the estimated useful life of each class of property, plant and equipment
using the straight-line method as follows:
<TABLE>
<S> <C>
Buildings and leasehold improvements........................ 5 - 25years
Office equipment, furniture and fixtures.................... 5
Communication equipment..................................... 5
Automobiles................................................. 3
Computer equipment.......................................... 3
</TABLE>
Leasehold improvements are amortized over the shorter of their useful life
or the life of the related lease.
Maintenance, repairs and renewals, which neither materially add to the
value of the property nor appreciably prolong its life, are charged to expense
as incurred. Upon retirement or other disposition, the cost
F-160
<PAGE> 325
ADVANCED MOBILECOMM WEST
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX-MONTH PERIODS
ENDED JUNE 30, 1994 AND 1993 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
and related depreciation are eliminated from the accounts and any resulting gain
or loss is included in operating income.
Intangible Assets
Intangible assets are stated at cost and are amortized over their estimated
useful lives using the straight-line method as follows:
<TABLE>
<S> <C>
FCC licenses................................................. 25 years
Non compete agreements....................................... 3 - 5
Customer lists............................................... 4
Trade names.................................................. 4
Goodwill..................................................... 40
</TABLE>
In addition, organizational costs have been capitalized and are being
amortized over 40 years. Organizational costs include attorney's fees for
drafting corporate charters, bylaws and purchase and sale agreements, as well as
independent appraisal and incorporation fees.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) cost method except for mobile radios. The
cost of mobile radios is determined using the specific identification method.
Rental Inventory
Rental inventory consists of equipment leased to customers. The equipment
is depreciated over a three-year period.
Income Taxes
The Company is included in the consolidated federal and certain state
income tax returns filed by FMR Corp. The Company's tax losses have been
utilized in the consolidated tax returns of its Parent Company; however, no tax
benefits for such losses have been, or will be, allocated to the Company.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 109 (Statement 109), "Accounting for Income Taxes."
Through December 31, 1992, the Company accounted for income taxes under APB
Opinion No. 11, "Accounting for Income Taxes."
Effective January 1, 1993, FMR Corp. and the Company adopted Statement 109.
Statement 109 requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of temporary differences between tax and
financial reporting bases. Temporary differences as of January 1, 1993 are
primarily attributable to differences in accounting for bad debts and
differences in depreciation and amortization. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
For the year ended December 31, 1993, these differences are not material to the
financial statements taken as a whole.
F-161
<PAGE> 326
ADVANCED MOBILECOMM WEST
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX-MONTH PERIODS
ENDED JUNE 30, 1994 AND 1993 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Adoption of this Statement did not have a material impact on the Company's
financial position or results of operations as of January 1, 1993 or December
31, 1993.
Revenue Recognition
Recurring airtime revenues include base access charges and periodic charges
for utilization of radio channels. Base access charges are billed in advance,
revenue is recorded when earned, unearned amounts are recorded as deferred
revenue. Revenue for SMR equipment sales is recognized upon installation and
customer acceptance. Revenue received under maintenance contracts is recognized
ratably over the life of the contract. Revenue from management agreements is
recognized in the period in which the services were provided.
Interim Financial Information
In the opinion of management, the unaudited interim financial information
of the Company contains all adjustments, consisting only of those of a normal
recurring nature, necessary to present fairly the Company's financial position
as of June 30, 1994 and the results of its operations and cash flows for the
six-month periods ended June 30, 1993 and 1994. The results of operations for
the six-month periods ended June 30, 1993 and 1994 are not necessarily
indicative of the results to be expected for the full year.
3. BUSINESS COMBINATIONS:
During the year ended December 31, 1993, AMI West acquired a SMR operation
(Mobile Communications, Inc.) for an acquisition cost of $3,106,132. During the
six-month period ended June 30, 1994 AMI West acquired the remaining 50% in
Elsinore Peak Partners for an acquisition cost of $200,000, Mountain Relay
Company for an acquisition cost of $2,000,000 and exercised certain buyouts of
management agreements to acquire FCC licenses in the amount of $339,335.
The aggregate price was allocated based upon fair values as follows:
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED YEAR ENDED
JUNE 30, 1994 DECEMBER 31, 1993
-------------- -----------------
<S> <C> <C>
Working capital....................................... $ 49,160 $ 79,000
Property, plant and equipment......................... 77,000 510,000
Customer lists........................................ 300,000 362,000
Non compete agreements................................ 200,000 668,000
FCC licenses.......................................... 1,913,175 1,424,000
Goodwill and other intangibles........................ -- 63,132
---------- -----------
Total net assets acquired............................. $2,539,335 $ 3,106,132
========== ===========
</TABLE>
The following unaudited condensed pro forma information presents the
results of operations of AMI West as if the significant acquisitions had
occurred on January 1, 1993.
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED YEAR ENDED
JUNE 30, 1994 DECEMBER 31, 1993
-------------- -----------------
<S> <C> <C>
Net sales............................................. $ 7,368,182 $ 6,735,930
=========== ===========
Net (loss)............................................ $(2,596,085) $(2,433,161)
=========== ===========
</TABLE>
F-162
<PAGE> 327
ADVANCED MOBILECOMM WEST
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX-MONTH PERIODS
ENDED JUNE 30, 1994 AND 1993 IS UNAUDITED)
3. BUSINESS COMBINATIONS: (CONTINUED)
The unaudited pro forma results disclosed above are not necessarily
indicative of the actual results of operations that would have occurred had this
business combination occurred at the beginning of the year in which the
acquisition was consummated, as well as at the beginning of the immediately
preceding period, nor are they intended to indicate results that may occur in
the future.
During the year ended December 31, 1993, the Company entered into
definitive Purchase and Sale Agreements and letters of intent to acquire the net
assets of other SMR companies, for a total purchase price of approximately
$4,200,000, which is expected to be paid in cash. The acquisitions are
contingent on federal regulatory approval. The acquisition price can be adjusted
if certain requirements in the purchase and sale agreements are not met. As of
June 30, 1994, approximately $1,685,665 of these acquisitions are still pending.
In certain cases the Company has entered into management agreements with the
potential acquirees whereby the Company performs certain management services for
the assets being acquired.
4. MANAGEMENT AGREEMENT:
As of October 1, 1993 AMI, AMI-NV and AMI-SC entered into management
agreements (the "agreements") with a third party for the management of certain
assets of AMI-NV and AMI-SC. The term of the agreements is from October 1, 1993
until the closing of the pending merger, as discussed in Note 13, or if the
closing of the merger does not occur, the agreements will terminate in
accordance with the terms of each agreement. The agreements were amended
December 10, 1993 when the manager was changed to Questar Telecomm, Inc.
("QTI").
Under the agreements, QTI performs management services, including SMR
license operation, administration and collection of customer accounts and
payment of operational expenses, of the AMI-NV 800MgHz SMR licenses and the
AMI-SC 800MgHz licenses. QTI performs management services and pays 100% of
operational expenses and retains 98% of gross revenues attributable to the
AMI-NV and AMI-SC 800MgHz facilities and licenses. Under the agreements, the net
amount due from QTI is settled on a quarterly basis.
As of October 1, 1993 QTI purchased from the Company, pursuant to the
agreements, all trade accounts receivable and inventory net of trade accounts
payable of AMI-NV and AMI-SC. The amount due from QTI to the Company from the
acquisition of these assets of $981,371 and $716,615, net of management fees and
other items, is included in accounts receivable as of December 31, 1993 and June
30, 1994, respectively.
5. INVENTORY:
Inventory consists of the following at June 30, 1994 and December 31, 1993:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Equipment (radio and paging)..................................... $22,348 $48,380
Service parts.................................................... 25,907 8,589
------- -------
Total gross inventory.................................. 48,255 56,969
------- -------
Less: allowance for excess and obsolete inventory................ (7,096) (2,100)
------- -------
Net inventory.......................................... $41,159 $54,869
======= =======
</TABLE>
Rental inventory consists of equipment leased to customers. This equipment
is depreciated over a three-year period. Rental inventory was $87,265, net of
accumulated depreciation of $172,012, and $121,346, net of accumulated
depreciation of $196,368, at June 30, 1994 and December 31, 1993, respectively.
F-163
<PAGE> 328
ADVANCED MOBILECOMM WEST
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX-MONTH PERIODS
ENDED JUNE 30, 1994 AND 1993 IS UNAUDITED)
6. PROPERTY, PLANT AND EQUIPMENT:
Balances of major classes of assets, recorded at cost and depreciated or
amortized on a straight-line basis, and the related accumulated depreciation and
amortization balances at June 30, 1994 and December 31, 1993:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Land...................................................... $ 325,457
Buildings and leasehold improvements...................... $ 900,987 900,987
Office and computer equipment............................. 456,717 455,250
Communication equipment................................... 2,991,056 4,071,756
Automobiles............................................... 180,246 198,843
Furniture and fixtures.................................... 159,633 161,250
Construction in progress.................................. 102,731 268,555
----------- -----------
Total, gross.................................... 4,791,370 6,382,098
Less accumulated depreciation and amortization............ (2,558,139) (2,582,814)
----------- -----------
Total, net...................................... $ 2,233,231 $ 3,799,284
=========== ===========
</TABLE>
Depreciation and amortization expense on property, plant and equipment for
the six-month period ended June 30, 1994 and the years ended December 31, 1993,
was $473,646 and $1,041,615, respectively.
7. INTANGIBLE ASSETS:
Intangible assets consist of the following items, recorded at cost and
amortized on a straight-line basis, at June 30, 1994 and December 31, 1993:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Customer lists and trade names............................ $ 2,878,300 $ 2,578,300
Non compete agreements.................................... 3,038,710 2,838,710
FCC licenses.............................................. 5,339,417 3,456,786
Goodwill and other intangibles............................ 245,568 245,568
----------- -----------
Total, gross.................................... 11,501,995 9,119,364
Less accumulated amortization............................. (4,179,749) (3,424,109)
----------- -----------
Total, net...................................... $ 7,322,246 $ 5,695,255
=========== ===========
</TABLE>
Included in other intangibles are organizational costs and attorneys' fees
for drafting corporate charters, bylaws and purchase and sale agreements,
independent appraisal fees and incorporation fees.
Amortization expense on intangible assets was $753,378 and $1,250,905 for
the six-month period ended June 30, 1994 and the year ended December 31, 1993,
respectively.
8. RELATED PARTY TRANSACTIONS:
Notes payable due to AMI, related to the acquisition of certain site
equipment, as of June 30, 1994 and December 31, 1993 were $53,336 and $116,381,
respectively. These notes bear interest at fixed rates of 8.5% and 9% per annum.
Related party interest expense was $6,930 and $7,216 for the six-month period
ended
F-164
<PAGE> 329
ADVANCED MOBILECOMM WEST
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX-MONTH PERIODS
ENDED JUNE 30, 1994 AND 1993 IS UNAUDITED)
8. RELATED PARTY TRANSACTIONS: (CONTINUED)
June 30, 1994 and the year ended December 31, 1993, respectively. Scheduled
principal repayments of notes payable to parent are as follows:
<TABLE>
<S> <C>
Six-month period ending December 31, 1994.......................... $58,359
Year ending December 31, 1995...................................... 15,797
-------
$74,151
=======
</TABLE>
Also included in liabilities are current payables to the AMI amounting to
$848,114 and $994,705 as of June 30, 1994 and December 31, 1993, respectively,
related to the funding of normal operations. These amounts payable are due on
demand. For the six-month period ended June 30, 1994 and the year ended December
31, 1993 AMI paid in additional capital to the Company of $2,619,763 and
$3,323,457, respectively, which was primarily used by the Company for
acquisitions of certain SMR assets.
9. DEFERRED COMPENSATION:
On June 14, 1990, AMI West entered into employment agreements with two
officers of the Company. Under the terms of these agreements, $25,000 in
compensation to each officer, $50,000 in aggregate, is deferred for each of the
years ended December 31, 1993, 1992 and 1991. AMI West recognized $50,000 in
expense related to these deferred compensation arrangements in each of these
years. The accrued deferred compensation balance is due to each officer as of
December 31, 1993. At December 31, 1993, $150,000 was accrued for deferred
compensation related to this agreement. In addition, in conjunction with the
officers' termination of employment with the Company on October 1, 1993, the
Company recognized an additional $196,000 in compensation to the above two
officers in accordance with the terms of the respective employment agreements.
10. LEASES:
The Company leases various equipment and office facilities under operating
leases.
Leases for sites on buildings or mountaintops for radio transmission
equipment are generally month to month and cancelable on short notice.
Future minimum lease payments under operating leases that have initial
noncancelable lease terms, exceeding one year, for the six-month period ending
December 31, 1994 and fiscal years ending thereafter are as follows:
<TABLE>
<S> <C>
Six-month period ended December 31, 1994......................... $ 230,884
Year ending December 31,
1995........................................................ 357,725
1996........................................................ 322,964
1997........................................................ 229,009
1998........................................................ 206,509
Thereafter.................................................. 1,328,809
----------
Total............................................................ $2,675,900
==========
</TABLE>
Total rental expense under noncancelable operating leases was $230,884 and
$416,490 for the six-month period ended June 30, 1994 and the year ended
December 31, 1993, respectively.
F-165
<PAGE> 330
ADVANCED MOBILECOMM WEST
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX-MONTH PERIODS
ENDED JUNE 30, 1994 AND 1993 IS UNAUDITED)
11. MINORITY INTERESTS:
As of December 31, 1993, minority interests represent the minority
stockholders' proportionate share of the equity in AMI West which represents
approximately 10% of the outstanding common stock in AMI-NV and an insignificant
amount of the equity in AMI-SC. During the six-month period ended June 30, 1994
the Company purchased the minority interest in AMI-SC. During the year ended
December 31, 1993 the AMI-NV minority stockholders contributed $350,000 to fund
certain SMR asset acquisitions by AMI-NV.
12. CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject AMI West to concentrations
of credit risk consist principally of customer receivables.
13. ACQUISITION AGREEMENT:
In October 1993, AMI entered into an agreement to exchange all of the
outstanding stock of the Company with Nextel Communications, Inc. ("Nextel") in
exchange for shares of Nextel common stock. This transaction occurred on August
4, 1994.
14. REDEMPTION OF PREFERRED STOCK:
On January 18, 1994 the Preferred Stockholder redeemed its outstanding
Preferred Stock (including accrued dividends) in exchange for certain assets of
the Company. The excess of the book value of the assets exchanged over the value
of preferred stock (including accrued dividends) was charged to stockholders
equity.
F-166
<PAGE> 331
APPENDIX A
AGREEMENT AND PLAN OF MERGER
by and among
AMERICAN MOBILE SYSTEMS INCORPORATED,
NEXTEL COMMUNICATIONS, INC.
and
MOBILE COMMUNICATIONS OF FLORIDA, INC.
Dated as of April 25, 1995
<PAGE> 332
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. MERGER..................................................................... A-1
1.1 Merger..................................................................... A-1
1.2 Effective Time............................................................. A-1
1.3 Certificate of Incorporation and By-Laws................................... A-1
1.4 Directors and Officers..................................................... A-1
ARTICLE II. CONVERSION OF AMS COMMON STOCK............................................ A-2
2.1 Conversion of Stock........................................................ A-2
2.2 Adjustments................................................................ A-2
2.3 Assumption of Employee Stock Options....................................... A-3
2.4 Exchange Agent............................................................. A-4
2.5 Exchange of Certificates................................................... A-4
2.6 Notice of Exchange......................................................... A-4
2.7 Payment of Dividends....................................................... A-4
2.8 Transfer................................................................... A-5
2.9 Distribution with Respect to Unexchanged Certificates...................... A-5
2.10 Fractional Shares.......................................................... A-5
2.11 Rule 145 Legending......................................................... A-5
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF AMS.................................... A-5
3.1 Corporate Status, etc. .................................................... A-5
3.2 Power and Authority........................................................ A-6
3.3 Consents/Approvals; Enforceability......................................... A-6
3.4 Compliance with Laws....................................................... A-7
3.5 Financial Statements....................................................... A-8
3.6 Capitalization............................................................. A-8
3.7 No Pending or Threatened Actions........................................... A-9
3.8 No Defaults................................................................ A-9
3.9 No Material Adverse Change................................................. A-9
3.10 Title to Properties; Encumbrances.......................................... A-9
3.11 Intellectual Property...................................................... A-10
3.12 Brokers.................................................................... A-10
3.13 Taxes...................................................................... A-10
3.14 Materially Correct......................................................... A-11
3.15 Regulatory Matters......................................................... A-11
(a) Definitions............................................................ A-11
(b) License Information.................................................... A-12
(c) Condition of Systems................................................... A-12
(d) Fees; License Compliance............................................... A-12
(e) Management Agreements.................................................. A-13
(f) Wide-Area System Application........................................... A-13
3.16 Proxy Statement/Prospectus................................................. A-13
3.17 Non-Contravention.......................................................... A-13
3.18 Third-Party Investment Rights.............................................. A-14
3.19 Related Party Transactions................................................. A-14
3.20 Transactions Not in the Ordinary Course.................................... A-14
</TABLE>
A-i
<PAGE> 333
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
3.21 Employee Benefit Matters................................................... A-14
3.22 Registration Rights........................................................ A-16
3.23 Certain Contracts.......................................................... A-16
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF NEXTEL AND NEWCO........................ A-17
4.1 Corporate Status, etc. .................................................... A-17
4.2 Power and Authority........................................................ A-17
4.3 Consents/Approvals; Enforceability......................................... A-17
4.4 Compliance with Laws....................................................... A-18
4.5 Financial Statements....................................................... A-18
4.6 Capitalization............................................................. A-19
4.7 No Pending or Threatened Actions........................................... A-19
4.8 No Defaults................................................................ A-19
4.9 No Material Adverse Change................................................. A-20
4.10 Title to Properties; Encumbrances.......................................... A-20
4.11 Intellectual Property...................................................... A-20
4.12 Brokers.................................................................... A-20
4.13 Taxes...................................................................... A-20
4.14 Materially Correct......................................................... A-20
4.15 Regulatory Matters......................................................... A-21
(a) License Information.................................................... A-21
(b) Other Regulatory Matters............................................... A-21
(c) Wide-Area System Application........................................... A-21
4.16 Proxy Statement/Prospectus................................................. A-21
4.17 Non-Contravention.......................................................... A-22
ARTICLE V. COVENANTS OF AMS........................................................... A-22
5.1 Conduct of AMS Pending the Closing......................................... A-22
5.2 SEC Registration........................................................... A-23
5.3 Stockholder Approval....................................................... A-24
5.4 Covenants of AMS Prior to the Closing...................................... A-24
5.5 No Solicitation............................................................ A-25
5.6 Affiliates................................................................. A-25
5.7 Warrant and Option Holders, Etc. .......................................... A-25
5.8 Vote of AMS Directors and Officers......................................... A-25
5.9 No Subsidiaries............................................................ A-25
ARTICLE VI. COVENANTS OF NEWCO AND NEXTEL............................................. A-25
6.1 Conduct of Nextel Prior to the Closing..................................... A-25
6.2 SEC Registration........................................................... A-25
6.3 Current Public Information................................................. A-26
6.4 NASDAQ Listing............................................................. A-26
6.5 Indemnification............................................................ A-26
ARTICLE VII. JOINT COVENANTS.......................................................... A-28
7.1 Confidentiality............................................................ A-28
7.2 State Takeover Statutes.................................................... A-28
7.3 FCC Filings................................................................ A-28
</TABLE>
A-ii
<PAGE> 334
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
7.4 Related Nextel Stock Issuance.............................................. A-28
7.5 Support of Transactions.................................................... A-29
7.6 Antitrust Filing........................................................... A-29
7.7 Substitution of Subsidiary or Successor Company............................ A-29
7.8 Stock Purchase Agreement................................................... A-29
7.9 Nextel Vote of AMS Shares.................................................. A-30
7.10 Transfer of AMS Common Stock by Nextel..................................... A-30
ARTICLE VIII. CLOSING................................................................. A-30
8.1 Filing..................................................................... A-30
8.2 Closing.................................................................... A-31
ARTICLE IX. CONDITIONS TO OBLIGATIONS................................................. A-31
9.1 Conditions to Obligations of Nextel, Newco and AMS......................... A-31
9.2 Conditions to Obligations of Nextel and Newco.............................. A-32
9.3 Conditions to the Obligations of AMS....................................... A-33
ARTICLE X. DEFINITIONS................................................................ A-33
10.1 Defined Terms.............................................................. A-33
10.2 Other Definitional Provisions.............................................. A-37
ARTICLE XI. TERMINATION/EFFECTIVENESS................................................. A-37
11.1 Termination................................................................ A-37
11.2 Effect..................................................................... A-38
ARTICLE XII. MISCELLANEOUS............................................................ A-39
12.1 Communications............................................................. A-39
12.2 Non-Waiver of Remedies and Actions......................................... A-39
12.3 Headings................................................................... A-39
12.4 Counterparts............................................................... A-39
12.5 Successors and Assigns..................................................... A-39
12.6 Enforceability............................................................. A-39
12.7 Law Governing.............................................................. A-39
12.8 Communications Act......................................................... A-39
12.9 Expenses................................................................... A-39
12.10 Entire Agreement........................................................... A-39
12.11 Publicity.................................................................. A-40
12.12 Specific Performance....................................................... A-40
12.13 Amendments................................................................. A-40
12.14 Third-Party Beneficiaries.................................................. A-40
</TABLE>
A-iii
<PAGE> 335
TABLE OF AMENDMENTS AND ANNEXES
<TABLE>
<S> <C>
Annex A Form of Restrictive Legend
Annex B Form of Rule 145 Affiliate Agreement
Amendment No. 1 to Merger Agreement.
</TABLE>
A-iv
<PAGE> 336
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger dated as of April 25, 1995 ("Agreement") by
and among NEXTEL Communications, Inc., a Delaware corporation ("Nextel"),
American Mobile Systems Incorporated, a Delaware corporation ("AMS") and Mobile
Communications of Florida, Inc., a Delaware corporation and a wholly-owned
subsidiary of Nextel ("Newco").
RECITALS
WHEREAS, the respective Boards of Directors of Nextel, Newco and AMS have
each determined that it is in the best interests of their respective
stockholders for Newco to merge with and into AMS upon the terms and subject to
the conditions set forth herein;
WHEREAS, the respective Boards of Directors of Newco and AMS have each
approved the merger of Newco with and into AMS, upon the terms and subject to
the conditions set forth herein; and
WHEREAS, for Federal income tax purposes, it is intended that the merger of
Newco into AMS qualify as a reorganization under the provisions of Section 368
of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein, and subject to the
terms and conditions set forth herein, the parties hereby agree as follows:
ARTICLE I. MERGER
1.1 Merger. At the Effective Time (as hereinafter defined), Newco shall
be merged with and into AMS in accordance with the provisions of Section 251 of
the Delaware General Corporation Law ("DGCL") and the separate corporate
existence of Newco shall thereupon cease (the "Merger"). AMS shall be the
surviving corporation (the "Surviving Corporation") and shall be governed by the
laws of the State of Delaware.
1.2 Effective Time. As soon as practicable following the satisfaction
(or, to the extent permitted by law, the waiver) of all of the conditions set
forth in Article IX, and provided that this Agreement has not been terminated
pursuant to Article XI, AMS and Newco shall cause a Certificate of Merger to be
executed and filed with the Secretary of State of Delaware as provided in
Section 251 of the DGCL. The Merger will become effective at the time and date
when such Certificate of Merger is filed with the Secretary of State of Delaware
(the "Effective Time").
1.3 Certificate of Incorporation and By-Laws. The Certificate of
Incorporation of AMS as in effect immediately prior to the Effective Time shall
be amended and restated at the Effective Time to read in its entirety as shown
on Exhibit A attached hereto and, as so amended and restated, shall be the
Certificate of Incorporation of AMS as the Surviving Corporation and from the
Effective Time shall constitute the "Certificate of Incorporation" of the
Surviving Corporation within the meaning of Section 104 of the DGCL until duly
amended in accordance with its terms. The By-Laws of AMS as in effect
immediately prior to the Effective Time shall be amended and restated in their
entirety at the Effective Time to read as shown in Exhibit B attached hereto
and, as so amended and restated, shall become the By-Laws of AMS as the
Surviving Corporation and from the Effective Time shall constitute the By-Laws
of the Surviving Corporation until amended in accordance with law and the
Certificate of Incorporation of the Surviving Corporation.
1.4 Directors and Officers. The directors and officers of AMS immediately
prior to the Effective Time shall resign effective as of the Effective Time and
shall be replaced, at the Effective Time, by those persons who shall be
designated or elected and appointed, as the case may be, as set forth on Exhibit
C attached hereto, to serve as the directors and officers of the Surviving
Corporation from the Effective Time until their respective successors are duly
elected and qualified in the manner provided in the Certificate of Incorporation
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and By-Laws of the Surviving Corporation, or until their earlier resignation or
removal or as otherwise provided by law.
ARTICLE II. CONVERSION OF AMS COMMON STOCK
2.1 Conversion of Stock. Each share of AMS Common Stock, par value $0.01
per share ("AMS Common Stock"), that shall be issued and outstanding at the
Effective Time (other than (i) the Excluded Shares (as defined below), (ii)
shares of AMS Common Stock, if any, owned by Newco, and (iii) shares of AMS
Common Stock held in the treasury of AMS, which shall be cancelled as part of
the Merger), shall, by virtue of the Merger and without more, be converted at
the Effective Time into and become 0.620 of a share of Nextel Class A Common
Stock, par value $0.001 per share ("Nextel Common Shares"), as contemplated and
further detailed by the provisions of Section 2.2 herein, and subject to
adjustment only in accordance with Section 2.2 herein (the "Exchange Ratio"). To
the extent the conversion of any holder's outstanding shares of AMS Common Stock
would otherwise have resulted in the issuance of a fractional Nextel Common
Share, the holder thereof shall be entitled to receive payment therefor in
accordance with the provisions of Section 2.10. Any such purchases of fractional
interests are merely intended to provide a mechanical rounding off of fractional
shares and are not a separately bargained for consideration. Notwithstanding any
other provision of this Article II, in no event will the Nextel Common Shares
issued upon the effectiveness of the Merger be issued in any circumstances other
than in conversion of outstanding shares of AMS Common Stock. Notwithstanding
any other provision of this Article II, if all AMS Equivalent Securities (as
defined below) that are outstanding and unexercised at the Effective Time were
exercised, converted or otherwise exchanged in accordance with their terms
immediately prior to the Effective Time into shares of AMS Common Stock, and
Nextel Common Shares were issued therefor upon the Effective Time in accordance
with this Section 2.1, then the maximum number of Nextel Common Shares that
could be issued in accordance with this Section 2.1 for all shares of AMS Common
Stock then issued and outstanding (other than any Excluded Shares) would not
exceed 4,200,000 Nextel Common Shares ("Maximum Nextel Shares"). For purposes of
this Agreement, "Excluded Shares" means those shares of AMS Common Stock issued
and outstanding and owned by Nextel on the date hereof and at the Effective
Time, as reflected and described on Schedule 2.1, and those shares of AMS Common
Stock that are issued or would be issuable upon exercise of the Warrant granted
to Nextel by AMS on or about April 7, 1993, as amended to the date hereof (the
"Original Warrant"). For purposes of this Agreement, "AMS Equivalent Securities"
means options, warrants, rights and other securities of AMS (other than the
Original Warrant) which, upon their exchange, exercise, conversion and/or
substitution (including related procedures) would result in or require (whether
on the occurrence of any event or contingency or otherwise) the issuance of
shares of AMS Common Stock.
2.2 Adjustments. (a) The Exchange Ratio is based on the following
information provided by AMS to Nextel: (i) on the date hereof, there are
6,528,721 outstanding shares of AMS Common Stock; (ii) additionally, on the date
hereof, there are outstanding commitments to issue (A) up to 87,000 shares of
AMS Common Stock upon exercise of options now outstanding as reflected and
described on Schedule 3.6 and (B) up to 160,000 shares of AMS Common Stock upon
exercise of warrants now outstanding as reflected and described on Schedule 3.6;
and (iii) notwithstanding the foregoing, at the Effective Time there shall be
issued and outstanding (on a fully diluted basis) no more than 6,775,721 shares
of AMS Common Stock (the "Maximum AMS Common Equivalents") and, assuming the
Maximum AMS Common Equivalents were to be converted in the Merger into Nextel
Common Shares in accordance with Section 2.1, such conversion would result in
the issuance of no more than the Maximum Nextel Shares; provided, that the
information reflected in each of the foregoing clauses (i), (ii) and (iii) is
stated without taking into effect and does not include any of the Excluded
Shares.
(b) If the number of shares of AMS Common Stock issued and outstanding (on
a fully diluted basis) at the Effective Time (but not including any of the
Excluded Shares) exceeds the Maximum AMS Common Equivalents, then Nextel may
elect to proportionately decrease the Exchange Ratio, rounding to the nearest
one one-thousandth (.001) of a Nextel Common Share, rounding upward to the next
highest one one-thousandth (.001) of a Nextel Common Share in the case of any
.0005 of a Nextel Common Share (1.0004
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Nextel Common Shares would accordingly be 1.000 Nextel Common Shares and 1.0005
Nextel Common Shares would be 1.001 Nextel Common Shares).
(c) In addition to the adjustments provided pursuant to the foregoing
Section 2.2(b), Nextel and AMS agree that, in the event of any change in the
authorized capital stock of AMS, or the declaration or payment of any dividend
or distribution by either AMS or Nextel to their respective stockholders, or any
split or reclassification in respect of the outstanding stock of either of them,
then appropriate adjustments shall be made to the Exchange Ratio so as to
reflect treatment designed to place each of Nextel, AMS and the converting
holders of shares of AMS Common Stock and AMS Equivalent Securities in the same
posture (except as to cash for fractional shares) as if the Effective Time had
occurred immediately prior to the occurrence of the event giving rise to such
adjustment.
2.3 Assumption of Employee Stock Options. (a) Schedule 2.3 lists each
employee stock option outstanding on the date of this Agreement, whether or not
fully exercisable (collectively, the "AMS Stock Options"), to purchase AMS
Common Stock heretofore granted outside of the AMS Stock Option Plan or granted
or assumed by AMS pursuant to the AMS Stock Option Plan as amended and in effect
on the date of this Agreement, a true, complete and correct copy of which plan
AMS hereby confirms has been delivered to Nextel prior to the date hereof (the
"AMS Option Plan"). Schedule 2.3 also sets forth with respect to each AMS Stock
Option the option exercise price, the number of shares subject to the option,
any related stock appreciation rights, the dates of grant, vesting,
exercisability and expiration of the option and whether the option is an
incentive stock option or a non-qualified stock option. All rights under the AMS
Stock Options shall be treated as provided in this Section 2.3 and, to the
extent the terms of the AMS Option Plan and/or of any related agreements are
inconsistent with the treatment to be accorded to the AMS Stock Options pursuant
to this Section 2.3, then AMS shall use its best efforts to cause the AMS Option
Plan and/or any related agreements with affected participants to be amended, and
all required third party, governmental and regulatory body consents or approvals
to such amendments to be procured, such that all such inconsistencies shall be
eliminated by the Effective Time.
(b) Each AMS Stock Option outstanding at the Effective Time shall be
assumed at the Effective Time by Nextel and continue to be an issued and
outstanding option in accordance with the terms of the AMS Option Plan and/or
any related agreement, except that: (i) Nextel and the Compensation Committee of
its Board of Directors shall be substituted for AMS and the Committee of the
Board of Directors of AMS administering such AMS Option Plan, (ii) from and
after the Effective Time, each such AMS Stock Option may be exercised only for
Nextel Common Shares notwithstanding any contrary provision of the AMS Option
Plan or any related stock option agreements executed in connection with the
grant of such AMS Stock Option, (iii) each such AMS Stock Option shall at the
Effective Time become an option to purchase a number of Nextel Common Shares
equal to the product arrived at by multiplying the Exchange Ratio by the number
of shares of AMS Common Stock subject to such option immediately prior to the
Effective Time ("Converted Nextel Shares"), and (iv) the exercise price per
Converted Nextel Share at which each such AMS Stock Option is exercisable shall
be the amount (rounded to the nearest whole cent) arrived at by dividing the
exercise price per share of AMS Common Stock at which such AMS Stock Option is
exercisable immediately prior to the Effective Time by the Exchange Ratio (the
"Converted Per Share Price"); provided, however, that, notwithstanding the
foregoing, Nextel shall not issue or pay for any fractional share otherwise
issuable upon any exercise by any holder of AMS Stock Options, as assumed and
adjusted as aforesaid. In addition, notwithstanding clauses (iii) and (iv) of
the immediately preceding sentence, each AMS Stock Option which is identified on
Schedule 2.3 to be an incentive stock option shall be adjusted as required by
Section 424 of the Code, and the regulations promulgated thereunder, so as not
to constitute a modification, extension or renewal of the option, within the
meaning of Section 424(h) of the Code.
(c) If, at or prior to the Effective Time, the terms of any stock option
plan maintained by Nextel would permit Nextel and/or the Compensation Committee
of its Board of Directors to grant substitute options for Nextel Common Shares
in exchange for or in replacement of AMS Stock Options, provided that such
substitution is effected on terms providing identical substantive treatment to
the holders of AMS Stock Options as the substantive treatment such holders are
contemplated to receive pursuant to the foregoing Sections 2.3(a) and 2.3(b),
then Nextel at the Effective Time may grant such substitute options in exchange
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for or in replacement of, instead of assuming, the AMS Stock Options outstanding
immediately prior to the Effective Time.
(d) The Board of Directors of AMS and/or of the Surviving Corporation, as
appropriate, shall take such action as may be required under the AMS Option Plan
to effectuate the foregoing. Prior to the Effective Time, Nextel shall reserve
for issuance (and, if not previously registered pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), register) the number of shares of
Nextel Common Shares necessary to satisfy the obligations of Nextel and/or of
the Surviving Corporation under this Section 2.3. Prior to the Effective Time,
AMS, and thereafter the Surviving Corporation, as may be appropriate, shall take
such actions as are necessary to effect the provisions of this Section 2.3, and
to preserve for the holders of AMS Stock Options the benefits to be provided
pursuant to this Section 2.3. Notwithstanding anything in this Section 2.3(d),
neither AMS nor Nextel shall have any liability for failing to take (or to cause
to be taken) actions in respect of any employee stock option plan or related
agreement that would violate (in any material respect) the terms thereof or
would be prohibited by applicable law.
2.4 Exchange Agent. First Chicago Trust Company of New York, or any other
national bank or trust company designated by Nextel prior to the Effective Time
(and reasonably acceptable to AMS) shall act as agent of the Surviving
Corporation for purposes of, among other things, mailing and receiving
transmittal letters and distributing certificates for Nextel Common Shares, and
cash in lieu of fractional shares of Nextel Common Shares, to the AMS
stockholders (the "Exchange Agent"). Prior to the Effective Time, Nextel and the
Exchange Agent shall enter into an exchange agent agreement providing for, among
other things, the matters set forth in Sections 2.2 through 2.11.
2.5 Exchange of Certificates. After the Effective Time, each holder of a
certificate that immediately prior to the Effective Time represented shares of
AMS Common Stock (other than certificates representing any Excluded Shares or
shares held in the treasury of AMS) (a "Certificate") shall, upon surrender of
the same to the Exchange Agent, be entitled to receive in exchange therefor
certificates representing the number of whole Nextel Common Shares into which
such holder's shares of AMS Common Stock shall have been converted by the Merger
in accordance with Section 2.1. Pending such surrender and exchange, each
Certificate shall be deemed for all corporate purposes, other than as set forth
in Section 2.7, to evidence the number of whole Nextel Common Shares into which
such shares of AMS Common Stock shall have been so converted by the Merger and
the right to receive cash for any fractional interest resulting therefrom.
2.6 Notice of Exchange. Promptly after the Effective Time, the Surviving
Corporation shall cause the Exchange Agent to mail and/or make available to each
record holder of a Certificate a notice and letter of transmittal advising such
holder of the effectiveness of the Merger and the procedures to be used in
effecting the surrender and exchange of the Certificate and specifying that
delivery shall be effected, and risk of loss and title to the Certificate shall
pass, only upon proper delivery of the Certificate to the Exchange Agent, and
such other matters as the Surviving Corporation shall reasonably specify. Upon
surrender to the Exchange Agent of a Certificate, together with such letter of
transmittal duly executed and completed in accordance with the instructions
thereon, and such other documents as may be required by such instructions or
letter of transmittal, and subject to any withholding of Taxes (as hereinafter
defined), the Exchange Agent shall promptly deliver to the person entitled
thereto a certificate for the number of Nextel Common Shares (together with cash
in lieu of a fractional share of Nextel Common Shares, if any), and the
surrendered Certificate shall, by virtue of such delivery, automatically be
cancelled. The certificates representing Nextel Common Shares to be issued in
the Merger shall be properly issued and countersigned and executed and
authenticated, as appropriate.
2.7 Payment of Dividends. Unless and until any Certificate shall be
surrendered pursuant to Section 2.6, no dividend (cash or stock) or other
distribution payable to holders of record of Nextel Common Shares as of any date
subsequent to the Effective Time shall be paid to the holder of a Certificate,
but upon such surrender of a Certificate there shall be paid to the record
holder of the certificate for Nextel Common Shares issued in exchange therefor
the amount of dividends, if any, but without interest, that have theretofore
become payable subsequent to the Effective Time with respect to the number of
whole Nextel Common Shares represented by such certificate issued upon such
surrender and exchange.
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2.8 Transfer. The stock transfer books of AMS shall be closed at the
Effective Time. If Nextel Common Shares are to be issued to a person other than
the person in whose name the Certificates are registered, it shall be a
condition of such issuance that the Certificates surrendered shall be properly
endorsed or otherwise in proper form for transfer and that the person requesting
such issuance shall pay all transfer and other Taxes required by reason of the
receipt by a person other than the registered holder of the Certificates
surrendered, or establish to the reasonable satisfaction of the Surviving
Corporation or the Exchange Agent that such Tax has been paid or is not
applicable. Except as provided in this Section 2.8 or as expressly directed or
consented to by Nextel or by the Surviving Corporation, no transfer or
assignment of any shares of or rights in AMS capital stock (including, without
limitation, AMS Equivalent Securities) shall take place after the Effective
Time.
2.9 Distribution with Respect to Unexchanged Certificates. At any time
following one year after the Effective Time, the Surviving Corporation shall be
entitled to require the Exchange Agent to deliver to the Surviving Corporation
any Nextel Common Shares which had been made available to the Exchange Agent by
or on behalf of Nextel, Newco or the Surviving Corporation and which have not
been disbursed to holders of Certificates, and thereafter such holders shall be
entitled to look to the Surviving Corporation (subject to abandoned property,
escheat or other similar laws) only as general creditors thereof with respect to
the Nextel Common Shares payable upon due surrender of their Certificates.
Notwithstanding the foregoing, the Surviving Corporation shall not be liable to
a holder of Certificates for amounts delivered to a public official pursuant to
any applicable abandoned property, escheat or similar laws. The Surviving
Corporation shall pay all charges and expenses, including those of the Exchange
Agent, in connection with the exchange of shares.
2.10 Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional Nextel Common Share or certificates or scrip therefor
shall be issued as a result of the conversion of issued and outstanding capital
stock of AMS into Nextel Common Shares, but in lieu of each fractional interest,
Nextel may either (i) in its sole and absolute discretion, deliver a number of
whole Nextel Common Shares rounding up to the nearest whole share to eliminate
such fraction or (ii) make a payment in cash therefor, without interest, at a
pro rata price based on the closing price per one whole Nextel Common Share on
the last day of sale on the Nasdaq National Market before the Effective Time
(the "Closing Per Share Value"). Arrangements shall be made with the Exchange
Agent pursuant to which holders of Certificates entitled to fractional interests
shall receive such rounded-up whole shares or such cash payments, as Nextel may
elect. If Nextel elects to settle such fractional share interests by cash
payments, Nextel shall provide the Exchange Agent with sufficient cash to make
such payments, and, thereafter, Nextel shall cause the Exchange Agent to make
such payments to such holders in cash, without interest, on the surrender of
their Certificates.
2.11 Rule 145 Legending. All Rule 145 Affiliates shall receive
certificates for Nextel Common Shares which shall bear restrictive legending of
the type contemplated in Annex A, whether or not they are signatories to a
written agreement in substantially the form of Annex B hereto which is delivered
to Nextel at the Closing.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF AMS
In order to induce Nextel and Newco to enter into this Agreement, AMS
represents and warrants to Nextel and Newco (which representations and
warranties shall not survive the Merger) that:
3.1 Corporate Status, etc. (a) AMS and each of its Subsidiaries is a
corporation duly incorporated, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation.
(b) Except as set forth in the attached Disclosure Schedule under a
reference to this Section, AMS and/or each of its Subsidiaries, as the case may
be, is duly qualified and in good standing to conduct business as a foreign
corporation in all jurisdictions where it currently conducts business activities
or owns or leases properties or assets, in any of the foregoing cases, on a more
than incidental or nominal basis in which its ownership of property or the
character of its activities is such as to require it to be so licensed or
qualified, except where failure to be so licensed or qualified would not have a
Material Adverse Effect on AMS and its Subsidiaries, taken as a whole, and would
not materially adversely affect AMS' ability to perform its obligations under
this Agreement.
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(c) Except as expressly set forth in or as specifically contemplated by
this Agreement or the Disclosure Schedule attached hereto under a reference to
this Section, neither AMS nor any of its Subsidiaries (i) owns, directly or
indirectly, any of the outstanding capital stock or other securities having
voting rights or securities convertible into capital stock of any Person (except
the capital stock of any of the Subsidiaries of the AMS) or other securities
having voting rights of any Person; (ii) has any commitments or obligations,
either firm or conditional, to issue, sell, hypothecate, pledge or otherwise
encumber or dispose of any shares of capital stock of AMS or of any of the
Subsidiaries of AMS to any party other than AMS or a wholly-owned Subsidiary of
AMS; (iii) has any commitments or obligations, either firm or conditional, to
redeem, repurchase or otherwise acquire any outstanding shares of capital stock
or other securities of AMS or shares of capital stock or other securities of any
other Person; or (iv) is a party to (or, other than the voting agreements
relating to AMS expressly provided for herein, committed to enter into) any
voting trust or stockholder agreements with any holders of any shares of capital
stock of AMS or any of its Subsidiaries. Except as set forth in the Disclosure
Schedule attached hereto with a reference to this Section and other than with
respect to its Subsidiaries, AMS does not own, directly or indirectly, any
partnership, equity, profit, participation or similar ownership interest in any
corporations, partnerships, joint ventures, trusts, unincorporated
organizations, associations or similar entities.
(d) AMS has the corporate power and authority (directly or indirectly
through one or more of its Subsidiaries) to own or lease (as appropriate) and
operate its (and such Subsidiaries') properties and to conduct the business in
the manner in which it (and any of such Subsidiaries) is currently engaged.
(e) Set forth in the Disclosure Schedule under a reference to this Section
is a complete list of the direct and indirect Subsidiaries of AMS, which list
sets forth the name of each of the Subsidiaries, each assumed, fictitious or
similar name by or under which such Subsidiary conducts business, its place of
organization and the ownership interest held therein by AMS. Except as set forth
in such Disclosure Schedule, AMS owns, directly or indirectly, free and clear of
all Liens and has the unrestricted power to dispose of (subject to the
requirements of state and Federal securities laws), all of the outstanding
capital stock of each of its Subsidiaries and, except as set forth in such
Disclosure Schedule, since the date of acquisition or formation, as appropriate,
by AMS, the assets, liabilities and results of operations of the Subsidiaries of
AMS have been included in the consolidated financial statements of AMS referred
to in Section 3.5 of this Agreement in the manner and to the extent required by
GAAP. All of such shares of stock of the Subsidiaries so owned by AMS are duly
authorized, validly issued, fully paid and nonassessable.
(f) Except as disclosed in the 1994 10-K (as hereinafter defined) or in the
Disclosure Schedule under a reference to this Section, AMS and its Subsidiaries
have no debt for borrowed money including capital leases which, pursuant to its
terms and giving effect to its normal schedule for payment or amortization, will
come due for payment after December 31, 1994.
3.2 Power and Authority. (a) Except for any requirement to obtain
stockholder approval of the Merger, which shall be sought as contemplated in
Section 5.3 herein, AMS has the corporate power and authority to execute and
deliver this Agreement and to perform its obligations and the transactions
contemplated hereby and has taken all necessary corporate action to authorize
the execution, delivery and performance of this Agreement and the transactions
contemplated hereby and thereby.
(b) This Agreement has been duly authorized, executed and delivered by AMS
and constitutes a legal, valid and binding obligation of AMS, enforceable
against AMS in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally or by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
3.3 Consents/Approvals; Enforceability. (a) No consents of, filings with,
authorizations or other actions of, any Governmental Authority are required to
be received, made or filed by, or taken on behalf of, AMS for AMS' execution,
delivery and performance of this Agreement, other than (i) compliance with any
applicable requirements of the HSR Act, (ii) compliance with any applicable
requirements of the Securities Act and the Exchange Act and any applicable state
securities or "blue sky" laws or (iii) compliance with any applicable
requirements of the Federal Communications Commission (the "FCC"), except for
any such
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consents, filings, authorizations or other actions the failure to receive, make
or take would not (1) have a Material Adverse Effect on AMS and its
Subsidiaries, taken as a whole, or assuming and giving effect to the
consummation of the Merger, on the Surviving Corporation and its Subsidiaries,
taken as a whole, or (2) adversely affect the consummation of the transactions
contemplated hereby or (3) materially adversely affect AMS' ability to perform
its obligations under this Agreement.
(b) Except as set forth in the Disclosure Schedule under a reference to
this Section, no consent, approval, waiver or other action by any Person (other
than any Governmental Authority, referred to in Section 3.3(a) above) under any
contract, agreement, indenture, lease or other similar document to which AMS or
any of its Subsidiaries is a party or by which any of them or any of their
respective properties is bound is required for the execution, delivery and
performance by AMS of this Agreement or the consummation of the transactions
contemplated hereby or thereby, except for any such consents, approvals, waivers
or other actions the failure to receive or take would not (1) have a Material
Adverse Effect on AMS and its Subsidiaries, taken as a whole, or assuming and
giving effect to the consummation of the Merger, on the Surviving Corporation
and its Subsidiaries, taken as a whole, or (2) adversely affect the consummation
of the transactions contemplated hereby or (3) materially adversely affect AMS'
ability to perform its obligations under this Agreement.
3.4 Compliance with Laws. Except as set forth in the Disclosure Schedule
under a reference to this Section:
(a) each of AMS and its Subsidiaries is not currently in violation (nor are
any of them currently liable or otherwise currently responsible with respect to
prior violations) of any statute, law or regulation applicable to any of its or
their presently or formerly owned properties or to the conduct of its or their
current or past businesses, nor do (i) any of the business practices followed,
services provided or products made, modified or installed by any of them (in the
ordinary course of their businesses or otherwise), or (ii) to the knowledge of
AMS, (A) any of the SMR Licenses (as such term is defined in Section 3.15) or
SMR Systems (as such term is defined in Section 3.15) that are subject to a
Management Agreement (as such term is defined in Section 3.15) or (B) any of the
parties who, pursuant to Third-Party Management Agreements (as such term is
defined in Section 3.15), manage or perform other services with respect to SMR
Licenses held by AMS or one of its Subsidiaries (such parties collectively,
"Third-Party Managers"), violate any statute, law or regulation applicable
thereto, which violations are, individually or in the aggregate, reasonably
likely to have a Material Adverse Effect on AMS and its Subsidiaries, taken as a
whole, or to materially adversely affect AMS' ability to perform its obligations
under this Agreement, or the costs or consequences of correction or remediation
of which, to the extent required to comply with applicable Requirements of Law,
individually or in the aggregate, are reasonably likely to have a Material
Adverse Effect on AMS and its Subsidiaries, taken as a whole, or to materially
adversely affect AMS' ability to perform its obligations under this Agreement;
(b) none of (i) the business of AMS or any of its Subsidiaries, (ii) the
business practices followed, services or products performed, sold or otherwise
made available by AMS or any of its Subsidiaries or (iii) to AMS' knowledge, the
business practices, services or products followed, performed, sold or otherwise
made available by any of the Third-Party Managers, violates any applicable law
or regulation relating to air, water or noise pollution or employee health and
safety or the production, storage, labeling, transportation or disposition of
solid waste or hazardous or toxic substances, which violations, individually or
in the aggregate, are reasonably likely to have a Material Adverse Effect on AMS
and its Subsidiaries, taken as a whole, or to materially adversely affect AMS'
ability to perform its obligations under this Agreement, or the costs or
consequences of correction or remediation of which (to the extent required to
comply with applicable Requirements of Law), individually or in the aggregate,
are reasonably likely to have a Material Adverse Effect on AMS and its
Subsidiaries, taken as a whole or to materially adversely affect AMS' ability to
perform its obligations under this Agreement;
(c) AMS and its Subsidiaries and, to AMS' knowledge, each person holding
any SMR Licenses or SMR Systems that are subject to a Management Agreement and
each of the Third-Party Managers, have timely obtained all licenses and permits
and timely filed all reports required to be filed under any such
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applicable laws or regulations except for any such license, permit or report the
failure to obtain or make are not reasonably likely to have a Material Adverse
Effect on AMS and its Subsidiaries taken as a whole; and
(d) AMS and its Subsidiaries have not, and, to AMS' knowledge, no other
person has, (i) stored any chemical substances, including any "Hazardous
Substances," "Pollutants" or "Contaminants" (as such terms are defined in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA")) on or beneath any of the real properties owned or leased by
AMS or any of its Subsidiaries, (ii) received any notice from any Governmental
Authority advising that any of AMS or any of its Subsidiaries are potentially
responsible for response costs with respect to a release or threatened release
of Hazardous Substances, Pollutants or Contaminants, (iii) buried, dumped or
otherwise disposed of any chemical substances, including any Hazardous
Substances, Pollutants or Contaminants on or beneath any of the real properties
owned or leased by AMS or any of its Subsidiaries or (solely as to AMS or any of
its Subsidiaries and not with respect to any other person) on or beneath any
other real property or (iv) received written notice of any violation of any
environmental, zoning or other land use ordinance, law or regulation relating to
the operation of the business of AMS or any of its Subsidiaries, or to any of
the processes followed, services provided or products made, modified or
installed (in the ordinary course of its or their business or otherwise),
including, but not limited to, the Toxic Substances Control Act of 1976, as
amended, the Resource Conservation Recovery Act of 1976, as amended, the Clean
Air Act, as amended, the Federal Water Pollution Control Act, as amended, CERCLA
or the Occupational Safety and Health Act of 1976, as amended, nor are any of
AMS or any of its Subsidiaries aware of any such violation, other than, in the
case of the foregoing clauses (i) through (iv), for such matters, individually
or in the aggregate, as are not reasonably likely to have a Material Adverse
Effect on AMS and its Subsidiaries, taken as a whole, or to materially adversely
affect AMS' ability to perform its obligations under this Agreement.
3.5 Financial Statements. AMS has furnished to Nextel (or an authorized
representative of Nextel) (a) the audited financial statements, including the
notes thereto, contained in AMS' Annual Report on Form 10-K for the fiscal year
ended June 30, 1994, in final form as filed with the SEC (such Form 10-K the
"1994 10-K") and (b) an unaudited balance sheet, statement of operations and
statement of cash flows as of and for the six months ended December 31, 1994
(together with the audited financial statements, the "AMS Financial
Statements"). Such AMS Financial Statements (together with the notes thereto)
present fairly, in all material respects, the financial condition and results of
operations of AMS and its Subsidiaries as of the dates and for the periods
indicated (subject, in the case of the unaudited financial statements, to normal
year end audit adjustments none of which, alone or in the aggregate, would have
a Material Adverse Effect on AMS and its Subsidiaries taken as a whole), are
consistent in all material respects with the books and records of AMS and its
Subsidiaries and have been prepared in accordance with GAAP (applied
consistently throughout the periods involved except as otherwise stated in the
notes thereto). The balance sheets (and, in the case of audited balance sheets,
the notes thereto) included in the AMS Financial Statements disclose or reflect
all material liabilities in existence on the relevant date and required by GAAP
to be disclosed or reflected therein. Except as disclosed or reflected in the
AMS Financial Statements or as disclosed in the Disclosure Schedule under a
reference to this Section, there are no (i) material debts, obligations or
liabilities of any nature, including Contingent Obligations, of AMS and its
Subsidiaries except for those debts, obligations and liabilities of AMS and its
Subsidiaries that may have been incurred after December 31, 1994 in the ordinary
course of business provided that such debts, obligations and liabilities are
usual in nature and amount and were incurred consistent with past sound business
practice, both individually and in the aggregate, (ii) site leases or (iii)
other leases or commitments that will not be fully performed and satisfied
within one year from the date hereof, which leases or commitments individually
involve payments to be made, or goods or services to be provided or purchased
having a fair market value in excess of $25,000 individually, to which AMS or
any of its Subsidiaries is a party or by which any of them or any of their
respective properties is bound, other than those made in the ordinary course of
business.
3.6 Capitalization. (a) As of the date hereof, the authorized and
outstanding shares of capital stock of AMS (exclusive of shares held in AMS'
treasury) is as shown in the Disclosure Schedule under a reference to this
Section. Except as specifically set forth in such Disclosure Schedule under a
reference to this Section, all outstanding shares of capital stock of AMS have
been duly authorized and validly issued and are fully paid and
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non-assessable, and have been originally issued (or re-issued, as the case may
be) by AMS in transactions that complied, in all material respects, with the
Requirements of Law in effect at the relevant times of the issuances and
applicable to AMS in the context of such transactions. Except as set forth in
the Disclosure Schedule under a reference to this Section, there are no
outstanding (nor is there any obligation of AMS to issue any) AMS Equivalent
Securities. There are no outstanding obligations of AMS or any Subsidiary of AMS
to repurchase, redeem or otherwise acquire any AMS Equivalent Securities, other
than those specifically identified as such and described and listed in the
Disclosure Schedule under a reference to this Section.
(b) Except as specifically contemplated by this Agreement, all rights,
preferences, restrictions, and limitations applicable to the capital stock of
AMS are set forth in the Certificate of Incorporation as certified by the
Secretary of State of Delaware on July 27, 1993. A true, correct and complete
copy of each of the Certificate of Incorporation and the By-Laws of AMS has been
delivered to Nextel (or an authorized representative of Nextel) prior to the
execution hereof. There are no amendments pending or proposed to either such
Certificate of Incorporation or such By-Laws except as expressly contemplated
and provided herein.
3.7 No Pending or Threatened Actions. Except as disclosed in the 1994
10-K and the Purported Class Actions (as described in the Disclosure Schedule
under a reference to this Section) and such other matters as are set forth in
the Disclosure Schedule under a reference to this Section, there are no actions,
suits, proceedings, claims or investigations (collectively, "Claims") formally
instituted and pending or, to the knowledge of AMS, threatened against AMS or
any of its Subsidiaries or that specifically identify AMS or any of its
Subsidiaries or any of their properties or assets (other than Claims affecting
generally any group of similarly situated third parties such as members of the
SMR industry), or before or by any Governmental Authority, or any arbitration
panel or alternative dispute resolution body (collectively, "Forums"), which are
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on AMS and its Subsidiaries, taken as a whole, or to materially adversely
affect AMS' ability to perform its obligations under this Agreement. Except as
set forth in such Disclosure Schedule under a reference to this Section, neither
AMS nor any of its Subsidiaries is subject to or in default under any order,
writ, injunction or decree (collectively, "Order") of any Forum which would,
individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect on AMS and its Subsidiaries, taken as a whole, or to materially
adversely affect AMS' ability to perform its obligations under this Agreement.
3.8 No Defaults. Except as set forth in the Disclosure Schedule under a
reference to this Section, (i) neither AMS nor any of its Subsidiaries is in
default under or with respect to any contractual obligation to which AMS or any
of its Subsidiaries is a party or by which any of them or their respective
properties is bound, which default would have a Material Adverse Effect on AMS
and its Subsidiaries taken as a whole or would materially adversely affect AMS'
ability to perform its obligations under this Agreement and (ii) to AMS'
knowledge, no other party to any contract to which AMS or any of its
Subsidiaries is a party or by which any of them or their respective properties
is bound is in default of such contract in any material respect or has indicated
an intention to terminate any such contract, excluding any of the foregoing
that, individually or in the aggregate, would not have a Material Adverse Effect
on AMS and its Subsidiaries, taken as a whole.
3.9 No Material Adverse Change. Except as set forth in the Disclosure
Schedule under a reference to this Section, since December 31, 1994, there has
not been any Material Adverse Change to AMS and its Subsidiaries, taken as a
whole.
3.10 Title to Properties; Encumbrances. Except as set forth in the
Disclosure Schedule under a reference to this Section, AMS and each of its
Subsidiaries has good and valid title to all its material properties and assets,
real and personal, tangible and intangible (including, without limitation, all
the properties and assets reflected in the consolidated balance sheet of AMS as
of June 30, 1994, contained in the 1994 10-K except for such properties and
assets which have been sold or otherwise disposed of in the ordinary course of
business or with the consent of Nextel since the date thereof) as is requisite
to the conduct of their respective businesses in substantially the same manner
as presently conducted and there is no title defect in any of such properties or
assets which is reasonably likely to have at any time a Material Adverse Effect
on
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AMS and its Subsidiaries, taken as a whole. Such properties and assets of AMS
and its Subsidiaries are subject to no Liens, except for (i) Liens reflected on
or disclosed in such consolidated balance sheet of AMS (including the notes
thereto), (ii) Liens set forth on the Disclosure Schedule under a reference to
this Section, (iii) Liens consisting of zoning or planning restrictions,
easements, permits and other restrictions or limitations on the use of real
property or irregularities in or exceptions to title thereto which individually
or in the aggregate do not materially detract from the value of, or materially
impair the use of, such property by AMS or its Subsidiaries in the operation of
its or their respective businesses as currently conducted, (iv) Permitted Liens
and (v) Liens incurred in the ordinary course of business since June 30, 1994
securing the payment of indebtedness or other amounts not in excess of $25,000
individually or $100,000 in the aggregate (with respect to related items).
3.11 Intellectual Property. Except as set forth in the Disclosure
Schedule under a reference to this Section, (a) AMS and its Subsidiaries each
own or possess adequate licenses or other valid rights to use all patents,
patent rights, trademarks, trademark rights, trade names, trade name rights,
copyright registrations, know-how and other proprietary information ("Rights")
used in the conduct of their respective businesses as presently being conducted,
except for such licenses or rights the failure to own or possess by AMS and its
Subsidiaries is not likely to have a Material Adverse Effect on AMS and its
Subsidiaries taken as a whole; (b) the validity of such items and the title
thereto of AMS and its Subsidiaries have not been disputed in any litigation to
which AMS or any of its Subsidiaries is a party nor, to the knowledge of AMS, is
any such litigation threatened; and (c) the conduct of the businesses of AMS and
its Subsidiaries as now conducted does not conflict with Rights of others in any
way that is reasonably likely to have a Material Adverse Effect on AMS and its
Subsidiaries taken as a whole. No material infringement of any Right owned by or
licensed by or to AMS or its Subsidiaries is known to AMS.
3.12 Brokers. AMS has no arrangements with any broker, finder or
investment banker which would entitle any such Person to a brokerage, finder's
or other fee or commission in connection with the transactions contemplated by
this Agreement, except in connection with the retention of an investment banking
firm as contemplated by Section 9.3(g) hereof. A copy of the engagement letter
between AMS and such financial advisor, and all related agreements or
instruments, has been provided to Nextel prior to the execution and delivery of
this Agreement.
3.13 Taxes. Except as set forth in the Disclosure Schedule under a
reference to this Section, AMS and its Subsidiaries, individually or as
successors to any combined or merged entity, have timely and correctly filed or
caused to be filed all federal, foreign, state, county and local tax returns,
reports and statements (the "Tax Returns") heretofore required to be filed by
AMS and its Subsidiaries other than any Tax Returns as to which (i) no
Governmental Authority has notified AMS or any of its Subsidiaries of any
obligation or requirement to file and (ii) the failure to file would not
constitute or result in a Material Adverse Effect on AMS and its Subsidiaries,
taken as a whole; provided, that AMS (or its appropriate Subsidiaries) shall
file or cause to be filed all Tax Returns not filed on a timely basis (if any)
promptly after becoming aware of any obligation or requirement to file such Tax
Returns. All net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, withholding, payroll, employment, excise,
estimated, severance, stamp, occupation, property or other taxes, customs,
duties, fees, assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts imposed by
any domestic or foreign taxing authority (collectively, the "Taxes") due and
payable on or before the Closing in respect of such Tax Returns have been or
will be duly and timely paid in full by the Closing. There is no basis for any
adjustment to any of the Tax Returns referred to above that would result in any
material increase in the amount of Taxes owed, with respect to the relevant
period covered by the relevant Tax Return, by AMS and its Subsidiaries (except
for any such adjustment and resulting increase in Taxes that is covered by
sufficient reserves with respect to the relevant period). Adequate provision (i)
has been made with respect to interim periods for which AMS has prepared
unaudited interim balance sheets ended prior to the date hereof or (ii) will be
made, with respect to future comparable periods, in each of AMS' unaudited
interim balance sheets for periods ending prior to the Closing, for the payment
of all unpaid Taxes of AMS and its Subsidiaries that have accrued with respect
to the period ending on or prior to the date of the applicable unaudited interim
balance sheet. Except as set forth in the Disclosure Schedule under a reference
to this Section, (a) to AMS'
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knowledge, no Tax audits or disputes exist between AMS or its Subsidiaries and
any Governmental Authority, and (b) AMS and its Subsidiaries have not agreed to
any extension of time for the assessment or collection of Taxes by any
Governmental Authority.
3.14 Materially Correct. Reference is hereby made to (i) the SEC Filings
furnished by AMS to Nextel pursuant to or in connection with this Agreement,
whether furnished prior to, at or subsequent to the date hereof, (ii) this
Agreement, including the Schedules hereto, and (iii) the information contained
in each Officers' Certificate and documents furnished by AMS at the Closing (all
such written information, taken as a whole, the "AMS Disclosure Information").
The AMS Disclosure Information so received on or prior to the date hereof by
Nextel, (A) as to the SEC Filings, as of their respective dates did not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make any statement of
material fact contained therein, in the light of the circumstances under which
it was made, not misleading and (B) as to AMS Disclosure Information of the
types described in either of the foregoing clauses (ii) or (iii), is and at the
closing will be true and correct in all material respects. The foregoing
representations made in the immediately preceding sentence also shall be deemed
made anew by AMS to Nextel immediately prior to the Closing, but with reference
to the AMS Disclosure Information so received prior to the Closing by Nextel. As
used in this Section 3.14, "material" means material to the financial condition,
results of operations, prospects, business, assets or properties of AMS and its
Subsidiaries, taken as a whole.
3.15 Regulatory Matters. (a) Definitions. For purposes of this Section
3.15, the following terms shall have the indicated meanings:
"FCC License" shall mean any paging, mobile telephone, specialized
mobile radio or other license, permit, consent, certificate of compliance,
franchise, approval or authorization granted or issued by the FCC,
including, without limitation, any of the foregoing authorizing the
acquisition, construction or operation of an SMR System (as defined below),
radio paging system or other radio communications system.
"Management Agreement" shall mean (i) any management agreement
pursuant to which AMS or one of its Subsidiaries is managing SMR Licenses
held by another Person or (ii) any other agreement pursuant to which AMS or
one of its Subsidiaries is providing loading or other services with respect
to SMR Licenses held by another Person in exchange for either the right to
receive a portion of the revenues derived from such SMR Licenses in excess
of 25% of the aggregate revenues derived from such SMR Licenses, or the
right to purchase such SMR Licenses.
"SMR License" shall mean an FCC License authorizing the construction,
ownership and operation of a specialized mobile radio system in the 800 or
900 MHz band issued pursuant to 47 CFR Part 90 of the rules and regulations
of the FCC.
"SMR System" shall mean a specialized mobile radio system licensed
under 47 CFR Part 90 of the rules and regulations of the FCC.
"SMR Units" shall mean the number of billed mobile and control
stations (within the meaning of 47 CFR Part 90 of the rules and regulations
of the FCC) subscribing to SMR Systems licensed to or managed by AMS and
its Subsidiaries excluding, however, any such units which are subject to a
Third-Party Management Agreement if the respective third party has a right
to purchase the SMR Licenses which are subject to such Third-Party
Management Agreement.
"Third-Party Management Agreement" shall mean (i) any management
agreement pursuant to which a Person (other than AMS or one of its
Subsidiaries) is managing SMR Licenses held by AMS or one of its
Subsidiaries or (ii) any other agreement pursuant to which a Person (other
than AMS or one of its Subsidiaries) is providing loading or other services
with respect to SMR Licenses held by AMS or one of its Subsidiaries in
exchange for the right to receive a portion of the revenues derived from
such SMR Licenses in excess of 25% of the aggregate revenues derived from
such SMR Licenses, or the right to purchase such SMR Licenses.
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(b) License Information. The Disclosure Schedule under a reference to this
Section sets forth a true and complete list (as of the date hereof), of the
following information for each SMR License and other FCC License issued to or
managed by AMS or any of its Subsidiaries:
(i) for all FCC Licenses (including all SMR Licenses), the name of the
licensee, the call sign, the transmitter location (by site coordinates and
city), the type of service (e.g., paging, SMR, etc.), the frequency or
frequencies authorized and the license renewal date;
(ii) in the case of SMR Licenses, the number of channels authorized,
whether the SMR License is for a conventional or trunked SMR System,
whether the SMR License is managed by AMS or any of its Subsidiaries
pursuant to a Management Agreement or by any other Persons pursuant to a
Third-Party Management Agreement and (separately stated by affected SMR
License) for each SMR License of AMS and its Subsidiaries as to which the
applicable loading requirements (if any) are not met, the applicable
loading date;
(iii) each holder of any such FCC License that is neither wholly owned
by AMS nor owned entirely by unaffiliated Persons and managed by AMS; and
(iv) for all FCC Licenses (including SMR Licenses), whether such FCC
Licenses are subject to rights of first refusal, options and other such
rights or obligations in existence on the date hereof, including, without
limitation, entitlement to acquire additional ownership interests, which
may affect the ownership interests of AMS or any of its Subsidiaries.
(c) Condition of Systems. All of the material properties and equipment
employed in the SMR Systems of each of AMS and each of its Subsidiaries
(including, without limitation, SMR Systems that include SMR Licenses managed by
AMS or any of its Subsidiaries pursuant to a Management Agreement) are, and, to
the knowledge of AMS, all such properties and equipment to be acquired or added
by AMS or its Subsidiaries in connection with any contemplated SMR System
expansion or construction, in either case prior to the Closing, will be, in good
repair, working order and condition and are and will be in material compliance
with all standards or rules imposed by any governmental agency or authority
(including, without limitation, the FCC and (if applicable) any public utilities
commission or other state or local governments or instrumentalities) or as
imposed under any agreements with customers. Except as set forth in the
Disclosure Schedule under a reference to this Section, all SMR Systems of AMS
and each of its Subsidiaries (including, without limitation, SMR Systems that
include SMR Licenses managed by AMS or any of its Subsidiaries pursuant to a
Management Agreement) are constructed as required to comply in all material
respects with applicable FCC rules, regulations and policies.
(d) Fees; License Compliance. Each of AMS and each of its Subsidiaries has
paid all material franchise, license or other fees and charges which have become
due and payable in respect of its business and has made appropriate provision as
is required by GAAP for any such fees and charges which have accrued. Except as
set forth on the Disclosure Schedule under a reference to this Section, each of
AMS and its Subsidiaries has duly secured all necessary and material permits,
licenses, consents and authorizations from, and has filed all required and
material registrations, applications, reports and other documents with, the FCC.
Except as specifically indicated thereon, AMS and its Subsidiaries hold the FCC
Licenses specified on the Disclosure Schedule under a reference to this Section
and all such FCC Licenses are valid and in full force and effect without
conditions except for such conditions as are generally applicable to holders of
FCC Licenses. Except as set forth in the Disclosure Schedule under a reference
to this Section or Section 3.15(b)(ii), all loading requirements (if any) with
respect to any SMR Licenses listed on such Disclosure Schedule have been met.
Except as set forth in the Disclosure Schedule under a reference to this
Section, (i) to the knowledge of AMS, no event has occurred and is continuing
which is reasonably likely to result in the revocation, termination or adverse
modification of any FCC License listed on such Disclosure Schedule and (ii) AMS
has no reason to believe and no knowledge that the SMR Licenses specified on
such Disclosure Schedule will not be renewed in the ordinary course. Except as
set forth in the Disclosure Schedule under a reference to this Section, the
current ownership and operation by AMS and its Subsidiaries of such SMR Systems
(including, without limitation, SMR Systems that include SMR Licenses managed by
AMS or any of its Subsidiaries pursuant to a Management Agreement), radio paging
and other radio communications
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systems comply in all material respects with the Communications Act of 1934, as
amended, and all rules, regulations and policies of the FCC except, in the case
of those SMR Systems that include SMR Licenses managed by AMS or any of its
Subsidiaries pursuant to a Management Agreement, where the failure to so comply
will not result in a Material Adverse Effect on AMS and its Subsidiaries, taken
as a whole.
(e) Management Agreements. The Disclosure Schedule sets forth, under a
reference to this Section, a complete and correct list of all Management
Agreements and Third-Party Management Agreements to which AMS or any of its
Subsidiaries is a party and such list correctly identifies the respective
manager under each such agreement and the respective holder of the SMR Licenses
which are the subject of such agreements, the transmitter locations (by site
coordinates and city), and number of channels covered by such SMR Licenses. With
reference to any such Management Agreement or Third Party Management Agreement
that has been entered into or modified in any material aspect since August 25,
1993, such list also correctly sets forth the term of such agreement, any
options or calls (and the respective option or call prices) or rights of first
refusal in favor of any party to such agreement to purchase or sell any interest
in such SMR Licenses and the respective fees or revenues payable or receivable
under any such agreement. To the best knowledge of AMS, the terms of all such
Third-Party Management Agreements and the operation of each SMR System pursuant
thereto comply with the Communications Act of 1934, as amended, and all rules,
regulations and policies of the FCC except where the failure to so comply will
not result in a Material Adverse Effect on AMS and its Subsidiaries, taken as a
whole. AMS has made available to Nextel or its representatives for review true,
correct and complete copies of all such Management Agreements and Third-Party
Management Agreements, and all pending or proposed amendments, supplements or
modifications thereto.
(f) Wide-Area System Application. AMS has furnished to Nextel a true and
correct copy of AMS' Request for Rule Waiver for a Wide-Area SMR System and
associated applications, as filed with the FCC, and all material supplemental or
related materials filed in connection therewith by or on behalf of AMS and/or
any of its Subsidiaries, and any written communication issued by the FCC or any
FCC staff member of which AMS has knowledge in respect to, or otherwise in
connection with, any of the foregoing.
3.16 Proxy Statement/Prospectus. None of the information supplied or to
be supplied by AMS for inclusion or incorporation by reference in the Proxy
Statement/Prospectus will, at the time of the mailing of the Proxy
Statement/Prospectus, at the time of the Special Meeting or at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. To the extent information is supplied or is to be supplied by AMS
for inclusion or incorporation by reference therein, the Proxy
Statement/Prospectus will comply as to form in all material respects with the
requirements of the Securities Act and the Exchange Act and the respective rules
and regulations adopted thereunder.
3.17 Non-Contravention. Subject to receipt of the requisite vote of
stockholders of AMS on the Merger and the submission of all filings with, and
receipt of all consents, approvals and waivers from, any Governmental Authority
referred to in Section 3.3(a) and except as set forth in the Disclosure Schedule
under a reference to this Section, none of the execution and delivery by AMS of
this Agreement, the consummation of the transactions contemplated hereby nor the
compliance by AMS with the terms and provisions hereof, results or will result
in the creation or imposition of any Lien on the properties or assets of AMS or
any of its Subsidiaries, violates or will violate any Requirement of Law
applicable to AMS or any of its Subsidiaries, conflicts with or will conflict
with or results or will result in any breach of any term, condition or provision
of, or constitutes or will constitute (with due notice or lapse of time or both)
a default under, or pursuant to the terms of, any mortgage, deed of trust or
other agreement or instrument to which AMS or any of its Subsidiaries is a party
or by which any of them or any of their respective properties is bound (except
for any such violations, conflicts, breaches or defaults that could not
reasonably be expected to have a Material Adverse Effect on AMS and its
Subsidiaries, taken as a whole, and which will not materially adversely affect
AMS' ability to perform its obligations under this Agreement) or the Certificate
of Incorporation or by-laws of AMS. All issued and outstanding shares of AMS
Common Stock are (i) duly authorized, validly issued, fully paid and
non-assessable, (ii) free and clear of all Liens created or imposed by AMS, and
(iii) not subject to
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any voting or trust agreement, proxy, buy-sell agreement, preemptive right or
similar restriction created or imposed by AMS.
3.18 Third-Party Investment Rights. Since August 25, 1993, AMS has not
given, nor entered into any agreement or legally binding commitment to give, to
any Person any right to invest in or otherwise acquire any capital stock or
other securities of AMS, other than (i) option grants which are disclosed and
included as part of the AMS Equivalent Securities referenced in Section 3.6
hereof and (ii) to Nextel.
3.19 Related Party Transactions. Except as (i) set forth in the
Disclosure Schedule under a reference to this Section, or (ii) disclosed in the
SEC Filings made prior to the date of this Agreement, no current or, to the
knowledge of AMS after due inquiry within AMS, former director, officer or key
employee of AMS is presently a party to, directly or indirectly through his
Affiliates, any arrangement or transaction with AMS or any of its Subsidiaries
providing for the furnishing of services (except as an employee) by or to, or
rental of real or personal property from or to, or otherwise requiring cash
payments to or by any such person, other than those that do not involve payments
or the furnishing of goods or services having a fair market value by, from or to
AMS or its Subsidiaries of more than $5,000 in any calendar year and which may
be terminated, without payment of any penalty, termination fee, liquidated
damages or other similar amount, on not more than 30 days notice by AMS or its
appropriate Subsidiary.
3.20 Transactions Not in the Ordinary Course. Except as set forth in the
Disclosure Schedule under a reference to this Section, or as otherwise disclosed
to and approved in writing by Nextel, since August 25, 1993, neither AMS nor any
of its Subsidiaries has taken any action without the consent of Nextel which, if
taken after such date without the consent of Nextel, would violate Section 5.1,
assuming such Section to have been operative on and after such date (and as if
the phrase "the date hereof" in such Section were replaced by the date "August
25, 1993").
3.21 Employee Benefit Matters. (a) Set forth in the Disclosure Schedule
under a reference to this Section, is a true, complete and correct list of all
"employee benefit plans" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and all other employee
profit-sharing, incentive, deferred compensation, welfare, pension, retirement,
severance, group insurance and other employee benefit plans, arrangements,
agreements and practices currently maintained or contributed to by AMS or any of
its Subsidiaries, or to which AMS or any of its Subsidiaries currently is
obligated to contribute, relating to present or former employees, directors,
officers, stockholders or consultants of AMS or any of its Subsidiaries
(collectively, "Employee Plans"). Except as set forth in such portion of the
Disclosure Schedule under a reference to this Section or as shown in the 1994
10-K or any SEC Filings made in the period from July 1, 1994 to the date hereof,
true, complete and correct copies of which have heretofore been delivered to
Nextel, neither AMS nor any of its Subsidiaries has any material liability with
respect to any plans, arrangements or practices of the type described in the
preceding sentence previously maintained or contributed to by AMS or any of its
Subsidiaries, or to which AMS or any of its Subsidiaries previously had an
obligation to contribute. AMS previously has delivered or made available to
Nextel or its counsel true, complete and correct copies of each of the Employee
Plans, including all amendments thereto, and any other documents or other
instruments relating thereto reasonably requested by Nextel or its counsel.
(b) All Employee Plans are being, and have been, maintained, operated and
administered in all material respects in accordance with their respective terms
and in all material respects in compliance with all applicable laws and all Form
5500 reports required to be filed in respect of any Employee Plan have been (if
required to be filed prior to the date hereof) or will be (if required to be
filed on or after the date hereof but prior to the Closing) timely and duly
filed.
(c) Neither AMS nor any of its Subsidiaries has or, within the past six
years, had an obligation to contribute to a "defined benefit plan" as defined in
Section 3(35) of ERISA, a pension plan subject to the minimum funding standards
of Section 302 of ERISA or Section 412 of the Code a "multiemployer plan" as
defined in Section 3(37) of ERISA or Section 414(f) of the Code or a "multiple
employer plan" within the meaning of Section 210(a) of ERISA or Section 413(c)
of the Code. No Employee Plan is funded through a "welfare benefit fund" as
defined in Section 419(e) of the Code. Except for the AMS' Subsidiaries, no
other
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trade or business is, or at any time within the past six years has been, treated
together with AMS as a single employer under Section 414 of the Code or Section
4001 of ERISA.
(d) Each Employee Plan intended to be qualified under Section 401(a) of the
Code is so qualified, and each trust created thereunder is exempt from tax under
the provisions of Section 501(a) of the Code, except where the failure to be so
qualified or exempt would not have a Material Adverse Effect on AMS; provided,
that AMS has delivered to the Nextel prior to the execution and delivery hereof
copies of all written communications received by AMS from the Internal Revenue
Service that question or dispute such qualification of any Employee Plan or
exempt status of any related trust.
(e) There have been no prohibited transactions or breaches of any of the
duties imposed on "fiduciaries" (within the meaning of Section 3(21) of ERISA)
by ERISA with respect to the Employee Plans that could result in AMS or any of
its Subsidiaries becoming liable directly or indirectly (by indemnification or
otherwise) for any material excise tax, penalty or other liability under ERISA
or the Code.
(f) There are no material actions or claims pending or, to AMS' knowledge
after due inquiry, threatened, with respect to any Employee Plan (other than
routine claims for benefits), and to AMS' knowledge after due inquiry, there are
no material investigations or audits of any Employee Plan by any Governmental
Authority currently pending and there have been no such investigations or audits
that have been concluded that resulted in any material liability of AMS or any
of its Subsidiaries that has not been fully discharged.
(g) All (i) insurance premiums required to be paid with respect to, (ii)
benefits, expenses, and other amounts due and payable under, and (iii)
contributions, transfers, or payments required to be made to, any Employee Plan
have been paid, made or accrued as a liability on the balance sheets included in
the 1994 10-K or to the extent such amounts are properly due and payable in
subsequent periods, in the AMS Financial Statements included in any SEC Filing
for such subsequent period (provided that a true, correct and complete copy of
such SEC Filing shall have been delivered to Nextel, if filed with the SEC prior
to the date hereof, prior to the execution and delivery of this Agreement, and
if filed with the SEC thereafter, promptly after such filing with the SEC). With
respect to any insurance policy providing funding for benefits under any
Employee Plan, (x) there is no material liability of AMS or any of its
Subsidiaries, in the nature of a retroactive rate adjustment, loss sharing
arrangement, or other actual or contingent liability, nor would there be any
such liability if such insurance policy was terminated on the date hereof, and
(y) except as previously disclosed in writing to Nextel, no insurance company
issuing any such policy is in receivership, conservatorship, liquidation or
similar proceeding and, to the best of AMS' knowledge, no such proceedings with
respect to any insurer are imminent.
(h) Each Employee Plan that is a group health plan subject to Section 4980B
of the Code (or which was subject to Section 162(k) of the Code) has been
operated in all material respects in compliance with the continuation coverage
requirements of Section 4980B of the Code and Section 162(k) of the Code, as
applicable, and Part 6 of Subtitle B of Title I of ERISA.
(i) Each Employee Plan that is subject to Section 1862(b)(1) of the Social
Security Act has been operated in all material respects in compliance with the
secondary payer requirements of Section 1862(b)(1) of such Act.
(j) The Disclosure Schedule under a reference to this Section contains a
separate identification of each Employee Plan that provides benefits, including,
without limitation, death or medical benefits, beyond termination of employment
or retirement other than (i) coverage mandated by law, (ii) death or retirement
benefits under any qualified Employee Plan, or (iii) deferred compensation
benefits fully reflected in the balance sheets included in the 1994 10-K (the
"Post-Employment Benefits"). The Disclosure Schedule under a reference to this
Section contains an accurate summary (with reasonably descriptive detail as to
both type and dollar amount) of all liabilities reasonably estimated to be in
excess of $25,000 as of December 31, 1994 relating to the Post-Employment
Benefits.
(k) Except as set forth in the Disclosure Schedule under a reference to
this Section, the execution and performance of this Agreement will not, solely
in and of itself, (i) constitute a stated triggering event under
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any Employee Plan that will result in any payment (whether of severance pay or
otherwise) becoming due from AMS or any of its Subsidiaries to any present or
former officer, employee, director, stockholder or consultant, or former
employee (or dependents of any thereof), or (ii) accelerate the time of payment
or vesting, or increase the amount, of compensation due to any employee,
officer, director, stockholder or consultant of AMS or any of its Subsidiaries.
(l) Except as set forth in the Disclosure Schedule under a reference to
this Section, neither AMS nor any of its Subsidiaries has agreed or committed to
make any amendments to any of the Employee Plans not already embodied in the
documents comprising any such Employee Plan, other than any amendments required
by law.
(m) All contributions, transfers, and payments by AMS in excess of $50,000
made in any calendar year with respect to which the applicable statute of
limitations period has not expired in respect of any Employee Plan have been or
are fully deductible under the Code.
(n) Except as set forth in the Disclosure Schedule under a reference to
this Section, as of December 31, 1994 there are no (i) bonuses, sales
commissions or vacation pay earned but not received and (ii) incurred or
continuing but unpaid claims under Employee Plans not funded by insurance, other
than such of the foregoing items described in clauses (i) and (ii) above which
in the aggregate do not exceed $50,000.
(o) Except as set forth in the Disclosure Schedule under a reference to
this Section, no Employee Plan provides benefits to any individual who is not a
current or former employee of AMS or one of its Subsidiaries, or the dependents
or other beneficiaries of any such individual who is not a current or former
employee.
(p) Except as set forth in the Disclosure Schedule under a reference to
this Section, no parachute payments (within the meaning of Section 280(G) of the
Code) will be made in connection with or as a result of all or any of the
transactions contemplated by this Agreement to occur at the Closing.
3.22 Registration Rights. Except as set forth in the Disclosure Schedule
under a reference to this Section, no Person has any rights to require
registration under the Securities Act of any shares of capital stock of AMS. No
such Person who has such registration rights is a Rule 145 Affiliate of AMS, and
such registration rights do not apply to any securities that are not presently
outstanding shares of AMS Common Stock. True, correct and complete copies of all
agreements listed on the Disclosure Schedule under a reference to this Section
have been delivered to Nextel (or its authorized representative).
3.23 Certain Contracts. Except as set forth on the Disclosure Schedule
under a reference to Section 3.19 hereof and/or to this Section, neither AMS nor
any of its Subsidiaries (nor any of their properties) is a party to or is bound
by or has executory rights or obligations under (except in any case as may
result from indemnification, contribution or similar rights or obligations under
agreements with respect to which, to AMS' knowledge after due inquiry, AMS has
neither asserted in writing any Claim nor received any written notice of any
Claim that has not been resolved) (i) other than the agreements referred to in
sections (ii) through (ix) hereafter, any other agreement or arrangement not
made in the ordinary course of business involving payments, or the furnishing of
goods or services, by AMS or any of its Subsidiaries in an amount in excess of
$25,000 individually or (in the case of related agreements or arrangements)
$100,000 in the aggregate; (ii) any employment or consulting contract; (iii) any
contract with any labor union; (iv) any lease with respect to real or personal
property other than site leases, whether as lessor or lessee, involving lease
payments in excess of $25,000 per item or $100,000 in the aggregate (in the case
of related leases) per annum; (v) any wholly or partially unfulfilled contract
or commitment for the purchase of raw materials or supplies or the sale of
products involving more than $25,000 per item or $100,000 in the aggregate (in
the case of related contracts or commitments) per annum; (vi) any indenture,
agreement, note, mortgage, guaranty or other writing which evidences or relates
to any loan of money to, or indebtedness for money borrowed by, AMS or any of
its Subsidiaries; (vii) any license agreement or other contract or agreement
relating to patents, trademarks, trade names, techniques or copyrights or
applications for any thereof, inventions, trade secrets or other proprietary
know-how or technical assistance; (viii) any loan by (or guaranteed by) AMS or
any of its Subsidiaries to officers, directors or employees of AMS or any of its
Subsidiaries (other than advances made in the ordinary course of business and
not exceeding $2,500 in the aggregate); (ix) any agreement relating to
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any direct or indirect acquisition or disposition by AMS of SMR Licenses (as
defined in Section 3.27), which agreement either (A) was entered into after
August 25, 1993 or (B) provides obligations, duties or rights of any party
thereto that have not been fully satisfied, performed or exercised as of the
date of this Agreement, in the case of any of the foregoing, whether written or
oral (and, in the case of oral agreements, with AMS providing a written summary
of all material terms thereof to Nextel) or (x) any site leases. Except as set
forth in the Disclosure Schedule under a reference to this Section, neither AMS
nor any of its Subsidiaries is now or will be in default in any material respect
upon and giving effect to the Merger under the terms of, or otherwise be or
become deprived of any material benefit (or of the ability to enforce any
material term presently in effect on the date hereof) under, any commitments
described in Subsections (i) through (ix) of this Section 3.22 which default
would have a Material Adverse Effect on AMS and its Subsidiaries taken as a
whole or would materially adversely affect AMS' ability to perform its
obligations under this Agreement.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF
NEXTEL AND NEWCO
In order to induce AMS to enter into this Agreement, Nextel and Newco
represent and warrant to AMS (which representations and warranties shall not
survive the Merger) that:
4.1 Corporate Status, etc. (a) Nextel and each of the Nextel Subsidiaries
is a corporation duly incorporated, validly existing and in good standing under
the laws of its respective jurisdiction of incorporation.
(b) Except as set forth in Schedule 4.1(b), Nextel and/or each of the
Nextel Subsidiaries, as the case may be, is duly qualified and in good standing
to conduct business as a foreign corporation in all jurisdictions where it
currently conducts business activities or owns or leases properties or assets,
in any of the foregoing cases, on a more than incidental or nominal basis in
which its ownership of property or the character of its activities is such as to
require it to be so licensed or qualified, except where failure to be so
licensed or qualified would not have a Material Adverse Effect on Nextel and the
Nextel Subsidiaries, taken as a whole, and would not materially adversely affect
Nextel's ability to perform its obligations under this Agreement.
(c) Nextel has the corporate power and authority (directly or indirectly
through one or more of the Nextel Subsidiaries) to own or lease (as appropriate)
and operate its (and such Subsidiaries') properties and to conduct the business
in the manner in which it (and any of such Subsidiaries) is currently engaged.
(d) Except as set forth in Schedule 4.1(d), Nextel owns, directly or
indirectly, free and clear of all Liens and has the unrestricted power to
dispose of (subject to the requirements of state and Federal securities laws),
all of the outstanding capital stock of each of its Subsidiaries and, except as
set forth in such Schedule, since the date of acquisition or formation, as
appropriate, by Nextel, the assets, liabilities and results of operations of the
Subsidiaries of Nextel have been included in the consolidated financial
statements of Nextel in the manner and to the extent required by GAAP. All of
such shares of stock of the Subsidiaries so owned by Nextel are duly authorized,
validly issued, fully paid and nonassessable.
4.2 Power and Authority. Each of Nextel and Newco has the corporate power
and authority to execute and deliver, and to perform its obligations under, this
Agreement and the transactions contemplated hereby and each of Nextel and Newco
has taken all necessary corporate action to authorize its execution, delivery
and performance of this Agreement and the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Nextel and Newco and
constitutes a legal, valid and binding obligation of each of Nextel and Newco,
enforceable against Nextel and Newco in accordance with its terms, except to the
extent that such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally or by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
4.3 Consents/Approvals; Enforceability. (a) No consents of, filings with,
authorizations or other actions of any Governmental Authority are required to be
received, made or filed by or taken on behalf of, Nextel or Newco for either
Nextel's or Newco's execution, delivery and performance of this Agreement, other
than (i) compliance with any applicable requirements of the HSR Act, (ii)
compliance with any applicable requirements of the Securities Act and the
Exchange Act and any applicable state securities or "blue sky" law
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or (iii) compliance with any applicable requirements of the FCC, except for any
such consents, filings, authorizations or other actions the failure to receive,
make or take would not (1) have a Material Adverse Effect on Nextel and the
Nextel Subsidiaries, taken as a whole or (2) adversely affect the consummation
of the transactions contemplated hereby or (3) materially adversely affect
Nextel's or Newco's ability to perform its obligations under this Agreement.
(b) Except as set forth on Schedule 4.3(b) attached hereto, no consent,
approval, waiver or other action by any Person (other than any Government
Authority referred to in Section 4.3(a) above) under any contract, agreement,
indenture, lease, or other similar document to which Nextel or Newco is a party
or by which Nextel or Newco is bound is required for the execution, delivery and
performance by Nextel or Newco of this Agreement, or the consummation of the
transactions contemplated hereby, except for any such consents, approvals,
waivers or other actions the failure to receive or take would not (1) have a
Material Adverse Effect on Nextel and the Nextel Subsidiaries, taken as a whole
or (2) adversely affect the consummation of the transactions contemplated hereby
or (3) materially adversely affect Nextel's or Newco's ability to perform its
obligations under this Agreement.
4.4 Compliance with Laws. Except as set forth in Schedule 4.4:
(a) each of Nextel and the Nextel Subsidiaries is not currently in
violation (nor are any of them currently liable or otherwise currently
responsible with respect to prior violations) of any statute, law or regulation
applicable to any of its or their presently or formerly owned properties or to
the conduct of its or their current or past businesses, nor do any of the
business practices followed, services provided or products made, modified or
installed by any of them (in the ordinary course of their businesses or
otherwise), violate any statute, law or regulation applicable thereto, which
violations are, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect on Nextel and the Nextel Subsidiaries, taken as a whole,
or to materially adversely affect Nextel's ability to perform its obligations
under this Agreement, or the costs or consequences of correction or remediation
of which, to the extent required to comply with applicable Requirements of Law,
individually or in the aggregate, are reasonably likely to have a Material
Adverse Effect on Nextel and the Nextel Subsidiaries, taken as a whole, or to
materially adversely affect Nextel's ability to perform its obligations under
this Agreement;
(b) none of (i) the business of Nextel or any of the Nextel Subsidiaries,
or (ii) the business practices followed, services or products performed, sold or
otherwise made available by Nextel or any of the Nextel Subsidiaries, violates
any applicable law or regulation relating to air, water or noise pollution or
employee health and safety or the production, storage, labeling, transportation
or disposition of solid waste or hazardous or toxic substances, which
violations, individually or in the aggregate, are reasonably likely to have a
Material Adverse Effect on Nextel and the Nextel Subsidiaries, taken as a whole,
or to materially adversely affect Nextel's ability to perform its obligations
under this Agreement, or the costs or consequences of correction or remediation
of which (to the extent required to comply with applicable Requirements of Law),
individually or in the aggregate, are reasonably likely to have a Material
Adverse Effect on Nextel and the Nextel Subsidiaries, taken as a whole or to
materially adversely affect Nextel's ability to perform its obligations under
this Agreement; and
(c) Nextel and the Nextel Subsidiaries and, to Nextel's knowledge, each
person holding any SMR Licenses or SMR Systems that are subject to a Management
Agreement, have timely obtained all licenses and permits and timely filed all
reports required to be filed under any such applicable laws or regulations
except for any such license, permit or report the failure to obtain or make are
not reasonably likely to have a Material Adverse Effect on Nextel and the Nextel
Subsidiaries taken as a whole.
4.5 Financial Statements. Nextel has furnished to AMS (or an authorized
representative of AMS) the following financial statements: (a) an audited
consolidated balance sheet of Nextel and the Nextel Consolidated Subsidiaries as
of, and the related audited consolidated statements of operations and cash
flows, for the nine month transition period ended December 31, 1994 and (b) the
audited consolidated balance sheets of Nextel and the Nextel Consolidated
Subsidiaries as of March 31, 1993 and 1994, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years ended March 31, 1993 and 1994 (including, in the case of the financial
statements described in each of the foregoing
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clauses (a) and (b), any footnotes thereto and the related certifications of
Deloitte & Touche, L.L.P.) (collectively, the "Nextel Financial Statements"),
which are true and correct in all material respects, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved and present fairly the consolidated financial
position of Nextel and the Nextel consolidated Subsidiaries, at the dates
indicated in such financial statements and results of their operations for the
periods stated therein.
4.6 Capitalization. The authorized capital stock of Nextel consists
solely of (i) 230,000,000 shares of Class A Common Stock, par value of $.001 per
share ("Class A"), (ii) 20,000,000 shares of Class B Non-Voting Common Stock,
par value of $.001 per share ("Class B"), and (iii) 10,000,000 shares of
Preferred Stock, par value of $.010 per share ("Preferred"), of which (i)
106,927,574 Class A shares, (ii) zero Class B shares, and (iii) zero Preferred
shares were issued and outstanding as of April 5, 1995 and 24,860 Class A shares
of which were then held as treasury shares. Schedule 4.6 sets forth all
outstanding options to purchase Nextel Common Shares, the number of shares
purchasable thereunder, and the per share exercise price of each option; and all
outstanding warrants for the purchase of Nextel Common Shares, the number of
shares purchasable thereunder, and the per share exercise price of each warrant.
Except as set forth on such Schedule 4.6, and for issuances made or to be made
in compliance with the terms of pending agreements listed on Schedule 4.6, there
are no commitments or obligations of Nextel, either firm or conditional, to
issue, deliver or sell, whether under offers, stock option agreements, stock
bonus agreements, stock purchase plans, incentive compensation plans, warrants,
conversion rights or otherwise, any authorized but unissued shares, or treasury
shares, of Nextel Common Shares or other securities of Nextel. At the Effective
Time, the Nextel Common Shares issued by reason of the Merger will be duly
authorized, validly issued, fully paid and nonassessable, and their issuance in
connection with the Merger will be registered under the Securities Act and
registered or exempt from registration under applicable state securities laws,
and such Nextel Common Shares will be listed on the NASDAQ-NMS.
A true, correct and complete copy of each of the certificate of
incorporation and the by-laws of Nextel has been delivered to AMS (or an
authorized representative of AMS) prior to the execution hereof. Except as set
forth in Schedule 4.6, there are no amendments pending or proposed to either
such certificate of incorporation or such by-laws of Nextel.
4.7 No Pending or Threatened Actions. Except for the Purported Class
Actions and such other matters as are set forth on Schedule 4.7 or in a
registration statement or a report filed by Nextel with the SEC prior to the
date hereof, there are no Claims formally instituted and pending or, to the
knowledge of Nextel, threatened against or specifically identifying Nextel or
any of the Nextel Subsidiaries or any of their properties or assets (other than
Claims affecting generally any group of similarly situated third parties such as
members of the SMR industry), or before or by any Forums which is reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect on
Nextel and the Nextel Subsidiaries, taken as a whole, or to materially adversely
affect Nextel's or Newco's ability to perform its obligations under this
Agreement. Except as set forth in such Schedule, to the knowledge of Nextel,
neither Nextel nor any of the Nextel Subsidiaries is subject to or in default
under any Order of any Forum which would, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect on Nextel and the Nextel
Subsidiaries, taken as a whole, or to materially adversely affect Nextel's or
Newco's ability to perform its obligations under this Agreement.
4.8 No Defaults. Except as set forth in Schedule 4.8, (i) neither Nextel
nor any of the Nextel Subsidiaries is in default under or with respect to any
contractual obligation to which Nextel or any of the Nextel Subsidiaries is a
party or by which any of them or their respective properties is bound, which
default would have a Material Adverse Effect on Nextel and the Nextel
Subsidiaries taken as a whole or would materially adversely affect Nextel's
ability to perform its obligations under this Agreement and (ii) to Nextel's
knowledge, no other party to any contract to which Nextel or any of its
Subsidiaries is a party or by which any of them or their respective properties
is bound is in default of such contract in any material respect or has indicated
an intention to terminate any such contract, excluding any of the foregoing
that, individually or in the aggregate, would not have a Material Adverse Effect
on Nextel and the Nextel Subsidiaries, taken as a whole.
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4.9 No Material Adverse Change. Except as set forth in Schedule 4.9,
since December 31, 1994, there has not been any Material Adverse Change to
Nextel and the Nextel Subsidiaries, taken as a whole.
4.10 Title to Properties; Encumbrances. Except as set forth in Schedule
4.10, Nextel and each Nextel Subsidiary has such title to all of its material
properties and assets, real and personal, tangible and intangible (including,
without limitation, those material properties and assets reflected in the Nextel
Financial Statements, except as disposed of pursuant to the Consent Decree (as
hereinafter defined) or in the ordinary course of business since December 31,
1994) as is requisite to the conduct of their respective businesses in
substantially the same manner as presently conducted, and there is no title
defect in any of such properties or assets which is reasonably likely to have at
any time a Material Adverse Effect on Nextel and the Nextel Subsidiaries, taken
as a whole. None of such properties or assets is subject to any Lien other than
(i) Liens on digital mobile system infrastructure equipment, subscriber units
and related items imposed pursuant to financing arrangements in place on the
date hereof and relating to purchases of such equipment, units and items, and
purchase money security interests incurred in the ordinary and normal course of
business in arm's-length transactions with non-affiliates and any Lien for
current Taxes not delinquent or being contested in good faith; (ii) arising by
virtue of any real or personal property leases entered into in the ordinary
course of business in arm's-length transactions with non-affiliates; (iii)
referred to in the Nextel Financial Statements; (iv) Liens in the nature of
reserves, set-asides or escrows to secure payment or performance obligations in
connection with leases of subscriber units or site lease construction or channel
build-out; or (v) such other Liens which do not and are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on Nextel and
the Nextel Subsidiaries, taken as a whole.
4.11 Intellectual Property. Except as set forth in Schedule 4.11, (a)
Nextel and the Nextel Subsidiaries each own or possess adequate licenses or
other valid rights to use all Rights used in the conduct of their respective
businesses as presently being conducted, except for such licenses or rights the
failure to own or possess by Nextel and the Nextel Subsidiaries is not likely to
have a Material Adverse Effect on Nextel and the Nextel Subsidiaries taken as a
whole; (b) the validity of such items and the title thereto of Nextel and the
Nextel Subsidiaries have not been disputed in any litigation to which Nextel or
any of the Nextel Subsidiaries is a party nor, to the knowledge of Nextel, is
any such litigation threatened; and (c) the conduct of the businesses of Nextel
and the Nextel Subsidiaries as now conducted does not conflict with Rights of
others in any way that is reasonably likely to have a Material Adverse Effect on
Nextel and the Nextel Subsidiaries taken as a whole. Except as set forth on
Schedule 4.11, no material infringement of any Right owned by or licensed by or
to Nextel or the Nextel Subsidiaries is known to Nextel.
4.12 Brokers. Neither Nextel nor Newco has any arrangements with any
broker, finder or investment banker which would entitle any such Person to a
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement, other than any arrangements that
may exist between Nextel and Ritzel Communications, as to which Nextel will bear
the sole and exclusive responsibility for required payments, if any.
4.13 Taxes. Except as set forth on Schedule 4.13, Nextel and the Nextel
Subsidiaries, individually or as successors to any combined or merged entity,
have timely and correctly filed or caused to be filed all material Tax Returns
required to be filed by Nextel and the Nextel Subsidiaries. All material Taxes
that are due and payable on or before the Closing in respect of such Tax Returns
have been or will be duly and timely paid or deposited, as the case may be, in
full by the Closing. Except as set forth in such Schedule, neither Nextel nor
any of the Nextel Subsidiaries has made an agreement with any third party in
which Nextel or such Nextel Subsidiaries has agreed to indemnify or reimburse
such third party for any liability for Taxes such third party may have.
4.14 Materially Correct. Reference is hereby made to (i) the SEC filings
furnished by Nextel to AMS pursuant to or in connection with this Agreement,
whether furnished prior to, at or subsequent to the date hereof, (ii) this
Agreement, including the Schedules hereto, and (iii) the information contained
in each Officers' Certificate and documents furnished by Nextel at the Closing
(all such written information, taken as a whole, the "Nextel Disclosure
Information"). The Nextel Disclosure Information so received on or prior to the
date hereof by AMS, (A) as to the SEC filings, as of their respective dates did
not contain any untrue
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statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make any statement of material fact
contained therein, in the light of the circumstances under which it was made,
not misleading and (B) as to Nextel Disclosure Information of the types
described in either of the foregoing clauses (ii) or (iii), is and at the
Closing will be true and correct in all material respects. The foregoing
representations made in the immediately preceding sentence also shall be deemed
made anew by Nextel to AMS immediately prior to the Closing, but with reference
to the Nextel Disclosure Information so received prior to the Closing by AMS. As
used in this Section 4.14, "material" means material to the financial condition,
results of operations, prospects, business, assets or properties of Nextel and
the Nextel Subsidiaries, taken as a whole.
4.15 Regulatory Matters.
(a) License Information. Schedule 4.15(a) to this Section sets forth all
of the following information for each SMR License and other FCC License (except
for community repeater authorizations) issued to, or subject to a binding
Management Agreement or any other agreement that contains a binding right to
acquire SMR Licenses or FCC Licenses, either directly or through an acquisition
of the Person owning such Licenses, so long as such Management Agreement or
other agreement is with Nextel or any of the Nextel Subsidiaries:
(i) for all FCC Licenses (including all SMR Licenses), the name of the
licensee, the call sign, the transmitter location (by city), the type of
service (paging, SMR, etc., by name or FCC abbreviation), the frequency or
frequencies authorized and the license renewal date;
(ii) in the case of SMR Licenses, whether the license is for a
conventional or trunked SMR System, the applicable loading date and whether
the SMR License is managed by Nextel or any of the Nextel Subsidiaries
pursuant to a Management Agreement; and
(iii) each holder of any such FCC License that is neither wholly-owned
by Nextel nor owned entirely by unaffiliated persons and managed by Nextel.
(b) Other Regulatory Matters. Except as set forth on Schedule 4.15(b), to
the knowledge of Nextel, as of date hereof (i) Nextel or a Nextel Subsidiary
holds, manages or has the right to acquire all FCC Licenses used in, or
necessary for the conduct of, its business as currently conducted; (ii) neither
Nextel nor a Nextel Subsidiary has received any written notice of proceedings
relating to the revocation, modification or denial of any applications for any
of its Licenses which would have a Material Adverse Effect on Nextel and the
Nextel Subsidiaries, taken as a whole; (iii) Nextel and each of the Nextel
Subsidiaries has fulfilled and performed its material obligations with respect
to its Licenses; (iv) no event has occurred and remains uncured that allows
revocation or termination of any of the Licenses held by Nextel or any of the
Nextel Subsidiaries or would result in any other material impairment of the
rights in the Licenses held or managed by Nextel or any of the Nextel
Subsidiaries; and (v) the Licenses held or managed by Nextel or the Nextel
Subsidiaries contain no restrictions (other than those generally applicable to
FCC Licenses) that are materially burdensome to Nextel or any of Nextel
Subsidiaries (except for Licenses indicated as authorized on a secondary basis).
(c) Wide-Area System Application. Nextel has furnished to AMS a true and
correct copy of each material Request for Rule Waiver for a Wide-Area SMR System
and associated applications, as filed with the FCC, and all material
supplemental or related materials filed in connection therewith by or on behalf
of Nextel and/or any of the Nextel Subsidiaries and any written communication
issued by the FCC or any FCC staff member of which Nextel has knowledge in
response to, or otherwise in connection with, any of the foregoing.
4.16 Proxy Statement/Prospectus. None of the information supplied or to
be supplied by Nextel for inclusion or incorporation by reference in the Proxy
Statement/Prospectus will, at the time of the mailing of the Proxy
Statement/Prospectus, at the time of the Special Meeting or at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. To the extent information is supplied or is to be supplied by Nextel
for inclusion or incorporation by reference therein, the Proxy
Statement/Prospectus will comply as to form in all material respects with the
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requirements of the Securities Act and the Exchange Act and the respective rules
and regulations adopted thereunder.
4.17 Non Contravention. Subject to the submission of all filings with,
and receipt of all consents, approvals and waivers from, any Governmental
Authority referred to in Section 4.3(a), and except as set forth in Schedule
4.17, none of the execution and delivery by Nextel or Newco of this Agreement,
the consummation of the transactions contemplated hereby, nor the compliance by
Nextel or Newco with the terms and provisions hereof, results or will result in
the creation or imposition of any Lien upon any of the properties or assets of
Nextel or Newco or violates or will violate any Requirement of Law applicable to
Nextel or to Newco, conflicts with or will conflict with or results or will
result in any breach of any term, condition or provisions of, constitutes or
will constitute (with due notice or lapse of time or both) a default under or
pursuant to the terms of, any mortgage, deed of trust or other agreement or
instrument to which Nextel or Newco is a party or by which either of them or any
of their respective properties is bound (except for any of such violations,
conflicts, breaches or defaults that could not reasonably be expected to have a
Material Adverse Effect on Nextel and the Nextel Subsidiaries, taken as a whole,
and will not materially adversely affect Nextel's or Newco's ability to perform
its obligations under this Agreement) or Nextel's or Newco's certificate of
incorporation or by-laws.
ARTICLE V. COVENANTS OF AMS
5.1 Conduct of AMS Pending the Closing. Except as set forth on the
Disclosure Schedule under a reference to this Section from the date hereof until
the Closing, AMS shall, and shall cause each of its Subsidiaries to, conduct its
business in accordance with the provisions of this Section 5.1:
(a) AMS shall, and shall cause each of its Subsidiaries to, conduct its
business only in the ordinary course of business, on an arm's-length basis and
in accordance in all material respects with all applicable laws, rules and
regulations;
(b) Except as specifically contemplated by or as provided in this Agreement
or to the extent consented to in writing by Nextel, AMS shall not, and shall
cause each of its Subsidiaries not to, (i) issue or sell any additional shares
of, or any options, warrants, conversion privileges or rights of any kind to
acquire any shares of, any of its capital stock, except pursuant to outstanding
AMS Equivalent Securities as listed and described in the Disclosure Schedule
under a reference to Section 3.6 hereof; (ii) sell, assign, transfer, or subject
to any Lien (A) any of its SMR Licenses, or (B) any of its other assets with an
aggregate fair market value in excess of $50,000 (except, in the case of assets
other than SMR Licenses, in the ordinary course of business or Permitted Liens);
(iii) amend or propose to amend its Certificate of Incorporation or By-Laws;
(iv) split, combine or reclassify any outstanding shares of capital stock, or
declare, set aside or pay any dividend or other distribution payable in cash,
stock or other property with respect to the capital stock, except dividends paid
by any Subsidiary of AMS to any wholly owned Subsidiary of AMS or to AMS; (v)
redeem, purchase or acquire or offer to acquire any shares of capital stock;
(vi) acquire (by merger, exchange, consolidation, acquisition of stock or assets
or otherwise) any corporation, partnership, joint venture or other business
organization or material assets, or any additional SMR Systems or related
operations, rights, assets or properties located in the state of Florida; or
(vii) borrow any money or incur or become subject to any material liability,
except liabilities (other than for borrowed money) incurred in the ordinary
course of business;
(c) AMS shall not and shall cause each of its Subsidiaries not to, enter
into or modify any employment, severance or similar agreements or arrangements
with, or grant any bonuses, wage, salary or compensation increases, severance or
termination pay to, any director, officer or employee who earns more than
$50,000 per year; except for wage, salary or compensation increases or severance
arrangements made in the ordinary course and consistent with past practice;
(d) AMS shall not, and shall cause each of its Subsidiaries not to, adopt
or amend any bonus, profit sharing, stock option, pension, retirement, deferred
compensation or other employee benefit plan, trust, fund, contract or
arrangement for the benefit or welfare of any employees except as required by
law;
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(e) AMS shall not, and shall cause each of its Subsidiaries not to, enter
into any settlement or similar agreement with respect to any action, suit,
proceeding, order or investigation against AMS or such Subsidiary (including,
without limitation, the Purported Class Actions) for an amount in excess of
$50,000.00;
(f) AMS shall, and shall cause each of its Subsidiaries to, use all
reasonable efforts to preserve intact (to the extent desirable in the exercise
of AMS' reasonable business judgment) its business organization and good will,
keep available the services of its officers and employees as a group and
preserve intact advantageous business relationships and material agreements;
(g) AMS shall not, and shall cause each of its Subsidiaries not to, either
(i) take any action which it knows would result in, or (ii) refrain from taking
any action which to AMS' knowledge is needed to avoid, any loss of FCC License
grants of AMS and its Subsidiaries. Notwithstanding the foregoing, AMS (a) shall
not be required to take any action or refrain from taking any action if it would
be unreasonable to do so based upon sound and customary business practice in the
SMR industry, and (b) may take any action, or refrain from taking any action,
contemplated by Section 3.9. AMS shall not, and shall cause each of its
Subsidiaries not to, take any action with respect to AMS' Request for Rule
Waiver referred to in Section 3.15(d) hereof, other than actions approved in
advance by Nextel, which approval will not be unreasonably withheld or delayed;
and
(h) At Nextel's request, AMS shall use its best efforts to take or cause to
be taken such actions as shall be reasonably necessary and appropriate for the
conditions specified in Article IX hereof to be fulfilled as soon as
practicable, and in no event later than immediately prior to the Closing
hereunder.
(i) AMS shall cooperate with Nextel and Newco and use its reasonable best
efforts to ensure that the consummation of the Merger shall not constitute a
default or an event that, with notice or lapse of time or both, would ripen into
a default, for purposes of any of the Nextel Indentures, or would require the
issuance of any Subsidiary guarantees under any of the Nextel Indentures.
5.2 SEC Registration. (a) AMS shall use its reasonable best efforts to
furnish to Nextel such information about AMS (including its subsidiaries and
affiliates) as may be necessary to enable Nextel to prepare and file with the
SEC a Proxy Statement/Prospectus, or other appropriate form, under the
Securities Act and the rules and regulations promulgated thereunder, in respect
of the Nextel Common Shares to be issued by reason of the Merger (such
registration statement, the prospectus included therein and the proxy statement
to be furnished to the holders of AMS Common Stock, in each case together with
any amendments thereto, the "Proxy Statement/Prospectus"). AMS shall use its
best efforts so that AMS Information (as defined below) included in the Proxy
Statement/Prospectus shall not, at the time the Proxy Statement/Prospectus is
declared effective, contain any untrue statement of a material fact, omit to
state any material fact required to be stated therein, or omit any material fact
necessary in order to make the statements therein not misleading. If at any time
prior to the time of the Special Meeting or the Effective Time any event or
circumstance should be discovered by AMS with respect to AMS Information which
is required to be set forth in an amendment or supplement to the Proxy
Statement/Prospectus, AMS will immediately notify Nextel and will use its best
efforts to assist Nextel in appropriately amending or supplementing the Proxy
Statement/Prospectus or in preparing and distributing such amendment or
supplement, if required, in the manner contemplated in Section 6.2. The Proxy
Statement/Prospectus, insofar as it relates to information concerning AMS, or
any of its businesses, assets, directors, officers or stockholders that is
supplied by AMS (including third party information required to be obtained by
AMS) for inclusion in the Proxy Statement/Prospectus (the "AMS Information")
will comply as to form and substance in all material respects with the
applicable requirements of the Securities Act and the rules and regulations
thereunder and the Exchange Act and the rules and regulations thereunder.
(b) AMS shall instruct its accountants to deliver, and shall use its best
efforts to cause its accountants, KPMG Peat Marwick L.L.P., to deliver, to
Nextel letters dated at the time the Proxy Statement/Prospectus becomes
effective and as of the Closing, addressed to Nextel, containing such matters as
are customarily contained in auditors' letters regarding information about AMS
provided by AMS expressly for inclusion in such Proxy Statement/Prospectus, and
in form and substance reasonably satisfactory to Nextel.
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(c) AMS will use its reasonable best efforts to cause the AMS Common Stock
to continue to be listed on the Nasdaq National Market until the record date for
the Special Meeting (as defined below). Without Nextel's prior written consent,
AMS shall not set or change the record date for the Special Meeting for or to
any date on which the AMS Common Stock is not a listed security on the Nasdaq
National Market.
5.3 Stockholder Approval. (a) After the Proxy Statement/Prospectus has
become effective, AMS shall cause a special meeting (the "Special Meeting") of
its stockholders to be duly called for the purpose of submitting for approval of
AMS' stockholders this Agreement and all actions contemplated hereby which
require such approval under the DGCL, the Certificate of Incorporation and/or
By-laws of AMS or the requirements of Nasdaq National Market. AMS shall use all
reasonable efforts, (i) to cause the definitive Proxy Statement/Prospectus
relating to this Agreement and the transactions contemplated hereby to be mailed
to its stockholders and (ii) give notice of, convene and hold such Special
Meeting, as soon as practicable (but subject to compliance with Section 5.2(c)).
(b) The Board of Directors of AMS (assuming such Board's receipt of the
written opinion referenced in Section 9.3(g) herein) shall recommend that
stockholders of AMS vote in favor of the approval of this Agreement, and all
actions contemplated hereby which require such approval, provided that nothing
herein shall require the Board of Directors of AMS to act, or refrain from
acting, in any manner that, in the judgment of the Board of Directors of AMS
(after obtaining and considering the advice of independent counsel), is
reasonably expected to conflict with the proper discharge of the fiduciary
duties of the Board of Directors of AMS under applicable law. Subject to the
proviso in the preceding sentence, AMS shall use its reasonable best efforts to
(i) solicit from stockholders of AMS proxies in favor of such approval and (ii)
take all other action to secure a vote of stockholders of AMS in favor of each
matter presented as contemplated by this Agreement for the approval of the
stockholders of AMS.
5.4 Covenants of AMS Prior to the Closing. (a) From the date of this
Agreement to and including the Closing, AMS shall give Nextel, its counsel,
financial advisors, auditors and other authorized representatives reasonable
access to the offices, properties, books and records of AMS and its
Subsidiaries, shall furnish to Nextel, its counsel, financial advisors, auditors
and other authorized representatives such financial and operating data and other
information concerning AMS and its Subsidiaries required to be contained in any
document required to be filed by Nextel or AMS with any Governmental Authority
in connection with any of the transactions contemplated by this Agreement as
such Persons may reasonably request and shall instruct AMS' employees, counsel
and financial advisors to cooperate with Nextel in its investigation of the
business of AMS and the Subsidiaries; provided however, that (i) such
investigation shall not unreasonably disrupt the personnel or operations of AMS
and its Subsidiaries, (ii) Nextel shall consult with AMS in good faith to
establish such arrangements as are reasonably designed in the circumstances to
protect any attorney-client or similar privilege which might otherwise be
available with respect to the information or material at issue (and AMS shall
not assert that any such privilege would prevent or limit disclosure of such
information or material to Nextel unless the subject matter to which it relates
is disclosed on a schedule to this Agreement or to Nextel in writing) and (iii)
such information as AMS may be under a contractual obligation not to disclose or
to make available to a third party such as Nextel need not be furnished to
Nextel by AMS if, after using its reasonable efforts in good faith to secure all
necessary consents to permit such disclosure, AMS is unable to obtain such
consents; and provided further, that no investigation pursuant to this Section
shall affect any representation or warranty given by AMS to Nextel hereunder or
under any other agreement between AMS and Nextel.
(b) Promptly following AMS' filing of any SEC Filing containing financial
statements of AMS, AMS shall deliver copies thereof to Nextel with a written
certification by the chief financial officer of AMS that such financial
statements have been prepared in accordance with GAAP; provided, that copies of
such monthly financial statements and financial information concerning AMS
and/or any of its Subsidiaries in such form, content and detail as are prepared
and furnished to any officers of AMS and/or any such Subsidiary, shall be
delivered to Nextel promptly after such financial statements or information
become available.
(c) AMS shall make on a prompt and timely basis all governmental or
regulatory notifications and filings, including, without limitation, any
required notifications and filings under the HSR Act, necessary to be
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made by it for the consummation of the transactions contemplated hereby, and
shall cooperate in all reasonable respects with Nextel's actions taken to
fulfill the parallel covenants set forth in Section 6.1 hereof.
5.5 No Solicitation. Neither AMS nor any of its Subsidiaries shall
directly or indirectly encourage, solicit, initiate or participate in any way in
any discussion or negotiations with, or provide any information to, or afford
any access to the properties, books or records of AMS or any of its Subsidiaries
in connection with any merger, consolidation, business combination, liquidation,
reorganization, sale of substantial assets (other than radio inventories), sale
of shares of capital stock or similar transactions involving AMS or any
Subsidiary; provided that in the event a party expresses in writing a bona fide
intention to make an offer to AMS involving any merger, consolidation, business
combination, liquidation, reorganization, sale of substantial assets, sale of
shares of capital stock or similar transactions, AMS may participate in
discussions or negotiations with, or provide information to, or afford access to
the properties, books or records of AMS or any Subsidiary, if to fail to do so
would, in the reasonable judgment of the Board of Directors of AMS (after
obtaining and considering the advice of independent counsel), conflict with the
proper discharge of the fiduciary duties of the Board of Directors of AMS under
applicable law. AMS shall promptly notify Nextel if any such information is
requested of it or any Subsidiary or any such negotiations or discussions are
sought with it or any Subsidiary.
5.6 Affiliates. AMS shall use its best efforts to cause each person that
is an "affiliate" of AMS for purposes of Rule 145 under the Securities Act
("Rule 145 Affiliates", which shall include all executive officers and directors
of AMS and all holders of 5% or more of the outstanding shares of AMS Common
Stock and such other individuals or entities listed as Rule 145 Affiliates as
set forth on Schedule 5.6) to deliver to Nextel at the Closing a written
agreement substantially in the form attached hereto as Annex B.
5.7 Warrant and Option Holders, Etc. AMS shall use its best efforts to
cause: (a) all warrant and option holders of AMS Common Stock either to
exercise, cancel, convert or otherwise act as permitted in Section 2.3 with
respect to their warrants and options; (b) holders of AMS Common Stock who have
registration rights (other than those Persons and registration rights set forth
on the Disclosure Schedule under a reference to Section 3.22), pre-emptive or
anti-dilutive rights, rights to appoint directors or to have other
representatives on the Board of Directors of AMS or any other corporate
governance rights associated with such holder's stock (other than rights arising
under the AMS Certificate of Incorporation or By-Laws), to terminate such
rights; and (c) all such actions to become effective at and upon the Effective
Time.
5.8 Vote of AMS Directors and Officers. AMS shall use reasonable best
efforts, subject to any restrictions under applicable law, to obtain agreements
from each officer and director of AMS to vote his or her shares of AMS Common
Stock in favor of the Merger.
5.9 No Subsidiaries. AMS shall use its reasonable best efforts to cause
its Subsidiaries to be dissolved and the assets distributed to, or merged with
and into, AMS on or prior to the Closing, so that as of the Effective Time AMS
shall have no Subsidiaries.
ARTICLE VI. COVENANTS OF NEWCO AND NEXTEL
6.1 Conduct of Nextel Prior to the Closing. Nextel shall make on a prompt
and timely basis all governmental or regulatory notifications and filings,
including, without limitation, any required notifications and filings under the
HSR Act, necessary to be made by it for the consummation of the transactions
contemplated hereby, and shall cooperate in all reasonable respects with AMS'
actions taken to fulfill the parallel covenants set forth in Section 5.4(c)
hereof.
6.2 SEC Registration.
(a) Nextel shall use all reasonable efforts to prepare and file as promptly
as practicable with the SEC the Proxy Statement/Prospectus. Nextel may elect to
use the same Proxy Statement/Prospectus to register the issuance and/or resales
of other shares of Nextel stock that Nextel contemplates issuing to persons
other than the stockholders of AMS in other transactions; provided that the
inclusion of such shares in the Proxy Statement/Prospectus will not delay or
impede the process of the Proxy Statement/Prospectus becoming and remaining
effective as contemplated hereunder. Nextel shall use its reasonable best
efforts to cause such Proxy
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Statement/Prospectus to become effective as promptly as practicable, and shall
use its reasonable best efforts to take any action required to be taken to
comply in all material respects with any applicable federal or state securities
laws in connection with the issuance of Nextel Common Shares in the Merger;
except that such covenant of Nextel is made, as to those portions of the Proxy
Statement/Prospectus containing or required to contain AMS Information, assuming
and relying on timely and full compliance by AMS with Section 5.2.
(b) Nextel shall use its reasonable best efforts so that the information
included in the Proxy Statement/Prospectus shall not, at the time the Proxy
Statement/Prospectus is declared effective and at the time of the Special
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading; except that such covenant of Nextel is made,
as to those portions of the Proxy Statement/Prospectus containing or required to
contain AMS Information, assuming and relying on timely and full compliance by
AMS with Section 5.2. If at any time prior to the time of the Special Meeting or
the Effective Time any event or circumstance should be discovered by Nextel
which is required to be set forth in an amendment or supplement to the Proxy
Statement/Prospectus, Nextel will promptly advise AMS and use its reasonable
best efforts to appropriately amend or supplement and mail the Proxy Statement/
Prospectus or such amendment or supplement, if required. Any amendment or
supplement may be accomplished, to the extent permitted by law, rule or
regulation, by including such information in a filing under the Exchange Act
that is incorporated by reference into the Proxy Statement/Prospectus.
(c) Nextel shall cause the Proxy Statement/Prospectus and all other
documents required to be filed by Nextel with the SEC in connection with the
transactions contemplated herein to comply as to form and substance in all
material respects with the applicable requirements of the Securities Act and the
rules and regulations thereunder and the Exchange Act and the rules and
regulations thereunder; except that Nextel shall have no liability or obligation
for any AMS Information included in such Proxy Statement/Prospectus and/or other
documents filed by Nextel with the SEC.
(d) Nextel shall instruct its accountants to deliver, and shall use its
best efforts to cause its accountants, Deloitte & Touche, to deliver, to AMS
letters dated at the time the Proxy Statement/Prospectus becomes effective and
as of the Closing, addressed to AMS, containing such matters as are customarily
contained in auditors' letters regarding information about Nextel and Newco
contained in the Proxy Statement/Prospectus, and in form and substance
reasonably satisfactory to AMS.
6.3 Current Public Information. After the Effective Time, Nextel shall
use all reasonable efforts to file all reports required to be filed by it under
the Securities Act or the Exchange Act and the rules and regulations adopted by
the SEC thereunder and shall use all reasonable efforts to take such further
action as may be necessary to ensure that the requirements of Rule 144(c) under
the Securities Act are satisfied such as to enable any Rule 145 Affiliates of
AMS to offer or sell the Nextel Common Shares received by them in the Merger
pursuant to paragraph (d) of Rule 145 (subject to compliance with the provisions
of paragraphs (e), (f) and (g) of Rule 144) and subject also to Section 5.6 and
any certificates delivered in accordance therewith by any of such Rule 145
Affiliates of AMS.
6.4 NASDAQ Listing. Nextel shall use its reasonable best efforts to list
(subject to notice of issuance) on the Nasdaq National Market, the Nextel Common
Shares to be issued in connection with the Merger.
6.5 Indemnification. (a) From and after the Effective Time until the
tenth anniversary of the Effective Time (the "Indemnification Period"), the
Surviving Corporation shall indemnify and hold harmless each present and former
director and officer of AMS (each, an "Indemnitee") against any costs or
expenses (including attorneys' fees), judgments, fines, losses, claims, damages
or liabilities incurred in connection with any claim, action, suit, proceeding
or investigation, whether civil, criminal, administrative or investigative,
arising out of or pertaining to matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that AMS would have been permitted under Delaware
law and its charter and by-laws in effect as of the date hereof to indemnify
such persons (including the advancing of expenses as incurred (including the
cost of any investigation and preparation incurred in connection therewith)) to
the fullest extent permitted under Delaware law, provided the Indemnitee to whom
such expenses are advanced provides an undertaking to the Surviving Corporation
to
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repay such advance if it is ultimately determined that such person is not
entitled to indemnification under Delaware law; provided, further, that any
determination required to be made with respect to whether an Indemnitee's
conduct complies with the standards set forth under Delaware law and AMS's
charter and by-laws shall be made by independent counsel selected by the
Surviving Corporation and reasonably satisfactory to such Indemnitee
("Independent Counsel"). If any claim or claims are asserted or made within the
Indemnification Period, all rights to indemnification hereunder in respect of
any such claim shall continue until disposition of any and all such claims,
irrespective of whether such disposition occurs within the Indemnification
Period.
(b) An Indemnitee shall give prompt written notice to the Surviving
Corporation upon learning of any claim, action, suit or proceeding for which
indemnification properly may be sought hereunder (although the failure to so
notify the Surviving Corporation shall not relieve the Surviving Corporation
from any liability which the Surviving Corporation may have under this Section
6.5, except to the extent such failure actually prejudices the Surviving
Corporation), and the Surviving Corporation, through counsel reasonably
satisfactory to the Indemnitee, may assume the defense thereof; provided,
however, that any Indemnitee shall be entitled to participate in (but not
control) any such action, suit or proceeding with counsel of his own choice but
at his own expense; and provided, further, that any Indemnitee shall be entitled
to participate in (and control, with respect to matters pertaining to such
Indemnitee) any such action, suit or proceeding with counsel of his own choice
at the expense of the Surviving Corporation if (in the opinion of Independent
Counsel) representation by the Surviving Corporation's counsel would, or would
reasonably be expected to, present a conflict of interest or if there would be,
or there would reasonably be expected to be, defenses available to the
Indemnitee which could be in conflict or inconsistent with those available to
the Surviving Corporation. In any event, if the Surviving Corporation's counsel
fails to assume the defense within a reasonable time, the Indemnitee may assume
such defense and the fees and expenses of his attorneys (if indemnification for
the subject claims was properly sought hereunder) shall be borne by the
Surviving Corporation. No action, suit or proceeding for which indemnification
may be sought shall be compromised or settled without the consent of the
Surviving Corporation, which consent shall not be unreasonably withheld. The
Surviving Corporation shall not, without the consent of the Indemnitee, (i)
compromise or settle any action, suit or proceeding or consent to the entry of
any judgment which does not include as an unconditional term thereof the
delivery by the claimant or plaintiff to the Indemnitee of a written release
from all liability in respect of such action, suit or proceeding or (ii)
compromise or settle any action, suit or proceeding in any manner that may
adversely affect the Indemnitee other than as a result of money damages or other
money payments for which the Surviving Corporation is fully responsible with no
recourse by the claimant to the assets of any Indemnitee.
(c) Notwithstanding any provision to the contrary in this Section 6.5, (i)
the law firm of Richards, Layton & Finger shall, at the expense of the Surviving
Corporation, be the lead attorneys who shall represent (and shall control the
defense of) the directors of AMS in the Purported Class Actions, and in any
other action, suit or proceeding arising out of or related to this Agreement or
any of the transactions contemplated hereby (whether or not any such action,
suit or proceeding is consolidated or combined with the Purported Class Actions)
and (ii) the law firm of Fellheimer Eichen Braverman & Kaskey (or any other
attorneys reasonably acceptable to the current directors of AMS) shall, at the
expense of the Surviving Corporation, be the (or among the) attorneys who
represent and defend the directors of AMS in the action captioned Seidman, et
al. v. American Mobile Systems Incorporated, et al., Civil Action No. 92-1782
(E.D.P.A. filed March 30, 1992). Counsel retained by the Surviving Corporation
(at its own expense) may participate in the defense of any claim, action, suit
or proceeding commenced against or involving any Indemnitee for which
indemnification properly may be sought hereunder, except under the circumstances
referred to in the final proviso of the first sentence of Section 6.5(b).
(d) This Section 6.5 shall survive the consummation of the Merger. The
provisions of this Section 6.5 are intended to be for the benefit of, and shall
be enforceable by, each Indemnitee, his heirs and representatives and shall be
binding upon the Surviving Corporation and its successors and assigns. The
rights provided to the Indemnitees hereunder shall be in addition to, and shall
not be in lieu of or otherwise diminish in any respect, any rights to indemnity
which such parties may have under the charter or bylaws of AMS or the Surviving
Corporation or any other agreement entered into by an Indemnitee with AMS prior
to the date
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hereof; provided, that true, complete and correct copies of such agreements
shall have been delivered to Nextel prior to the date hereof.
(e) If Nextel elects, pursuant to Section 7.7(a), to substitute a
Subsidiary (the "Substitute Subsidiary") for Newco in connection with the
Merger, Nextel shall, within 45 days after the Effective Time, cause the assets
of Mobile Communications of Florida, Inc. to be transferred to such Substitute
Subsidiary. Nextel will not cause the Surviving Corporation to dispose of more
than 20% of the assets of the Surviving Corporation for other than fair value
without putting into place indemnification provisions reasonably satisfactory to
the Indemnitees.
ARTICLE VII. JOINT COVENANTS
7.1 Confidentiality. Each of AMS and Nextel shall (and shall cause its
respective officers, employees and representatives to) keep all information
furnished to it pursuant to or in connection with this Agreement or any of the
transactions contemplated herein confidential (including, without limitation,
any of such information relating to either of AMS' or Nextel's respective
business) and shall not disclose any of such information to any third party,
except (i) as contemplated herein, (ii) as required by (A) law (including
information disclosures that may be required to be set forth in the Proxy
Statement/Prospectus or other materials furnished to AMS stockholders as
contemplated in Section 5.3 hereof), (B) valid judicial or regulatory process to
any Governmental Authority including but not limited to the FCC, the Federal
Trade Commission and the Department of Justice, or (C) securities exchange rules
or regulations (or comparable rules and regulations of the Nasdaq National
Market), and (iii) for disclosures of such information concerning the
transactions contemplated by this Agreement which are made to AMS' or to
Nextel's respective stockholders, officers, directors, financial advisors,
accountants, counsel or other representatives on a need-to-know basis; provided,
that such confidentiality obligations shall not apply to any information (i)
which becomes public through no fault of the receiving party or its
representatives or (ii) which the receiving party can show was already known to
it on a non-confidential basis prior to the disclosure thereof by the other
party. Whether or not containing confidential information, all press releases
and similar public disclosures concerning any of the transactions contemplated
by this Agreement shall be approved by each of the parties hereto (which
approval shall not be unreasonably withheld or delayed) prior to their release
or publication. Upon the occurrence of the Merger, Nextel shall automatically be
released from the confidentiality obligations imposed on it pursuant to this
Section 7.1 or otherwise with respect to any information furnished to it by or
on behalf of AMS.
7.2 State Takeover Statutes. Following the execution hereof, each of
Nextel and AMS shall, upon the request of the other, use all reasonable efforts
to take all available steps to (a) exempt the transactions contemplated hereby
from the requirements of any otherwise applicable state takeover law and (b)
assist the other party in any challenge to the validity or applicability to the
transactions contemplated hereby of any state takeover law.
7.3 FCC Filings. Nextel and AMS have entered into a side agreement dated
June 4, 1993, as amended to the date hereof, in connection with certain matters
relevant to a "wide area" SMR filing application with the FCC (the "Side
Agreement"). AMS and Nextel hereby confirm that such Side Agreement, as to the
matters it addresses, relates to and supplements this Agreement, and the
execution and delivery of this Agreement is not intended to and shall not
supersede or terminate such Side Agreement.
7.4 Related Nextel Stock Issuance. Nextel has indicated to AMS that
Nextel may reach agreement with Comcast Corporation ("Comcast") and/or Motorola
Inc. ("Motorola") and/or Digital Radio L.L.C. (the "McCaw Investor") on the
terms that will be applicable to any exercise by such parties or any of them of
anti-dilutive rights, whether now held by, or hereafter to be granted to, such
parties (or their affiliates), triggered by issuances of Nextel Common Shares in
or in connection with the Merger and/or certain other completed, pending or
proposed issuances of Nextel Common Shares previously disclosed in writing to
AMS (the "Other Issuances"). AMS confirms that Nextel may reach agreements with
Comcast, Motorola and/or the McCaw Investor on such anti-dilutive rights and
such parties' exercise thereof, by reason of the Merger and/or any or all of
such Other Issuances, on such specific terms as the Board of Nextel determines
is
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appropriate provided that such agreements do not delay the consummation of the
Merger other than any delay related to or arising from the existing contractual
arrangements between Nextel and Motorola or Nextel and Comcast or Nextel and the
McCaw Investor or its affiliates.
7.5 Support of Transactions. Each of Nextel and AMS shall, and each shall
cause its respective affiliates to (i) use his or its reasonable best efforts to
assemble, prepare and file any information (and, as needed, to supplement such
information) as may be reasonably necessary to obtain as promptly as practicable
all governmental and regulatory consents required under Articles III and IV,
(ii) exert his or its reasonable best efforts to obtain all material consents
and approvals of Forums and third parties that any of Nextel, AMS or their
respective affiliates are required to obtain in order to consummate the Merger
(including all FCC approvals and consents), (iii) take such other action as may
reasonably be necessary or as the other party may reasonably request to satisfy
the conditions of Article IX or otherwise to comply with this Agreement, and
(iv) refrain from taking or causing to be taken any action, whether before or
after the Effective Time, which would disqualify the Merger as a
"reorganization" within the meaning of Section 368(a) of the Code.
7.6 Antitrust Filing. To the extent not already performed or
accomplished, within 20 days following the date hereof each of AMS and Nextel
(and, to the extent required, their respective affiliates) shall promptly file
or cause to be filed any reports, documents, filings or other data required to
be filed with respect to the transactions contemplated hereby by each of them
respectively pursuant to the HSR Act and the rules and regulations promulgated
thereunder, and each shall use its respective reasonable best efforts to respond
as promptly as practicable to all inquiries received for additional information
or documentation. AMS shall permit Nextel to participate in any discussions with
representatives of the United States Federal Trade Commission and the United
States Department of Justice, and shall use all reasonable efforts to permit
Nextel (through its counsel) to direct all communications and contacts with and
to such representatives. Each of Nextel and AMS shall use its best efforts to
resolve such objections, if any, which may be asserted with respect to the
Merger under the antitrust laws, including, without limitation, the HSR Act. In
the event a suit is threatened or instituted challenging the Merger as violative
of the antitrust laws, each of Nextel and AMS shall use its best efforts to
avoid the filing of, resist or resolve such suit.
7.7 Substitution of Subsidiary or Successor Company.
(a) Nextel has the option to substitute any wholly-owned direct subsidiary
of Nextel for Newco in connection with the Merger, provided that such
substitution does not adversely affect the interests of AMS or its stockholders
hereunder. If Nextel makes such an election, each reference to Newco herein
shall be deemed to refer to the new subsidiary.
(b) If Nextel elects to engage in a corporate reorganization transaction
prior to or contemporaneously with the Closing in which Nextel is merged into a
corporation that has a capital structure identical to the capital structure of
Nextel and succeeds to all of the obligations of Nextel (including, without
limitation, under this Agreement), then, if requested by Nextel, so long as (i)
the intended tax-free treatment of the Merger would not be adversely affected,
and (ii) the other aspects of a transaction involving the equity of the entity
resulting from such reorganization transaction would be equivalent to or no less
favorable to the stockholders of AMS than the Merger involving Nextel equity,
the parties shall agree to appropriate modifications to this Agreement and any
related documents to accommodate a transaction involving such resulting entity
and the equity of such resulting entity. The modifications and related
documentation may include an additional agreement to confirm that the Merger
would be part of a broader reorganization of Nextel that is intended to qualify
for tax-free treatment under Section 351 of the Code and other modifications to
confirm that the Merger is part of the broader transaction under Section 351.
7.8 Stock Purchase Agreement. (a) Nextel and AMS are parties to a Stock
Purchase Agreement, dated as of August 25, 1993, and as amended by Amendment No.
1 dated June 14, 1994 ("Amendment No. 1"), and by Amendment No. 2 dated August
12, 1994 ("Amendment No. 2"), and by Amendment No. 3 dated September 14, 1994
("Amendment No. 3") and by Amendment No. 4 dated November 18, 1994 ("Amendment
No. 4") (such agreement, as so amended, the "Stock Purchase Agreement"). Upon
execution of this Agreement, the Stock Purchase Agreement shall lapse and be of
no further force and effect; provided, that if this Agreement shall be
terminated in accordance with Section 11.1(b)(iv), Section 11.1(c)(iv),
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Section 11.1(d)(iii), or Section 11.1(d)(iv) (each a "Spring Back Event") then,
upon the occurrence of such Spring Back Event, the Stock Purchase Agreement
shall be returned automatically to full force and effect and shall once again
become the binding, legally enforceable agreement of Nextel and AMS; provided,
that upon the occurrence of such Spring Back Event and the reinstitution of the
Stock Purchase Agreement, such Stock Purchase Agreement shall, without any
further action on the part of the parties thereto, be amended as follows:
(i) the first sentence of Section 4.11(b) of the Stock Purchase
Agreement shall be amended by substituting for the date "June 30, 1999" the
words "the fourth anniversary of the Termination Date".
(ii) Section 4.11(b) shall be further amended to add the following
sentence as the last sentence of such Section:
"As used herein, the term "Termination Date" means the day which is the
120th day following the occurrence of a Spring Back Event (as such term
is defined in that certain Agreement and Plan of Merger, dated as of
April 25, 1995, by and among the Issuer, the Purchaser and Mobile
Communications of Florida, Inc.
(iii) The term "Market Value Date" in Section 6.1 of the Stock
Purchase Agreement shall be amended by substituting for the date "June 30,
1999" the words "the fourth anniversary of the Termination Date".
(iv) Section 7.12(a)(ii) of the Stock Purchase Agreement is amended by
substituting for the date "June 30, 1999" the words "the fourth anniversary
of the Termination Date".
(v) Section 7.12(a)(iv) of the Stock Purchase Agreement is amended by
substituting for the date "June 30, 1995" the words "the Termination Date".
(b) Upon the occurrence of a Spring Back Event and the reinstitution of the
Stock Purchase Agreement, that certain Option Agreement dated as of April 7,
1993 by and between Nextel and AMS, as amended (the "Amended Option Agreement")
shall, without any further action on the part of the parties thereto, be amended
as follows:
(i) Section 15 of the Amended Option Agreement shall be amended by
substituting for the date "June 30, 1995" each time it appears therein the
words "the Termination Date".
(ii) Section 15 of the Amended Option Agreement shall be further
amended by substituting for the date "October 31, 1994" the words "30 days
preceding the Termination Date".
(c) Upon the occurrence of a Spring Back Event and the reinstitution of the
Stock Purchase Agreement, that certain letter agreement dated June 4, 1993
between Nextel and AMS, as amended (the "Short Spacing Letter") shall, without
any further action on the part of the parties thereto, be amended by
substituting for the date "June 30, 1995" each time it appears in Sections 2, 4
and 5 of the Short Spacing Letter the words "the Termination Date".
7.9 Nextel Vote of AMS Shares. Subject to any restrictions under
applicable law, Nextel will vote its shares of AMS Common Stock in favor of the
Merger.
7.10 Transfer of AMS Common Stock by Nextel. From the date of execution
of this Agreement until the Closing (or any earlier termination of this
Agreement), Nextel shall not sell, transfer, assign or convey any shares of AMS
Common Stock beneficially owned by Nextel.
ARTICLE VIII. CLOSING
8.1 Filing. As soon as all of the conditions set forth in Article IX have
either been fulfilled or waived, and if the Merger Agreement has not theretofore
been terminated pursuant to its terms, the Boards of Directors of Nextel and AMS
hereby direct their officers forthwith to file and record all relevant documents
with the appropriate government officials to effectuate the Merger.
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8.2 Closing. The Closing shall, unless another date or place is agreed to
in writing by the parties hereto, take place at a location and time mutually
agreed upon by Nextel and AMS at the earliest practicable date, and such date,
time and location shall be confirmed in writing by such parties not less than 10
days prior to the scheduled date of the Closing. The term "Closing," when used
in this Agreement, means the Effective Time.
ARTICLE IX. CONDITIONS TO OBLIGATIONS
9.1 Conditions to Obligations of Nextel, Newco and AMS. The obligations
of Nextel, Newco and AMS to consummate, or cause to be consummated, the Merger
are subject to the satisfaction of the following conditions, any one or more of
which may be waived in writing by such parties to the extent permitted by law:
(a) The stockholders of AMS shall have taken all necessary action to
authorize, approve and adopt the transactions referred to in this Agreement.
(b) All waiting periods under the HSR Act and the regulations promulgated
thereunder applicable to the Merger shall have expired or been terminated.
(c) All required FCC approvals and consents, which shall be obtained for
purposes of this Agreement only when they have become Final Orders (as defined
in this section), shall have been obtained, any approval or consent required to
be obtained under the Nextel Indentures (as herein defined) to consummate the
transactions contemplated hereby shall have been obtained, and any approval or
consent of any other third party required as a condition to the consummation of
the Merger shall have been obtained, if the failure to obtain such approval or
consent would preclude or prohibit the consummation of the Merger or would have
a Material Adverse Effect on AMS (or, assuming and giving effect to consummation
of the Merger, on the Surviving Corporation) and its Subsidiaries, taken as a
whole or on Nextel and the Nextel Subsidiaries, taken as a whole. Any consent or
approval granted or an order entered by the FCC shall be a "Final Order" when a
sufficient number of days shall have elapsed from the date of entry or grant
thereof without the filing of any adverse request, petition or appeal by either
party or third party or by the FCC (on its own motion) with respect to such
consent, approval or order, or any aspect or portion thereof, or any
resubmissions of any applications or requests for any of such consents,
approvals or orders, or, if challenged, that such consent, approval or order (or
affected aspects or portions thereof) shall have been reaffirmed or upheld and
the applicable period for seeking further administrative or judicial review
shall have expired without the filing of any action, petition or request for
further review.
(d) There shall not be in force any order or decree, statute, rule or
regulation, nor shall there be on file any complaint in any Forum seeking an
order or decree, restraining, enjoining or prohibiting the consummation of the
Merger, and neither Nextel nor AMS shall have received notice from any
Governmental Authority that it has determined to institute any suit or
proceeding to restrain or enjoin the consummation of the Merger or to nullify or
render ineffective this Agreement if consummated, or to take any other action
which would result in the prohibition of, or material change in, the terms of or
applicable to the Merger; provided that so long as no order, decree or judgment
has been obtained and is in effect that would restrain, enjoin, prohibit or
materially change the terms of or applicable to, the Merger, the existence or
pendency of the Purported Class Actions shall not be deemed to constitute all or
any part of the basis for any party to claim that the condition set forth in
this Section 9.1(d) is not satisfied.
(e) The Proxy Statement/Prospectus shall have become effective under the
Securities Act, and no stop order suspending such effectiveness shall have been
issued or threatened with respect thereto.
(f) The registration statements or other filings as may be required under
applicable blue sky laws shall have become effective, and no stop order shall be
threatened or in effect with respect thereto.
(g) The Nextel Common Shares issuable in the Merger shall have been listed
or approved for listing upon notice of issuance by the Nasdaq National Market.
(h) Nextel and AMS shall each have obtained an opinion of their respective
counsel, based on customary representations and warranties, and otherwise
reasonably satisfactory to each of them (in the case
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of the opinion addressed to such party). The opinion of Nextel counsel shall be
addressed to Nextel and shall be to the effect that (i) the Merger will
constitute a Tax-free reorganization within the meaning of Section 368(a) of the
Code, and (ii) no gain or loss will be recognized by Newco, Nextel or AMS by
reason of the Merger. The opinion of AMS counsel shall be addressed to AMS and
shall be to the effect that (i) the Merger will constitute a Tax-free
reorganization within the meaning of Section 368(a) of the Code, and (ii) no
gain or loss will be recognized by the stockholders of AMS upon the conversion
of their shares of AMS Common Stock into shares of Nextel Common Shares pursuant
to the terms of the Merger (except for the effect of any cash received in lieu
of fractional shares).
(i) The purchase of Units by the McCaw Investor, as contemplated in that
certain Securities Purchase Agreement dated as of April 4, 1995 by and among
Nextel, the McCaw Investor and Craig O. McCaw, shall have been consummated.
9.2 Conditions to Obligations of Nextel and Newco. The obligation of each
of Nextel and Newco to consummate, or cause to be consummated, the transactions
contemplated by this Agreement is subject to the satisfaction of the following
additional conditions, any one or more of which may be waived in writing by
Nextel:
(a) The representations and warranties of AMS contained in this Agreement
shall be true and correct on the date hereof, and shall remain true and correct
in all material respects as of the Closing, as if made anew at that time, and
each of the covenants and agreements of AMS to be performed as of or prior to
the Closing shall have been duly performed in all material respects.
(b) AMS shall have delivered to Nextel a certificate signed by an officer
of AMS, dated the Closing, certifying that, to the best of the knowledge and
belief of such officer, the conditions specified in Section 9.1 as they relate
to AMS, and in subsection 9.2(a), (g) and (i) have been fulfilled.
(c) Nextel shall have received an opinion, dated the Closing, from counsel
to AMS in a form reasonably satisfactory to Nextel.
(d) Nextel shall have received a letter from KPMG Peat Marwick L.L.P.,
dated as of the Closing, addressed to Nextel pursuant to Section 5.2(b).
(e) At the time the Proxy Statement/Prospectus becomes effective, and also
at the Closing, AMS shall have furnished to Nextel certificates, dated as of
said times and signed by its President and Secretary, to the effect that to the
best of the knowledge and belief of the signing persons the material contained
in the Proxy Statement/Prospectus which constitutes AMS Information, contains,
as of the date of each of such certificates, no material misstatement of fact
and does not omit to state any material fact necessary to make the statements
made not misleading.
(f) No holder of outstanding shares of AMS Common Stock shall be entitled
to assert appraisal rights.
(g) All options and warrants to acquire AMS Common Stock or any other
securities of AMS shall either have been exercised, expired by their terms or
otherwise been cancelled or converted into or exchanged for corresponding
options or warrants of Nextel as contemplated in Sections 2.2 or 2.3, and all
Persons having any rights of the type(s) referred to in Section 5.7(b) hereof
shall have executed and delivered written instruments, in form and substance
reasonably acceptable to Nextel, terminating such rights effective as of the
Closing.
(h) Nextel shall have received duly executed agreements, each in
substantially the form attached hereto as Annex B, from each of the Rule 145
Affiliates.
(i) The terms and conditions of any Debt (as such term is defined in the
Nextel Indentures) of AMS or any of its Subsidiaries outstanding immediately
prior to the Closing shall permit payment in full at any time at the borrower's
election, without prepayment penalties, similar charges or any lender's or other
third party's consents (unless received and in effect at such time), other than
charges payable to Kansallis Osake Pannki ("KOP") under AMS' existing credit
agreement with KOP to the extent the interest earned on the proceeds of any such
repayment is less than the interest that would have otherwise been payable under
such applicable
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credit agreement with respect to such amount (for the period from the date of
such repayment until the date of the succeeding interest rate redetermination
(or other similar provision) under such applicable credit agreement.
(j) AMS shall have delivered to Nextel a certificate, in a form reasonably
satisfactory to Nextel, signed by an officer of AMS, dated the Closing,
certifying that, to the best knowledge of such officer, the Nextel Common Shares
issued in the Merger will be held in a manner consistent with the "continuity of
interest" conditions imposed by the Code.
9.3 Conditions to the Obligations of AMS. The obligation of AMS to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following additional conditions, any one or more of which
may be waived in writing by AMS:
(a) The representations and warranties of Nextel and Newco contained in
this Agreement shall be true and correct on the date hereof, and shall remain
true and correct in all material respects as of the Closing, as if made anew at
that time, and each of the covenants and agreements of Nextel and Newco to be
performed as of or prior to the Closing shall have been duly performed in all
material respects.
(b) Nextel shall have delivered to AMS a certificate signed by an officer
of Nextel, dated the Closing, certifying that, to the best of the knowledge and
belief of such officer, the conditions specified in Section 9.1 as they relate
to Nextel and/or Newco and in subsection 9.3(a) have been fulfilled.
(c) AMS shall have received an opinion, dated the Closing, from counsel to
Nextel in a form reasonably satisfactory to AMS.
(d) AMS shall have received a letter from Deloitte & Touche, L.L.P., dated
as of the Closing, addressed to AMS, pursuant to Section 6.2(d).
(e) At the time the Proxy Statement/Prospectus becomes effective, and also
at the Closing, Nextel shall have furnished to AMS certificates, dated as of
said times and signed by its President and Secretary, to the effect that to the
best of the knowledge and belief of the signing persons the material contained
in the Proxy Statement/Prospectus (other than AMS Information) contains, as of
the date of each of such certificates, no material misstatement of fact and does
not omit to state any material fact necessary to make the statements made not
misleading.
(f) There shall not be any pending litigation filed against Nextel, the
outcome of which may reasonably be expected to result in a Material Adverse
Effect on Nextel and the Nextel Subsidiaries, taken as a whole.
(g) The Board of Directors of AMS shall have received an opinion, dated
within 5 days of the date of the definitive Proxy Statement/Prospectus relating
to the Special Meeting, from Salomon Brothers Inc, financial advisors to AMS, to
the effect that, from a financial point of view, the Exchange Ratio is fair to
the public holders of AMS Common Stock (other than Nextel).
ARTICLE X. DEFINITIONS
10.1 Defined Terms. In addition to the definitions set forth in Section
3.15, as used herein the following terms shall have the following meanings:
"Affiliate" means as to any Person, another Person which controls, is
controlled by or is under common control with, such Person.
"Agreement" has the meaning assigned to such term in the introduction
hereof.
"AMS" means American Mobile Systems Incorporated, a Delaware
corporation.
"AMS Common Stock" means AMS' common stock, par value $0.01 per share.
"AMS Disclosure Information" has the meaning assigned to such term in
Section 3.14 hereof.
"AMS Equivalent Securities" has the meaning assigned to such term in
Section 2.1 hereof.
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"AMS Information" has the meaning assigned to such term in Section 5.2
hereof.
"AMS Financial Statements" has the meaning assigned to such term in
Section 3.5 hereof.
"AMS Option Plan" has the meaning assigned to such term in Section 2.3
hereof.
"AMS Stock Option" has the meaning assigned to such term in Section
2.3 above.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"Certificate" has the meaning assigned to such term in Section 2.5
hereof.
"Certificate of Incorporation" means AMS' Certificate of
Incorporation, as the same may be supplemented, amended or restated from
time to time.
"Charter Documents" means, with respect to any corporation, the
certificate or articles of incorporation and by-laws or regulations of such
corporation.
"Claims" has the meaning assigned to such term in Section 3.7 hereof.
"Closing" has the meanings assigned to such term in Section 8.2
hereof.
"Closing Per Share Value" has the meaning assigned to such term in
Section 2.10 hereof.
"Code" means the Internal Revenue Code of 1986, as amended, including,
when appropriate, the statutory predecessor of the Code, and all applicable
regulations under the Code and the statutory predecessor of the Code, and
any official published rulings and judicial determinations under the
foregoing.
"Consent Decree" means that certain agreed order by and among the U.S.
Department of Justice, Motorola, Inc. and Nextel, dated October 27, 1994,
which Nextel anticipates will be incorporated in a final Order of an
appropriate Forum, and which is in substantially the form of the draft
thereof furnished to AMS prior to the date hereof.
"Contaminants" has the meaning assigned to such term in CERCLA.
"Contingent Obligation" means any obligation of any Person
guaranteeing or otherwise becoming responsible for, in any manner
whatsoever, whether directly or indirectly, any indebtedness, lease,
dividend or other obligation of any other Person, whether or not
contingent; provided, however, that the term "Contingent Obligation" shall
not include endorsements of instruments for deposit or collection in the
ordinary course of business.
"Converted Nextel Shares" has the meaning assigned to such term in
Section 2.3(b) hereof.
"Converted Per Share Price" has the meaning assigned to such term in
Section 2.3(b) hereof.
"DGCL" has the meaning assigned to such term in Section 1.1 hereof.
"Effective Time" has the meaning assigned to such term in Section 1.2
hereof.
"Employee Plans" has the meaning assigned to such term in Section 3.21
hereof.
"ERISA" has the meaning assigned to such term in Section 3.21 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Ratio" has the meaning assigned to such term in Section 2.1
hereof.
"Excluded Shares" has the meaning assigned to such term in Section 2.1
hereof.
"FCC" has the meaning assigned to such term in Section 3.3 hereof.
"Final Order" means that forty (40) days shall have elapsed from the
date of grant of FCC consent to the transfers of control and/or assignments
contemplated by the relevant applications or requests
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submitted to the FCC without the filing of any adverse request, petition or
appeal by any party or third party or by the FCC on its own motion with
respect to such consents, or any resubmissions of any applications or
requests for such consents, or, if challenged, that such FCC consents shall
have been reaffirmed or upheld and the applicable period for seeking
further administrative or judicial review shall have expired without the
filing of any action, petition or request for further review.
"Forums" has the meaning assigned to such term in Section 3.7 hereof.
"GAAP" means generally accepted accounting principles in effect in the
United States of America from time to time, applied on a consistent basis.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, and any entity or official exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
"Hazardous Substances" has the meaning assigned to such term in
CERCLA.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnitee" means a party entitled to indemnification under Section
6.5 hereof.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and the filing of or
agreement to give any financing statement under the Uniform Commercial Code
or comparable law of any jurisdiction in connection with such mortgage,
pledge, security interest, encumbrance, lien or charge).
"Material Adverse Change (or Effect)" means a change (or effect) in
the financial condition, results of operations, assets or business, which
change (or effect), individually or in the aggregate, is or is reasonably
expected to be materially adverse to such condition, results of operations,
assets or business.
"Maximum AMS Common Equivalents" has the meaning assigned to such term
in Section 2.2(a) hereof.
"Maximum Nextel Shares" has the meaning assigned to such term in
Section 2.1 hereof.
"McCaw Investor" has the meaning assigned to such term in Section 7.4.
"Merger" has the meaning assigned to such term in Section 1.1 hereof.
"Newco" means American Mobile Acquisition Corp., a Delaware
corporation.
"Nextel" means NEXTEL Communications, Inc., a Delaware corporation.
"Nextel Common Shares" means shares of Nextel Class A Common Stock,
par value $.001 per share.
"Nextel Disclosure Information" has the meaning assigned to such term
in Section 4.14 hereof.
"Nextel Financial Statements" has the meaning assigned in Section 4.5.
"Nextel Indentures" means, collectively, the First Nextel Indenture,
the Second Nextel Indenture and, from and after the time of which the
OneComm Merger has been consummated, the OneComm Indenture. The "First
Nextel Indenture" means that certain Indenture dated as of August 15, 1993
by and between Nextel and The Bank of New York, as Trustee ("Trustee"), in
the form heretofore delivered to AMS; the "Second Nextel Indenture" means
that certain Indenture dated as of February 15, 1994, by and between Nextel
and the Trustee, in the form heretofore delivered to AMS; and the "OneComm
Indenture" means that certain Indenture dated as of January 13, 1994 by and
between CenCall Communications Corp. (now known as OneComm Corporation;
"OneComm") and the Trustee, in the form heretofore delivered to AMS, and as
the same may be supplemented and amended as contemplated by its terms in
connection with its assumption by Nextel, as successor to OneComm, in the
OneComm Merger.
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"Nextel Subsidiary" means a Subsidiary of Nextel.
"Officers' Certificate" means a certificate executed on behalf of AMS
or Nextel, as applicable, by its President or by one of its Vice
Presidents, and by its Treasurer, Secretary or by one of its Assistant
Secretaries.
"OneComm Merger" means that certain merger of OneComm with and into
Nextel on substantially the terms contemplated in that certain Agreement
and Plan of Merger by and between Nextel and OneComm dated as of July 13,
1994, as heretofore amended, a copy of which has been heretofore delivered
to AMS.
"Original Warrant" has the meaning assigned to such term in Section
2.1 hereof.
"Other Issuances" has the meaning assigned to such term in Section 7.4
hereof.
"Permitted Liabilities" means liabilities or obligations that (i) are
associated with obligations (other than indebtedness for borrowed money)
not due for payment or performance under executory contractual
arrangements, such as liabilities associated with obligations to make
future payments under leases or maintenance contracts that, in accordance
with GAAP, would be characterized as operating leases and (ii) in
accordance with GAAP, would not be included as a liability on the liability
side of a balance sheet.
"Permitted Lien" means (i) Liens that secure only Permitted
Liabilities and apply only to items of collateral that give rise to such
Permitted Liability, (ii) Liens for taxes, assessments or governmental
charges or claims that either (a) are not yet delinquent or (b) are being
contested in good faith by appropriate proceedings; (iii) statutory Liens
of landlords and carriers', warehousemen's, mechanics', suppliers',
materialmen's, repairmen's or other like Liens arising in the ordinary
course of business and with respect to amounts that either (a) are not yet
delinquent or (b) are being contested in good faith by appropriate
proceedings; (iv) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security; (v) Liens incurred or deposits made to
secure the performance of tenders, bids, leases, statutory obligations,
surety and appeal bonds, progress payments, government contracts and other
obligations of like nature incurred in the ordinary course of business;
(vi) easements, rights-of-way, restrictions and other similar changes or
encumbrances not interfering with the ordinary conduct of business; and
(vii) Liens created for the sole purpose of extending, renewing or
refunding any other Permitted Lien or any Lien existing prior to the date
of acquisition of the asset, property, right or interest subject to such
Lien; provided, however, that such extension, renewal or refunding Lien
shall be limited to all or any part of the asset, property, right or
interest that secured the Lien being extended, renewed or refunded.
"Person" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Authority or other entity, of whatever nature.
"Pollutants" has the meaning assigned to such term in CERCLA.
"Post-Employment Benefits" has the meaning assigned to such term in
Section 3.21(j) hereof.
"Proxy Statement/Prospectus" means the registration statement, the
prospectus included therein and the proxy statement to be furnished to the
holders of AMS Common Stock, in each case together with any amendments
thereto pursuant to Sections 5.3 and 6.2 hereof.
"Purported Class Actions" has the meaning assigned to such term in
Section 3.7 hereof.
"Requirement of Law" means as to any Person, the articles of
incorporation, by-laws or other organizational or governing documents of
such Person, and any law, or determination of any arbitrator or a court or
other Governmental Authority, in each case applicable to or binding upon
such Person or any of its property or to which such Person or any of its
property is subject.
"Rights" has the meaning assigned to such term in Section 3.11 hereof.
"Rule 145 Affiliates" has the meaning assigned to such term in Section
5.6 hereof.
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"SEC" means the Securities and Exchange Commission.
"SEC Filings" means each and all of the forms, reports or statements
filed by AMS with the SEC, pursuant to the requirements of (i) Section 13
or 14 of the Exchange Act or (ii) the Securities Act, on or after July 1,
1992, including all exhibits, amendments and supplements thereto.
"Securities Act" means the Securities Act of 1933 as amended, and the
rules and regulations promulgated by the SEC from time to time thereunder.
"Securities Purchase Agreement" (a true and correct copy of which has
been previously delivered to AMS) has the meaning assigned to such term in
Section 9.1(i).
"Side Agreement" has the meaning assigned to such term in Section 7.3
hereof.
"SMR" means specialized mobile radio.
"Special Meeting" has the meaning assigned to such term in Section 5.3
hereof.
"Subsidiary" means, as to any Person, a corporation of which more than
50% of the outstanding capital stock having full voting power is at the
time directly or indirectly owned or controlled by such Person.
"Subsidiary Guarantees" means those guarantees contemplated to be
required to be issued by certain Nextel Subsidiaries pursuant to the terms,
and in the circumstances described, in Section 1009 and elsewhere in the
First Nextel Indenture.
"Substitute Subsidiary" has the meaning assigned to such term in
Section 6.5(e).
"Surviving Corporation" has the meaning assigned to such term in
Section 1.1 hereof.
"Tax Returns" has the meaning assigned to such term in Section 3.13
hereof.
"Taxes" has the meaning assigned to such term in Section 3.13 hereof.
"Third Party Managers" has the meaning assigned to such term in
Section 3.15 hereof.
"1994 10-K" has the meaning assigned to such term in Section 3.7
hereof.
10.2 Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the defined meanings
when used in any certificate, report or other document made or delivered
pursuant hereto or thereto, unless the context otherwise requires.
(b) Terms defined in the singular shall have a comparable meaning when used
in the plural, and vice versa.
(c) All matters of an accounting nature in connection with this Agreement
and the transactions contemplated hereby shall be determined in accordance with
GAAP.
(d) As used herein, the neuter gender shall also denote the masculine and
feminine, and the masculine gender shall also denote the neuter and feminine,
where the context so permits.
(e) The words "hereof", "herein" and "hereunder", and words of similar
import, when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement.
ARTICLE XI. TERMINATION/EFFECTIVENESS
11.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby abandoned:
(a) By mutual written consent of the parties authorized by their respective
Boards of Directors, at any time prior to the Closing.
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(b) Prior to the Closing, by written notice to AMS from Nextel authorized
by the Board of Directors of Nextel, if (i) there is a material breach of any
representation, warranty, covenant or agreement on the part of AMS set forth in
this Agreement, or if a representation or warranty of AMS shall be untrue in any
material respect, in either case such that the condition specified in Sections
9.2(a) or 9.2(b) cannot be satisfied at Closing, except that, if such breach is
curable by the breaching party through the exercise of its reasonable best
efforts, then, for up to 30 days, but only as long as the breaching party
continues to exercise such reasonable best efforts, Nextel may not terminate
this Agreement under this Section 11.1(b)(i), (ii) any governmental or
regulatory consent or approval required for consummation of the transactions
contemplated hereby is denied by or in a final order or other final action
issued or taken by the appropriate governmental or regulatory authority, agency
or similar body, (iii) consummation of any of the transactions contemplated
hereby is enjoined, prohibited or otherwise restrained by the terms of a final,
non-appealable order or judgment of a court of competent jurisdiction, or (iv)
the record date (as originally set or as changed) for the Special Meeting is a
date on which the AMS Common Stock is not listed on the Nasdaq National Market
(without regard to whether Nextel has consented to the setting or changing of
such record date).
(c) Prior to the Closing, by written notice to Nextel from AMS authorized
by its Board of Directors, if (i) there is a material breach of any
representation, warranty, covenant or agreement on the part of Nextel or Newco,
set forth in this Agreement, or if a representation or warranty of Nextel or
Newco, shall be untrue in any material respect, in either case such that the
condition specified in Sections 9.3(a) or 9.3(b) cannot be satisfied at Closing,
except that, if such breach is curable by the breaching party through the
exercise of its reasonable best efforts then for up to 30 days, but only as long
as the breaching party continues to exercise such reasonable best efforts, AMS
may not terminate this Agreement under this Section 11.1(c)(i), (ii) any
governmental or regulatory consent or approval required for consummation of the
transactions contemplated hereby is denied by or in a final order or other final
action issued or taken by the appropriate governmental or regulatory authority,
agency or similar body, (iii) consummation of any of the transactions
contemplated hereby is enjoined, prohibited or otherwise restrained by the terms
of a final, non-appealable order or judgment of a court of competent
jurisdiction or (iv) the condition set forth in Section 9.1(i) hereof has not
been satisfied on or prior to September 15, 1995.
(d) By action of the Board of Directors of either Nextel or AMS if (i) the
Merger shall not have been consummated by September 30, 1995, (ii) the Merger
Agreement is not approved by the requisite vote of AMS stockholders following
the vote thereon at the Special Meeting, (iii) any consent required to be
obtained under the Nextel Indentures is not obtained on or prior to September
15, 1995 (except that AMS may not terminate this Agreement pursuant to this
clause (iii) if the consent which is not obtained is requested by reason of the
existence of Debt that does not satisfy the condition set forth in Section
9.2(i)) or (iv) the Proxy Statement/Prospectus has not been mailed to AMS
stockholders on or prior to July 31, 1995 (provided that the right to terminate
this Agreement under this Section 11.1(d) shall not be available to a party
whose failure to fulfill any obligation under this Agreement has been the cause
of or resulted in the event described in clause (i), (ii), (iii) or (iv) above,
and such event is the basis upon which such party proposes to terminate this
Agreement).
11.2 Effect. Any termination of this Agreement, however effected, shall
not release any of Nextel, Newco or AMS from any liability or other consequences
arising from any breach or violation by any such party of the terms of this
Agreement prior to the effective time of such termination, nor shall any such
termination release any party from its obligations or duties under this
Agreement which, by their terms and/or expressed intent, may require performance
subsequent to any such termination, and all provisions of this Agreement which
set forth such obligations or duties (including, without limitation, Sections
7.1 and 7.8 and, to the extent provided therein, in Section 12.10) and such
other general or procedural provisions which may be relevant to any attempt to
enforce such obligations or duties, shall survive any such termination of this
Agreement until such obligations or duties shall have been performed or
discharged in full.
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ARTICLE XII. MISCELLANEOUS
12.1 Communications. Except as otherwise specifically provided in this
Agreement, all communication hereunder shall be in writing (including
telegraphic communication) and shall be sent by first-class mail, telegraph,
facsimile or overnight courier or delivered in person to AMS at 20120-C Warner
Center Lane, Woodland Hills, California 91367-5002, Attention: Mr. Richard
Somers, with copies to (i) Alice Cheung, Treasurer of AMS and (ii) Baker &
Botts, L.L.P., 885 Third Avenue, Suite 1900, New York, New York 10022,
Attention: Robert W. Murray Jr., Esq.; and to Nextel and Newco at 201 Rte. 17
North, Rutherford, New Jersey 07070, Attention: General Counsel, with a copy to
Jones, Day, Reavis & Pogue, North Point, 901 Lakeside Avenue, Cleveland, Ohio
44114, Attention: Jeanne M. Rickert, Esq., or to such other addresses as AMS,
Nextel or Newco may designate by notice in writing. Notices shall be deemed to
have been given when received.
12.2 Non-Waiver of Remedies and Actions. No course of dealing between AMS
and Nextel and/or Newco with respect to any of the transactions contemplated
herein, or any delay on the part of either such party in exercising any rights
available to such party shall operate as a waiver of any right of such party,
except to the extent expressly waived in writing by such party.
12.3 Headings. The headings in this Agreement are for purposes of
reference only and shall not be considered in construing this Agreement.
12.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered, shall constitute an
original and all together shall constitute one instrument.
12.5 Successors and Assigns. Except as otherwise specifically provided
herein, this Agreement shall bind and inure to the benefit of AMS', Newco's and
Nextel's respective successors and permitted assigns; provided that, except as
expressly provided herein, none of AMS, Newco or Nextel shall assign any of its
rights hereunder or any interest herein without obtaining the written consent of
the others to such assignment, and any purported assignment made without
obtaining such written consent shall be null and void.
12.6 Enforceability. If any term or provision of this Agreement, or the
application thereof to any Person or circumstance, shall, to any extent, be
invalid or unenforceable, the remaining terms and provisions of this Agreement
or application to other Persons and circumstances shall not be invalidated
thereby, and each term and provision hereof shall be construed with all other
remaining terms and provisions hereof to effect the intent of the parties hereto
to the fullest extent permitted by law.
12.7 Law Governing. This Agreement shall be construed and enforced in
accordance with and shall be governed by the laws of the State of Delaware
applicable to contracts executed by residents of that state, and fully to be
performed, in that state.
12.8 Communications Act. Nothing in this Agreement is intended or shall
be construed to diminish or affect the control of AMS or any of its
Subsidiaries, or of Nextel or any of its Subsidiaries, over any FCC Licenses
held by any of them in any manner prohibited by the Communications Act of 1934,
as amended, or the rules and regulations issued by the FCC.
12.9 Expenses. Except as expressly provided otherwise herein or therein,
each of AMS and Nextel shall bear its own costs and expenses incurred by each of
them in connection with the negotiation, preparation, execution, delivery,
performance or other activity connected with this Agreement.
12.10 Entire Agreement. (a) This Agreement, the Original Warrant, and the
Side Agreement contain the entire agreement between AMS, Nextel and Newco with
respect to the transactions contemplated hereby and thereby, and, except to the
extent specifically set forth herein, such agreements supersede all other prior
agreements (including, without limitation, the Current Letter Agreement, the
Prior Letter Agreement and the Stock Purchase Agreement) between or among any of
such parties with respect to these matters.
(b) The parties hereto confirm that the Original Warrant and the Side
Agreement, as conformed and in effect at the execution and delivery hereof, are
as set forth in Annexes 1 and 2 hereto.
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12.11 Publicity. So long as this Agreement is in effect, AMS and Nextel
shall consult with each other in issuing any press release or otherwise making
any public statement with respect to the transactions contemplated by this
Agreement.
12.12 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement,
the Option Agreement or the Side Agreement were not performed in accordance with
its specific terms or were otherwise breached. It is agreed accordingly that the
parties hereto shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement, the Option Agreement or the Side Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state thereof having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity, and each party
acknowledges that neither party shall be required to allege or to prove the
inadequacy of money damages as a remedy to seek any appropriate form of
equitable relief or remedy.
12.13 Amendments. Neither this Agreement, the Option Agreement nor the
Side Agreement may be amended, except pursuant to an instrument in writing
signed by each of AMS, Nextel and Newco.
12.14 Third-Party Beneficiaries. Except as set forth in Article II, no
parties other than AMS, Newco and Nextel shall have any rights, or be entitled
to enforce any provisions, under this Agreement; provided that with respect to
Section 6.5 hereof, as to which the appropriate directors and officers of AMS
are intended beneficiaries, such Persons may enforce the provisions of such
Section 6.5 against the Surviving Corporation as provided therein and such
Section 6.5 may not be amended as to any such director or officer without the
affected director's or officer's consent.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
AMERICAN MOBILE SYSTEMS
INCORPORATED
By: /s/ RICHARD G. SOMERS
-------------------------------------
Name: Richard G. Somers
Title: President and Chief Executive
Officer
NEXTEL COMMUNICATIONS, INC.
By: /s/ BRIAN D. MCAULEY
-------------------------------------
Name: Brian D. McAuley
Title: President
MOBILE COMMUNICATIONS OF FLORIDA, INC.
By: /s/ BRIAN D. MCAULEY
-------------------------------------
Name: Brian D. McAuley
Title: President
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ANNEX A
FORM OF RESTRICTIVE LEGEND
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE APPLICABLE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
OF 1933, AS AMENDED, EXCEPT IN COMPLIANCE WITH RULE 145 THEREUNDER OR WITH
ANOTHER AVAILABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
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ANNEX B
AFFILIATE'S AGREEMENT
, 1995
NEXTEL Communications, Inc.
201 Route 17 North
Rutherford, NJ 07070
Gentlemen:
I have been advised that as of the date hereof, I may be deemed to be an
"affiliate" of American Mobile Systems Incorporated, a Delaware corporation
("AMS"), and that term is defined for purposes of paragraph (c) and (d) of Rule
145 of the Rules and Regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act").
Pursuant to the terms of the Agreement and Plan of Merger by and among AMS,
NEXTEL Communications, Inc., a Delaware corporation ("Nextel"), and Mobile
Communications of Florida, Inc., a Delaware corporation and a wholly-owned
subsidiary of Nextel ("MCF"), dated as of April 25, 1995 (the "Merger
Agreement"), pursuant to which MCF will be merged with and into AMS (the
"Merger"), I will be entitled to receive shares of common stock, par value $.001
per share, of Nextel ("Nextel Common Stock"), in exchange for the shares of
common stock, par value $.01 per share of AMS (the "AMS Common Stock") owned by
me at the effective time of the Merger as determined pursuant to the Merger
Agreement.
I have been advised that the issuance of the shares of Nextel Common Stock
pursuant to the Merger will have been registered with the Commission under the
Securities Act on a Registration Statement on Form S-4. However, I have also
been advised that since I may be deemed to be an affiliate of AMS at the time
the Merger is submitted for a vote of the shareholders of AMS and any offering
and sale by me of the Nextel Common Stock will not have been registered under
the Securities Act, that the Nextel Common Stock received by me pursuant to the
Merger must be held by me indefinitely unless (i) such offering and sale of the
Nextel Common Stock received by me pursuant to the Merger has been registered
under the Securities Act, (ii) an offering and sale of the Nextel Common Stock
received by me pursuant to the Merger is made in conformity with the volume and
other limitations of Rule 145 promulgated by the Commission under the Securities
Act or (iii) any offering, sale, transfer or other disposition of the Nextel
Common Stock received by me pursuant to the Merger is made in reliance upon an
exemption from registration that is available under the Securities Act.
I also understand that stock transfer instructions will be given to the
transfer agent or agents with respect to the Nextel Common Stock to be received
by me pursuant to the Merger and that there will be placed on the certificates
representing such shares of Nextel Common Stock, or any substitutions therefor,
a legend stating in substance as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE APPLICABLE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
OF 1933, AS AMENDED, EXCEPT IN COMPLIANCE WITH RULE 145 THEREUNDER OR WITH
ANOTHER AVAILABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
It is understood and agreed that the legend set forth above shall be removed
upon surrender of certificates bearing such legend by delivery of substitute
certificates without such legend if I shall have delivered to Nextel a copy of a
letter from the staff of the Commission, or an opinion of counsel in form and
substance reasonably satisfactory to Nextel, to the effect that (i) the sale or
disposition of the shares represented by the surrendered certificates may be
effected without registration of the offering, sale and delivery of such shares
under the
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Securities Act, and (ii) the shares to be so transferred may be publicly
offered, sold and delivered by the transferee thereof without compliance with
the registration provisions of the Securities Act.
By its execution hereof, Nextel agrees that it will, as long as I own any
Nextel Common Stock to be received by me pursuant to the Merger, take all
reasonable efforts to make timely filings with the Commission of all reports
required to be filed by it as contemplated by Rule 145(d) and will promptly
furnish upon written request of the undersigned a written statement confirming
that such reports have been so timely filed.
Any notices or any other communications in connection herewith shall be in
writing and shall be given (and shall be deemed to have been duly received if so
given) by cable, telegram, telex, telecopy, overnight courier or registered or
certified mail, postage prepaid, to Nextel at its address on the first page of
this letter agreement, to the attention of the office of the General Counsel;
and to the undersigned at ; or, to such other address as Nextel
shall furnish to the undersigned in writing, and any such notice shall be
effective as of the date so given, except that notices of change of address
shall only be effective upon receipt.
This agreement shall be governed by the laws of the State of Delaware. The
shares of Nextel Common Stock to which this agreement relates are shares of
Nextel Common Stock as constituted on the effective date of the Merger. If,
subsequent to the effective date of the Merger, such shares are subdivided or
combined or exchanged for other securities or if a stock dividend is declared
and paid on such shares, the provisions of this agreement applicable to the
shares of Nextel Common Stock shall be deemed to apply to the securities
resulting from any such event.
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return such
counterpart to the undersigned at the address indicated above, at which time
this letter shall become a binding agreement between you and the undersigned.
Very truly yours,
--------------------------------------
Accepted this day
of , 19
NEXTEL COMMUNICATIONS, INC.
By:
- ------------------------------------------------------
Name:
Title:
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<PAGE> 379
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
This Amendment No. 1, dated as of May 17, 1995 (the "Amendment"), to that
certain Agreement and Plan of Merger, dated as of April 25, 1995 (the "Merger
Agreement"), by and among American Mobile Systems Incorporated, a Delaware
corporation ("AMS"), NEXTEL Communications, Inc., a Delaware corporation
("Nextel"), and Mobile Communications of Florida, Inc., a Delaware corporation
and a wholly owned subsidiary of Nextel, is entered into by and among the
parties to the Merger Agreement as of the date hereof. All capitalized terms
used in this Amendment which are not otherwise defined herein shall have the
meanings ascribed to such terms in the Merger Agreement.
WHEREAS, subsequent to the execution of the Merger Agreement, the parties
to the Merger Agreement find it desirable to amend certain provisions of the
Merger Agreement;
NOW, THEREFORE, in consideration of the premises and the respective
agreements set forth herein and other good and valuable consideration the
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. The Merger Agreement is hereby amended by replacing the numerical
amount "4,200,000" appearing in the antepenultimate sentence of
Section 2.1 of the Merger Agreement with the numerical amount
"4,200,948".
2. Except as specifically amended hereby, the terms and provisions of
the Merger Agreement shall remain in full force and effect and are
hereby in all respects ratified and confirmed.
3. This Amendment may be executed in counterparts, each of which shall
be deemed to be an original, and all of which together shall be
deemed to be one and the same instrument.
4. This Amendment and the legal relations between the parties shall be
governed by and construed in accordance with the laws of the State
of Delaware, without regard to the conflict of laws rules thereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Merger Agreement as of the date first above written.
AMERICAN MOBILE SYSTEMS INCORPORATED
By: /s/ Richard G. Somers
------------------------------------
Name: Richard G. Somers
Title: President
NEXTEL COMMUNICATIONS, INC.
By: /s/ John Willmoth
------------------------------------
Name: John Willmoth
Title: Assistant Vice President
MOBILE COMMUNICATIONS OF
FLORIDA, INC.
By: /s/ John Willmoth
------------------------------------
Name: John Willmoth
Title: Assistant Vice President
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APPENDIX B
June 27, 1995
Board of Directors
American Mobile Systems Incorporated
20920-C Warner Center Lane
Woodland Hills, CA 91367-5002
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the public holders of the Common Stock, par
value $0.01 per share ("Common Stock"), of American Mobile Systems Incorporated
("AMS" or "the Company") of the consideration to be received by such
shareholders in the proposed merger transaction (the "Merger") involving NEXTEL
Communications, Inc. (formerly Fleet Call, Inc.) ("NEXTEL") and the Company
contemplated by the Merger Agreement, dated as of April 25, 1995, by and between
AMS and NEXTEL, as amended by Amendment No. 1 thereto, dated as of May 17, 1995
(as so amended, the "Agreement").
Under the terms of the Agreement, each issued and outstanding share of AMS
Common Stock (other than (i) the Excluded Shares, as defined below; (ii) shares
of AMS Common Stock, if any, owned by Newco, a wholly owned subsidiary of
NEXTEL; and (iii) shares of AMS Common Stock held in the treasury of AMS, which
shall be canceled as part of the Merger) would be converted into the right to
receive, and each such share of AMS Common Stock would become, 0.620 of a share
of NEXTEL Class A Common Stock, par value $0.001 per share. "Excluded Shares"
means those shares of AMS Common Stock issued and outstanding and owned by
NEXTEL (including any shares issuable upon the exercise of Nextel's option to
purchase 1,800,000 shares of Common Stock). We have assumed that the Merger will
qualify as a tax-free transaction.
As you are aware, Salomon Brothers Inc will receive a fee for this opinion.
Additionally, Salomon Brothers Inc has previously rendered certain investment
banking and financial advisory services to the Company, Tele-Communications,
Inc. ("TCI") and NEXTEL for which we have received customary compensation,
including prior work for the Company relative to other possible transactions
with NEXTEL, co-managing six public offerings of securities for TCI since August
1991, co-managing three public offerings of securities for NEXTEL since January
1992 and providing strategic advisory services to NEXTEL in and around January
1992 on another transaction. Salomon Brothers Inc is a full service securities
firm and, in the course of our normal trading activities, we may from time to
time effect transactions and hold positions in the securities of the Company,
TCI and NEXTEL for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
In connection with rendering our opinion we have reviewed and analyzed,
among other things, the following: (i) the Agreement and certain of the other
documents and agreements relating to the Merger; (ii) the Proxy Statement of the
Company filed with the Securities and Exchange Commission with respect to the
Merger (the "Proxy Statement"); (iii) certain internal information, primarily
financial in nature, including financial forecasts, prepared by the management
of the Company; (iv) the audited financial statements for the Company for each
of the fiscal years ended June 30, 1991, 1992, 1993 and 1994 and the unaudited
interim financial statements and Current Reports on Form 8-K for the Company
since the most recent audited financial statements; (v) the audited financial
statements for NEXTEL for each of the fiscal years ended March 31, 1991, 1992,
1993 and 1994 and for the nine month transition period ended December 31, 1994
and the unaudited interim financial statements and Current Reports on Form 8-K
for Nextel since the most recent audited financial statements; (vi) certain
publicly available information, including certain filings made under the
Securities Exchange Act of 1934, as amended, and Securities Act of 1933, as
amended, with respect to the Company, NEXTEL and certain other companies that we
believe to be
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<PAGE> 382
generally comparable to the Company and NEXTEL, and the trading markets for
their respective securities; (vii) certain publicly available information
concerning the nature and terms of certain other transactions that we consider
relevant to our inquiry; and (viii) such other information, financial studies,
analyses, and financial, economic and market criteria which we deem relevant. We
have also met with certain officers and employees of the Company to discuss the
foregoing as well as other matters we believe relevant to our inquiry and have
had limited discussions with members of senior management of NEXTEL and received
limited financial information from NEXTEL.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information reviewed by us for the purpose of this opinion. We have not assumed
any responsibility for independent verification of any of such financial and
other information. With respect to the financial forecasts which we utilized, we
have assumed that they reasonably reflect the best currently available estimates
and judgments of the management of the Company as to the future financial
performance of the Company. We have not made or obtained any independent
evaluations or appraisals of any of the properties or facilities of the Company
or NEXTEL or assumed any responsibility to do so and have not been furnished
with any such valuations or appraisals.
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other factors as we have deemed
appropriate under the circumstances, including, among others, the following: (i)
the historical and current financial position and results of operations of the
Company and NEXTEL; (ii) the business prospects of the Company and NEXTEL; (iii)
the historical and current market for the common stock and for the other equity
securities of certain other companies that we believe to be generally comparable
to the Company and NEXTEL; and (iv) the nature and terms of certain other
transactions that we believe to be relevant. We have also taken into our
assessment general economic, market and financial conditions as well as our
experience in connection with similar transactions and securities valuations
generally. Our opinion necessarily is based upon conditions as they exist and
can be evaluated on the date hereof.
We have also (i) assumed that none of the debt of NEXTEL, or NEXTEL pro
forma for the pending transactions described in the Proxy Statement, will be in
default or accelerated as a result of the Merger or any of such other pending
transactions and (ii) assumed that any arrangements among NEXTEL and the holders
of any such debt to permit the consummation, in compliance with the relevant
indentures, of the Merger, or of any of such other pending transactions, will
not have a material adverse effect on the value of the consideration to be
received by the stockholders of AMS in connection with the Merger. This opinion
is, in any event, limited to the fairness, from a financial point of view, of
the consideration to be received by the public shareholders of the Company in
the Merger and does not address the Company's underlying business decision to
effect the Merger or constitute a recommendation to any holder of the Common
Stock as to how such stockholder should vote with respect to the Merger. You
recognize that the Company, its Board of Directors and its stockholders have the
ultimate responsibility to decide whether it is appropriate and reasonable to
effect the Merger.
Based upon and subject to the foregoing, we are of the opinion as
investment bankers that, as of the date hereof, the consideration to be received
by the public shareholders of the Company in the Merger is fair, from a
financial point of view, to such shareholders.
Very truly yours,
Salomon Brothers Inc
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APPENDIX C
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
April 25, 1995
NEXTEL Communications, Inc.
201 Route 17 North
Rutherford, New Jersey 07070
Attention: President
(Fax No.: (201) 438-5540)
Re: American Mobile Systems Incorporated
Gentlemen:
As a condition to negotiating and entering into that certain Agreement and
Plan of Merger, dated as of April 25, 1995 (the "Merger Agreement"), by and
among NEXTEL Communications, Inc. ("Nextel") a Delaware corporation, Mobile
Communications of Florida, Inc., a Delaware corporation and a wholly-owned
subsidiary of Nextel, and American Mobile Systems Incorporated (the "Company"),
a Delaware corporation, and to consummate the Merger (as defined in the Merger
Agreement), you have requested that the undersigned, which beneficially owns
2,668,734 shares (the "Shares") of Common Stock, par value $.01 per share, of
the Company (the "Common Stock"), agree with you to take certain actions
described herein in support of the Merger, and the undersigned hereby agrees, as
follows:
As used herein, the term "Shares" also shall mean and include both the
Shares (as defined above) and all other shares of Common Stock as to which the
undersigned (at any time prior to the termination of this letter agreement) is
the beneficial owner and all securities issued or exchanged with respect to any
such Shares upon any reclassification, recapitalization, reorganization, merger,
consolidation, spin-off, stock split, combination, stock or other dividend or
any other change in the Company's capital structure (other than pursuant to the
Merger). The undersigned owns the Shares free of any restriction on voting and
has the right to vote the same free of any encumbrance (other than any general
fiduciary obligation imposed by law).
1. The undersigned hereby revokes any and all proxies and voting
instructions with respect to the Shares previously given by the undersigned and
agrees that, except as otherwise consented to in writing by you, the undersigned
will not grant or give any other proxies or voting instructions with respect to
the Shares, enter into any voting trust or other arrangement or agreement with
respect to the voting of the Shares, or agree, in any manner, to vote the Shares
for or against any proposal submitted to the stockholders of the Company except
in furtherance of the purposes set forth in paragraph 2 hereof.
2. (a) The undersigned agrees:
(i) to vote the Shares, to the extent entitled to vote, (y) in favor
of the approval of the Merger Agreement and the Merger and (z) with respect
to all other proposals submitted to the stockholders of the Company which,
directly or indirectly, in any way relate to or affect the Merger, in such
manner as you may direct; and
(ii) not to solicit, encourage or recommend to other stockholders of
the Company that (w) they vote their shares of Common Stock or any other
securities of the Company in any contrary manner, (x) they abstain from
voting, or otherwise fail to vote, their shares at all, (y) they sell,
transfer, tender or otherwise dispose of their shares or (z) they attempt
to exercise any statutory appraisal or other similar rights they may have.
Unless otherwise instructed in writing by you, the undersigned will vote the
Shares (x) against any and all transactions (each a "Competing Transaction") of
any kind (including, without limitation, a merger, consolidation, share
exchange, reclassification, reorganization, recapitalization, sale or
encumbrance of any of
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<PAGE> 384
the assets of the Company or sale by the Company or any stockholders of the
Company of any shares of its capital stock) proposed by any person in lieu of or
in opposition to the Merger, other than any Competing Transaction proposed by
you or any of your controlled affiliates or to which either you or any such
controlled affiliate is a party and which Competing Transaction is approved by
the Board of Directors of the Company (such a transaction, a "Qualifying
Transaction") and (y) in favor of any such Qualifying Transaction.
(b) Except with your prior written consent, the undersigned shall not, and
shall not permit any officer, director or attorney, accountant, investment
banker or other agent of the undersigned to, initiate, solicit, negotiate,
encourage, or provide confidential information in order to facilitate any
Competing Transaction.
3. In furtherance of the foregoing, the undersigned is granting to you or
to your designee(s) an irrevocable proxy (which may be in the form annexed or
such other form consistent with the terms hereof and thereof as you specify) to
vote the Shares, to the extent such Shares are entitled to vote, and hereby
specifically agrees not to revoke such proxies granted under any circumstances:
(i) at any and all meetings of stockholders of the Company, notice of
which meetings are given prior to the due and proper termination of this
letter agreement, with respect to matters presented to the Company's
stockholders for vote which, directly or indirectly, in any way relate to
or affect (x) the Merger or the Merger Agreement or the approval of any
thereof (including, without limitation, such matters which nominally
concern proposed amendments of the certificate of incorporation or the
bylaws of the Company, but which may relate to or have any effect on the
Merger or the Merger Agreement or the approval of any thereof); and (y) any
Competing Transaction; or
(ii) with respect to action to be taken by written consent of the
stockholders of the Company which, directly or indirectly, in any way
relates to or affects any of the foregoing, and which consent is solicited
prior to the due and proper termination of this letter agreement.
4. The undersigned further agrees that except pursuant to the Merger or a
Qualifying Transaction, the undersigned will not, and will not agree to, sell,
assign or transfer, or issue an option or call in respect to, any of the Shares,
or sell short ("against the box" or otherwise) any Shares during the term of
this agreement. Notwithstanding the foregoing, the undersigned may transfer or
sell the Shares if the beneficial ownership of the Shares by the undersigned
would adversely affect its ability, or the ability of any entity in which it is
an investor, to bid for and obtain any personal services communications license
to be auctioned by the FCC commencing in December 1994 (a "Permitted Transfer").
Prior to effecting a Permitted Transfer, the undersigned shall first offer the
Shares to you in a writing setting forth the same terms and conditions as the
undersigned intends to offer such shares to any proposed buyer (the "First
Offer") and, if you decline to accept such First Offer within 10 days of your
receipt of the writing setting forth such First Offer, use its commercially
reasonable efforts to cause the buyer of the Shares to acquire the Shares only
upon assuming the undersigned's obligations with respect to such Shares under
this letter agreement and to execute an irrevocable proxy to you substantially
similar to the irrevocable proxy delivered to you by the undersigned pursuant to
this letter agreement. Subject to the immediately preceding sentence, the
undersigned acknowledges that it shall have a period of 25 days subsequent to
the date of your receipt of the writing setting forth the First Offer to reach a
binding written agreement with a proposed buyer setting forth all of the terms
and conditions applicable to any contemplated purchase of the Shares by such
proposed buyer. If such terms and conditions are, in any material respects, more
favorable to the proposed buyer than the terms and conditions of the relevant
First Offer given to you, or if such written agreement is not entered into
within such 25 day period, the undersigned will not effect any Permitted
Transfer of the Shares without first again complying with the First Offer
process set forth above.
5. Any transfer or other distribution by the undersigned of some or all of
the Shares to some or all of its controlled affiliates prior to consummation of
the Merger shall require your prior written consent, which you agree not to
withhold unreasonably; provided that each transferee provides you, if you so
request, with a letter agreement and irrevocable proxies substantially similar
to this letter agreement and the attached proxies and otherwise in form and
substance reasonably satisfactory to you, and with such other assurances as you
may reasonably require.
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<PAGE> 385
6. The provisions of this agreement are severable and, if any thereof are
invalid or unenforceable in any jurisdiction, the same and the other provisions
hereof shall not be rendered otherwise invalid or unenforceable.
7. The parties hereto acknowledge and agree that all obligations of the
undersigned hereunder shall be subject to applicable law and that none of the
provisions herein set forth shall be deemed to restrict or limit any fiduciary
duty the undersigned or any of its affiliates may have as a member of the Board
of Directors or executive officer of the Company; provided that no such duty
shall excuse the undersigned from its obligation as a stockholder of the Company
to vote the Shares, to the extent that they may be so voted, as herein provided
and to otherwise comply with the terms and conditions of this Agreement.
8. (a) This agreement shall terminate upon the earliest to occur of (i) the
consummation of the Merger, (ii) the termination of the Merger Agreement
pursuant to Section 11.1 thereof, (iii) the consummation of any Qualifying
Transaction; and (iv) one year after the date hereof;
(b) No amendment of the Merger Agreement to provide for a Qualifying
Transaction shall affect the obligations of the undersigned under this letter
agreement.
(c) The provisions of this letter agreement shall be binding upon and
inure to the benefit of each of you and the undersigned and your and its
respective successors and assigns.
9. This letter agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without giving effect to the principles
of conflict of laws thereof. Each of the parties to this letter agreement hereby
irrevocably and unconditionally (a) consents to submit to the exclusive
jurisdiction of the courts of the State of Delaware for any proceeding arising
in connection with this letter agreement (and each such party agrees not to
commence any such proceeding, except in such courts), (b) to the extent such
party is not a resident of the State of Delaware, agrees to appoint an agent in
the State of Delaware as such party's agent for acceptance of legal process in
any such proceeding against such party with the same legal force and validity as
if served upon such party personally within the State of Delaware, and to notify
promptly each other party hereto of the name and address of such agent, (c)
waives any objection to the laying of venue of any such proceeding in the courts
of the State of Delaware, and (d) waives, and agrees not to plead or to make,
any claim that any such proceeding brought in any court of the State of Delaware
has been brought in an improper or otherwise inconvenient forum.
10. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, or
when sent, if sent by telegram, telex or telecopy, or by registered or certified
mail (postage prepaid, return receipt requested) to each of you and to the
undersigned, to the attention of the President of such party, at the address or
facsimile number specified on the first page hereof.
If this letter accurately sets forth our understanding and agreement with
respect to the foregoing matters, please so confirm by signing the enclosed copy
of this letter at the places set forth below and returning it to us.
Very truly yours,
TELE-COMMUNICATIONS, INC.
By: /s/ STEPHEN M. BRETT
---------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
Confirmed and Agreed:
NEXTEL COMMUNICATIONS, INC.
By: /s/ BRIAN D. MCAULEY
----------------------------------
Name: Brian D. McAuley
Title: President
Date: April 25, 1995
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<PAGE> 386
PART II
INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Set forth below is a description of certain provisions of the Certificate
of Incorporation, as amended (the "Nextel Charter"), of Nextel Communications,
Inc. ("Nextel"), the By-laws of Nextel (the "Nextel By-laws") and the Delaware
General Corporation Law (the "DGLC"). This description is intended as a summary
only and is qualified in its entirety by reference to the Nextel Charter, the
Nextel By-laws and the DGCL.
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES
The Nextel Charter provides that, to the full extent provided by law, a
director will not be personally liable for monetary damages to Nextel or its
stockholders for or with respect to any acts or omissions in the performance of
his or her duties as a director. The DGCL provides that a corporation may limit
or eliminate a director's personal liability for monetary damages 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) for
paying a dividend or approving a stock repurchase in violation of Section 174 of
the DGCL, or (iv) for any transaction from which the director derived an
improper personal benefit.
While Article 8 of the Nextel Charter provides directors with protection
from awards for monetary damages for breaches of the duty of care, it does not
eliminate the directors' duty of care. Accordingly, Article 8 will have no
effect on the availability of equitable remedies such as an injunction or
rescission based on a director's breach of the duty of care. The provisions of
Article 8 as described above apply to officers of Nextel only if they are
directors of Nextel and are acting in their capacity as directors, and does not
apply to officers of Nextel who are not directors.
INDEMNIFICATION AND INSURANCE
Under the DGCL, directors and officers as well as other employees and
individuals may be indemnified against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation as a
derivative action) if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interest of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful.
Article 7 of the Nextel Charter and Article VII of the Nextel By-laws
provide to directors and officers indemnification to the full extent provided by
law, thereby affording the directors and officers of Nextel the protections
available to directors and officers of Delaware corporations. Article VII of the
Nextel By-laws also provides that expenses incurred by a person in defending a
civil or criminal action, suit or proceeding by reason of the fact that he or
she is or was a director or officer, shall be paid in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he or she is not entitled to be indemnified by
Nextel as authorized by relevant Delaware law. Nextel has obtained directors and
officers liability insurance providing coverage to its directors and officers.
On September 12, 1991, the Board of Directors of Nextel unanimously adopted
resolutions authorizing Nextel to enter into an Indemnification Agreement (the
"Indemnification Agreement") with each director of Nextel, and Nextel has
entered into the Indemnification Agreement.
One of the purposes of the Indemnification Agreements is to attempt to
specify the extent to which persons entitled to indemnification thereunder (the
"Indemnitees") may receive indemnification under circumstances in which
indemnity would not otherwise be provided by the DGCL. Pursuant to the
Indemnification Agreements, and Indemnitee is entitled to indemnification as
provided by Section 145 of the DGCL and to indemnification for any amount which
the Indemnitee is or becomes legally obligated to pay
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<PAGE> 387
relating to or arising out of any claim made against such person because of any
act, failure to act or neglect or breach of duty, including any actual or
alleged error, misstatement or misleading statement, which such person commits,
suffers, permits or acquiesces in while acting in the Indemnitee's position with
Nextel. The Indemnification Agreements are in addition to and are not intended
to limit any rights of indemnification which are available under the Nextel
Charter or the Nextel By-laws, any policy of insurance or otherwise. Nextel is
not required under the Indemnification Agreements to make payments in excess of
those expressly provided for in the DGCL in connection with any claim against
the Indemnitee:
(i) which results in a final, nonappealable order directing the
Indemnitee to pay a fine or similar governmental imposition which Nextel is
prohibited by applicable law from paying; or
(ii) based upon or attributable to the Indemnitee gaining a personal
profit to which he was not legally entitled including, without limitation,
profits made from the purchase and sale by the Indemnitee of equity
securities of Nextel which are recoverable by Nextel pursuant to Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and profits arising from transactions in publicly traded securities
of Nextel which were effected by the Indemnitee in violation of Section
10(b) of the Exchange Act or Rule 10b-5 promulgated thereunder.
In addition to the rights to indemnification specified therein, the
Indemnification Agreements are intended to increase the certainty of receipt by
the Indemnitee of the benefits to which he or she is entitled by providing
specific procedures relating to indemnification.
The Indemnification Agreements are also intended to provide increased
assurance of indemnification by prohibiting Nextel from adopting any amendment
to the Nextel Charter or the Nextel By-laws which would have the effect of
denying, diminishing or encumbering the Indemnitee's rights pursuant thereto or
to the DGCL or any other law as applied to any act or failure to act occurring
in whole or in part prior to the effective date of such amendment.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Pursuant to Item 601 of Regulation S-K, 17 C.F.R. sec. 229.601(b)(2),
Nextel has excluded from Exhibit 2.1 (i) Exhibit A (Certificate of Incorporation
of AMS), (ii) Exhibit B (By-laws of AMS), (iii) Exhibit C (Directors and
Officers of AMS) and (iv) the Disclosure Schedules of AMS and Nextel to the
Merger Agreement. Nextel agrees to furnish copies of such Exhibits and
Disclosure Schedules to the Securities and Exchange Commission (the
"Commission") upon request.
Pursuant to Item 601 of Regulation S-K, 17 C.F.R. sec. 229.601(b)(2),
Nextel has excluded from Exhibit 2.7 the following annexes and schedules to the
Reorganization Agreement: (i) Annex H-1 (Form of Opinions of Counsel for Questar
and AMI); (ii) Annex H-2 (Form of Opinions of FCC Counsel for Questar and AMI);
(iii) Annex L (Form of Opinion of Jones, Day, Reavis & Pogue); and (iv)
Disclosure Schedules of Questar, AMI and Nextel to the Reorganization Agreement.
Nextel agrees to furnish copies of such instruments to the Commission upon
request.
Pursuant to Item 601 of Regulation S-K, 17 C.F.R. sec. 229.601(b)(2),
Nextel has excluded from Exhibit 2.8 the following annexes and schedules to the
OneComm Merger Agreement: (i) Annex G (Form of Opinion of Counsel to OneComm);
(ii) Annex I (Form of Opinion of Counsel to Nextel); and (iii) Disclosure
Schedules of OneComm and Nextel to the Merger Agreement. Nextel agrees to
furnish copies of such instruments to the Commission upon request.
Pursuant to Item 601 of Regulation S-K, 17 C.F.R. sec.229.601(b)(2), Nextel
has excluded from Exhibit 2.10 the Disclosure Schedules of Dial Page and Nextel
to the Dial Page Merger Agreement. Nextel agrees to furnish copies of such
Disclosure Schedules to the Commission upon request.
Pursuant to Item 601 of Regulation S-K, 17 C.F.R. sec.
229.601(b)(4)(iii)(A), Nextel has excluded from Exhibit 4 instruments defining
the rights of holders of long-term debt with respect to debt that does not
exceed
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<PAGE> 388
10% of the total assets of Nextel. Nextel agrees to furnish copies of such
instruments to the Commission upon request.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C> <C>
2.1 -- Agreement and Plan of Merger, dated as of April 25, 1995, by and between NEXTEL
Communications, Inc. ("Nextel"), American Mobile Systems Incorporated ("AMS")
and Mobile Communications of Florida, Inc. ("MCF") (attached as Appendix A to
the Proxy Statement/Prospectus and filed on May 2, 1995 (Commission File Number
0-19656) and incorporated herein by reference).
2.2 -- Amendment No. 1 to the Agreement and Plan of Merger, dated as of May 17, 1995,
by and among Nextel, AMS and MCF (attached as Appendix A to the Proxy
Statement/Prospectus).
2.3 -- Agreement and Plan of Reorganization, dated as of February 7, 1994, between
Nextel and PowerFone Holdings, Inc. ("PowerFone") (filed as Exhibit No. 2.1 to
Amendment No. 2 to Nextel's Registration Statement No. 33-73388 on Form S-4 (the
"PowerFone S-4 Registration Statement") filed on February 9, 1994 (Commission
File No. 0-19656) and incorporated herein by reference).
2.4 -- Agreement of Merger, dated as of April 14, 1994, between PowerFone and PF
Acquisition Corp., a wholly owned subsidiary of Nextel (filed as Exhibit No. 2.2
to Nextel's Form 8-K report dated April 14, 1994 and filed on April 28, 1994
(Commission File No. 0-19656) and incorporated herein by reference).
2.5 -- Agreement and Plan of Reorganization, dated as of December 21, 1992, between
Nextel (under its prior name, "Fleet Call, Inc.") and Dispatch Communications,
Inc. ("DisCom") (filed as Exhibit No. 2.1 to Nextel's Registration Statement No.
33-61010 on Form S-4 filed on June 22, 1993 (the "DisCom S-4 Registration
Statement") and incorporated herein by reference).
2.6 -- Agreement of Merger, dated as of December 21, 1992, as amended, between DisCom
and FC New York, Inc., a wholly owned subsidiary of Nextel (filed as Exhibit 2.2
to the DisCom S-4 Registration Statement and incorporated herein by reference).
2.7 -- Agreement and Plan of Reorganization, dated as of April 29, 1994, among Nextel,
Questar Corporation, Advanced MobileComm, Inc., Robert C. Mearns and Francis G.
Fuson (filed on July 19, 1994 as Exhibit No. 10.51 to the Annual Report on Form
10-K/A of Nextel for the fiscal year ended March 31, 1994 (Commission File No.
0-19656) and incorporated herein by reference).
2.8 -- Agreement and Plan of Merger, dated as of July 13, 1994, by and between Nextel
and OneComm Corporation ("OneComm") (filed as Exhibit No. 2.1 to Nextel's Form
8-K report dated July 26, 1994 filed on July 26, 1994 (Commission File No.
0-19656) and incorporated herein by reference).
2.9 -- Agreement and plan of Contribution and Merger, dated August 4, 1994, by and
among Nextel, Motorola, Inc., ESMR, Inc. and ESMR Sub, Inc. (filed as Exhibit
No. 2.1 to Nextel's Form 8-K report dated August 4, 1994, and filed on August
16, 1994 (Commission File No. 0-19656) and incorporated herein by reference).
2.10 -- Agreement of Merger and Plan of Reorganization, dated as of February 17, 1995,
by and between Nextel and Dial Page, Inc. (filed as Exhibit No. 2.1 to Nextel's
Form 8-K report dated February 17, 1995 filed on March 2, 1995 (Commission File
No. 0-19656) and incorporated herein by reference).
3.1 -- Certificate of Incorporation of Nextel, as amended (filed as Exhibit No. 4.1 to
Nextel's Form 8-K report dated July 22, 1993 and filed on July 29, 1993
(Commission File
No. 0-19656) and incorporated herein by reference).
3.2 -- By-laws of Nextel (filed as Exhibit No. 3.2 to Nextel's Annual Report on Form
10-K for the fiscal year ended March 31, 1993 and filed on May 28, 1993
(Commission File No. 0-19656) and incorporated herein by reference).
</TABLE>
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<PAGE> 389
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C> <C>
4.1 -- Certificate of Incorporation of Nextel, as amended (filed as Exhibit No. 4.1 to
Nextel's Form 8-K report dated July 22, 1993 and filed on July 29, 1993
(Commission File No. 0-19656) and incorporated herein by reference).
4.2 -- By-laws of Nextel (filed as Exhibit No. 3.2 to Nextel's Annual Report on Form
10-K for the fiscal year ended March 31, 1993 and filed on May 28, 1993
(Commission File No. 0-19656) and incorporated herein by reference).
4.3 -- Letter Agreement between Motorola, Inc. and Fleet Call, dated as of November 4,
1991 (filed as Exhibit No. 10.47 to Nextel's Registration Statement No. 33-43415
on Form S-1 filed on October 18, 1991 (the "S-1 Registration Statement") and
incorporated herein by reference).
4.4 -- Financing and Security Agreement between Motorola, Inc., Smart SMR of
California, Inc. and Fleet Call, dated as of November 1, 1991 (filed on November
15, 1991 as Exhibit No. 10.49 to the S-1 Registration Statement and incorporated
herein by reference).
4.5 -- Financing and Security Agreement between Motorola, Inc., Smart SMR of Illinois,
Inc. and Fleet Call, dated as of November 1, 1991 (filed on November 15, 1991 as
Exhibit 10.50 to the S-1 Registration Statement and incorporated herein by
reference).
4.6 -- Financing and Security Agreement between Motorola, Inc., Smart SMR of Texas,
Inc. and Fleet Call, dated as of November 1, 1991 (filed on November 15, 1991 as
Exhibit No. 10.51 to the S-1 Registration Statement and incorporated herein by
reference).
4.7 -- Financing and Security Agreement between Motorola, Inc., Smart SMR of New York,
Inc. and Fleet Call, dated as of November 1, 1991 (filed on November 15, 1991 as
Exhibit No. 10.52 to the S-1 Registration Statement and incorporated herein by
reference).
4.8 -- Commitment Letter, dated October 16, 1991, between Fleet Call and Northern
Telecom Finance Corporation (filed as Exhibit No. 4.4 to the S-1 Registration
Statement and incorporated herein by reference).
4.9 -- Financing and Security Agreement between Northern Telecom Finance Corporation,
Smart SMR of California, Inc. and Fleet Call, dated as of November 1, 1991
(filed on November 15, 1991 as Exhibit No. 10.54 to the S-1 Registration
Statement and incorporated herein by reference).
4.10 -- Financing and Security Agreement between Northern Telecom Finance Corporation,
Smart SMR of Illinois, Inc., and Fleet Call, dated as of November 15, 1991
(filed on November 15, 1991 as Exhibit No. 10.55 to the S-1 Registration
Statement and incorporated herein by reference).
4.11 -- Financing and Security Agreement between Northern Telecom Finance Corporation,
Smart SMR of Texas, Inc. and Fleet Call, dated as of November 15, 1991 (filed on
November 15, 1991 as Exhibit No. 10.56 to the S-1 Registration Statement and
incorporated herein by reference).
4.12 -- Financing and Security Agreement between Northern Telecom Finance Corporation,
Smart SMR of New York, Inc. and Fleet Call, dated as of November 15, 1991 (filed
on November 15, 1991 as Exhibit No. 10.57 to the S-1 Registration Statement and
incorporated herein by reference).
4.13 -- Indenture between Nextel and The Bank of New York, as Trustee, dated August 15,
1993 (the "August Indenture") (filed as Exhibit No. 4.13 to the PowerFone S-4
Registration Statement and incorporated herein by reference).
4.14 -- Form of Note issued pursuant to the August Indenture (included in Exhibit 4.13).
4.15 -- Indenture between Nextel and The Bank of New York, as Trustee, dated as of
February 15, 1994 (the "February Indenture") (filed as Exhibit No. 4.1 to
Nextel's Form 8-K report dated February 16, 1994 and filed with the Commission
on March 1, 1994 and incorporated herein by reference).
4.16 -- Form of Note issued pursuant to the February Indenture (included in Exhibit
4.15).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- --------------------------------------------------------------------------------
<C> <C> <S>
4.17 -- Stock Purchase Agreement by and between Nippon Telegraph and Telephone
Corporation and Nextel, dated as of January 20, 1994 (filed as Exhibit 4.17 to
the PowerFone S-4 Registration Statement and incorporated herein by reference).
5* -- Opinion of Jones, Day, Reavis & Pogue.
8.1* -- Opinion of Jones, Day, Reavis & Pogue with respect to certain tax matters.
8.2* -- Opinion of Baker & Botts, L.L.P. with respect to certain tax matters.
10.1 -- Stock Purchase Agreement, dated August 25, 1993, by and between Nextel and AMS
(filed as Exhibit No. 23 to Nextel's Registration Statement No. 33-740102 on
Form S-3 filed on January 13, 1994 and incorporated herein by reference).
10.2 -- Amendment, dated August 4, 1994, to the Enhanced Specialized Mobile Radio System
Equipment Purchase Agreement, between Nextel and Motorola, dated as of November
1, 1991, as amended and to the Letter Agreement, between Nextel and Motorola,
dated as of November 4, 1991, as amended (collectively the "Equipment Purchase
Agreements") (Portions of this exhibit have been omitted pursuant to a grant of
confidential treatment) (filed as Exhibit 10.02 to Amendment No. 1 of the ESMR
S-4 Registration Statement dated June 7, 1995 and filed on June 7, 1995
(Commission File No. 33-91716) and incorporated herein by reference).
10.3 -- Second Amendment to Equipment Purchase Agreements dated as of April 4, 1995
(Portions of this exhibit have been omitted pursuant to a grant of confidential
treatment) (filed as Exhibit 10.03 to Amendment No. 1 of the ESMR S-4
Registration Statement dated June 7, 1995 and filed on June 7, 1995 (Commission
File No. 33-91716) and incorporated herein by reference).
10.4 -- Securities Purchase Agreement, dated as of April 4, 1995, by and among Nextel,
Digital Radio, L.L.C. and Craig O. McCaw (filed as Exhibit No. 2.1 to Nextel's
8-K report dated April 10, 1995 filed on April 11, 1995 (Commission File No.
0-19656) and incorporated herein by reference).
23.1* -- Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5).
23.2* -- Consents of Deloitte & Touche, LLP
23.3* -- Consent of Coopers & Lybrand, L.L.P.
23.4* -- Consent of Arthur Andersen LLP
23.5* -- Consents of KPMG Peat Marwick, LLP
23.6* -- Consent of Ernst & Young LLP.
23.7* -- Consent of Baker & Botts, L.L.P. (included in Exhibit 8).
23.8* -- Consent of Salomon Brothers.
24 -- Powers of Attorney.
99.1 -- Indentures for Senior Redeemable Discount Notes due 2004, dated as of January
13, 1994, between OneComm Corporation (formerly Cencall Communications Corp.)
and the Bank of New York (filed as Exhibit 99.2 to Nextel's Registration
Statement No. 33-93182 on Form S-4, (the "OneComm S-4" Registration Statement")
filed on June 7, 1995 (Commission File No. 0-19656) and incorporated herein by
reference).
99.2 -- Indentures for Senior Redeemable Discount Notes due 2005, dated as of December
22, 1993, between Dial Call Communications, Inc. and the Bank of New York (filed
as Exhibit 99.3 to the OneComm S-4 Registration Statement and incorporated
herein by reference).
99.3 -- Indentures for Senior Redeemable Discount Notes due 2004, dated as of April 25,
1994, between Dial Call Communications, Inc. and the Bank of New York (filed as
Exhibit 99.4 to the OneComm S-4 Registration Statement and incorporated herein
by reference).
</TABLE>
- ---------------
* Filed herewith.
** Unless otherwise indicated, all exhibits have been previously filed.
II-5
<PAGE> 391
(b) The following is a list of the consolidated financial statement
schedules American Mobile Systems Incorporated which are required to be filed as
part of this registration statement:
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Independent Auditors' Report........................................... S-1
Schedule II -- Amounts Receivable from Related Parties and Underwriters, Promoters,
and Employees Other than Related Parties............................... S-2
Schedule IV -- Indebtedness to Related Parties -- Not Current......................... S-3
Schedule V -- Property and Equipment................................................. S-4
Schedule VI -- Accumulated Depreciation and Amortization of Property and Equipment.... S-5
Schedule VIII -- Valuation and Qualifying Accounts and Reserves......................... S-6
Schedule X -- Supplementary Statements of Operations Information..................... S-7
</TABLE>
(c) The reports, opinions and appraisals which are summarized in the Proxy
Statement/Prospectus constituting part of this registration statement pursuant
to Item 4(b) of Form S-4 are attached as exhibits to this registration
statement, except for those which are furnished as part of the Proxy
Statement/Prospectus.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification of liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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 opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, 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 the registration statement through the
date of responding to the requests.
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 the registration statement when it became effective.
II-6
<PAGE> 392
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 New York, in the State of
New York, on June 21, 1995.
NEXTEL Communications, Inc.
By: *
------------------------------------
Thomas J. Sidman
Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ ------------------------------- ------------------
<C> <S> <C>
* Chief Executive Officer, Vice June 21, 1995
- ------------------------------------------ President of the Board and
Wayland R. Hicks Director (Principal Executive
Officer)
/s/ LOUIS SALAMONE, JR. Vice President and Chief June 21, 1995
- ------------------------------------------ Financial Officer (Principal
*Louis Salamone, Jr. Financial Officer)
Attorney-in-Fact
* Controller (Principal June 21, 1995
- ------------------------------------------ Accounting Officer)
Ann S. Poh
* President and Director June 21, 1995
- ------------------------------------------
Brian D. McAuley
* Chairman of the Board June 21, 1995
- ------------------------------------------
Morgan E. O'Brien
* Director June 21, 1995
- ------------------------------------------
Masaaki Torimoto
* Director June 21, 1995
- ------------------------------------------
Robert Cooper
* Director June 21, 1995
- ------------------------------------------
Koichiro Hayashi
</TABLE>
II-7
<PAGE> 393
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ---- ----
<S> <C> <C>
* Director June 21, 1995
- ------------------------------------------
Joel A. Schleicher
Director
- ------------------------------------------
Scot Jarvis
</TABLE>
II-8
<PAGE> 394
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
American Mobile Systems Incorporated:
Under date of August 26, 1994, we reported on the consolidated balance
sheets of American Mobile Systems Incorporated and subsidiary as of June 30,
1994 and 1993, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended June 30, 1994, which are included in the proxy
statement/prospectus. In connection with our audits of the aforementioned
consolidated financial statements, we have also audited the related financial
statement schedules of American Mobile Systems Incorporated in the registration
statement. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
The audit report on the consolidated financial statements of American
Mobile Systems Incorporated and subsidiary referred to above contains an
explanatory paragraph that states the Company is a defendant in a consolidated
complaint filed on behalf of persons who purchased the Company's common stock
during the period from July 1, 1990 through March 24, 1992 and alleges that
damages were suffered as a result thereof. The financial statement schedules
included herein do not include any adjustments that might result from the
outcome of this uncertainty.
KPMG PEAT MARWICK LLP
Denver, Colorado
August 26, 1994
S-1
<PAGE> 395
SCHEDULE II
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------ ------------ --------- ---------------------------------------- -------------------
BALANCE AT
DEDUCTIONS END OF PERIOD
---------------------------------------- -------------------
BALANCE AT (1) (2) (3) (1) (2)
BEGINNING AMOUNTS AMOUNTS AMOUNTS NOT
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN OFF RECLASSIFIED CURRENT CURRENT
- ------------------------------------ ------------ --------- -------- ------------ ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1994
Autotel Capital Partnership and
former officer.................. $ 385 $ --(b) $ 385(b) $ -- $ -- $ --(b) $ --
====== ======= ====== ====== ===== ====== =======
YEAR ENDED JUNE 30, 1993
RESCO/AMS(a)...................... $ -- $ 220 $ 157 $ -- $ 63 $ -- $ --
Autotel Capital Partnership and
former officer.................. 625 52 292 -- -- 385 --
------ ------- ------ ------ ----- ------ -------
$ 625 $ 272 $ 449 $ -- $ 63 $ 385 $ --
====== ======= ====== ====== ===== ====== =======
YEAR ENDED JUNE 30, 1992
RESCO/AMS(a)...................... $ 316 $ 206 $ 137 $ -- $385 $ -- $ --
Autotel Capital Partnership and
former officer.................. 1,117 5,982 2,756 $3,718 -- 625 --
------ ------- ------ ------ ----- ------ -------
$1,433 $ 6,188 $2,893 $3,718 $385 $ 625 $ --
====== ======= ====== ====== ===== ====== =======
</TABLE>
- ---------------
(a) Advances to joint venture (note 4).
(b) In March 1992, the Board of Directors commenced an investigation into cash
transfers made by the Company's former director, president, chief executive
officer, and chief financial officer between accounts of the Company and
accounts controlled by the former officer during each of the years in the
two-year period ended June 30, 1992 (see note 5 of notes to the consolidated
financial statements). The Board retained independent counsel and
independent accountants to assist in the investigation of such transfers.
The Board determined, based on the review by independent accountants, that
the transfers by the former officer in the fiscal year ended June 30, 1991,
were part of a pattern of repetitive overdrafts of Company bank accounts and
bank accounts controlled by the former officer, including those of Autotel
Capital Partnership (ACP). The balance at June 30, 1991 of $1,117,000
resulted from transfers of $102,153,000 from the Company to accounts
controlled by the former officer (including those of ACP), reduced by
repayments of $101,036,000 during the year ended June 30, 1991.
See accompanying independent auditors' report.
S-2
<PAGE> 396
SCHEDULE IV
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
INDEBTEDNESS TO RELATED PARTIES -- NOT CURRENT
YEARS ENDED JUNE 30, 1994, 1993, AND 1992
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------- ---------- -------- ---------- --------
BALANCE
BALANCE AT AT END
BEGINNING OF
OF PERIOD INDEBTEDNESS TO PERIOD
---------- ----------------------- --------
NAME OF RELATED PARTY ADDITIONS DEDUCTIONS
- ------------------------------------------------- -------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1994
RESCO/AMS(2)................................... $-- $306 $-- $306
======== ======= ======== =======
YEAR ENDED JUNE 30, 1992
United Artists Investments..................... $2,062 $-- $2,062(1) $--
======== ======= ======== =======
</TABLE>
- ---------------
(1) In December 1991, principal amount plus accrued interest were converted into
shares of common stock (note 16).
(2) Advances from joint venture (note 9).
The Company had no long-term indebtedness to related parties during the
year ended June 30, 1993.
See accompanying independent auditor's report.
S-3
<PAGE> 397
SCHEDULE V
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
PROPERTY AND EQUIPMENT
YEARS ENDED JUNE 30, 1994, 1993, AND 1992
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------------------------------------------- ---------- -------- ----------- ---------- --------
BALANCE
BALANCE AT AT END
BEGINNING ADDITIONS OTHER OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS CHANGES(2) PERIOD
- -------------------------------------------- ---------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1994
SMR equipment............................. $ 8,220 $ 598 $ 699 $ -- $ 8,119
Computer equipment........................ 1,302 25 14 -- 1,313
Rental equipment.......................... 992 58 128 -- 922
Equipment under capitalized leases........ 2,184 22 -- -- 2,206
Other..................................... 1,464 514 56 -- 1,922
-------- ------- -------- -------- -------
$ 14,162 $1,217 $ 897 $ -- $14,482
======== ======= ======== ======== =======
YEAR ENDED JUNE 30, 1993
SMR equipment............................. $ 8,116 $ 185 $ 28 $ (53) $ 8,220
Computer equipment........................ 1,267 70 -- (35) 1,302
Rental equipment.......................... 1,230 167 405 -- 992
Equipment under capitalized leases........ 2,161 23 -- -- 2,184
Other..................................... 1,322 60 6 88 1,464
-------- ------- -------- -------- -------
$ 14,096 $ 505 $ 439 $ -- $14,162
======== ======= ======== ======== =======
YEAR ENDED JUNE 30, 1992
SMR equipment............................. $ 7,657 $2,046 $ 1,035 $ (552) $ 8,116
Computer equipment........................ 1,162 112 4 (3) 1,267
Rental equipment.......................... 1,335 2 99 (8) 1,230
Equipment under capitalized leases........ 2,679 242 157 (603) 2,161
Other..................................... 1,286 92 1 (55) 1,322
-------- ------- -------- -------- -------
$ 14,119 $2,494 $ 1,296 $ (1,221) $14,096
======== ======= ======== ======== =======
</TABLE>
- ---------------
(1) The following are the methods and rates of depreciation of property and
equipment:
<TABLE>
<CAPTION>
METHOD RATE (IN YEARS)
-------------- ---------------
<S> <C> <C>
SMR equipment.................................... Straight-line 5 to 10
Computer equipment............................... Straight-line 5
Office furniture and fixtures.................... Straight-line 5
Other............................................ Straight-line 5
Equipment under capitalized leases............... Straight-line 10
</TABLE>
(2) Reclassifications between accounts.
See accompanying independent auditors' report.
S-4
<PAGE> 398
SCHEDULE VI
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
YEARS ENDED JUNE 30, 1994, 1993, AND 1992
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
CLASSIFICATION OF PERIOD EXPENSES RETIREMENTS CHANGES(1) OF PERIOD
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1994
SMR equipment............................. $3,861 $ 802 $ 376 $-- $4,287
Computer equipment........................ 989 163 14 -- 1,138
Rental equipment.......................... 863 106 80 -- 889
Equipment under capitalized leases........ 738 215 -- -- 953
Other..................................... 1,033 227 48 139 1,351
-------- -------- -------- -------- -------
$7,484 $1,513 $ 518 $ 139 $8,618
======== ======== ======== ======== =======
YEAR ENDED JUNE 30, 1993
SMR equipment............................. $3,043 $ 876 $ 58 $-- $3,861
Computer equipment........................ 764 225 -- -- 989
Rental equipment.......................... 706 157 -- -- 863
Equipment under capitalized leases........ 527 251 40 -- 738
Other..................................... 773 249 -- 11 1,033
-------- -------- -------- -------- -------
$5,813 $1,758 $ 98 $ 11 $7,484
======== ======== ======== ======== =======
YEAR ENDED JUNE 30, 1992
SMR equipment............................. $2,754 $ 840 $ 288 $ (263) $3,043
Computer equipment........................ 534 235 4 (1) 764
Rental equipment.......................... 581 128 -- (3) 706
Equipment under capitalized leases........ 412 291 26 (150) 527
Other..................................... 528 247 -- (2) 773
-------- -------- -------- -------- -------
$4,809 $1,741 $ 318 $ (419) $5,813
======== ======== ======== ======== =======
</TABLE>
- ---------------
(1) Reclassifications between accounts.
See accompanying independent auditors' report.
S-5
<PAGE> 399
SCHEDULE VIII
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------------- ---------- -------------------- ------------- --------
CHARGED BALANCE
BALANCE AT CHARGED TO TO AT END
BEGINNING COSTS AND OTHER OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
- -------------------------------------------- ---------- ---------- ------- ------------- --------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1994
Allowance for doubtful accounts........... $4,487 $ 245 $ -- $ 1,121 $3,611
======== ======== ====== ========== =======
YEAR ENDED JUNE 30, 1993
Allowance for doubtful accounts........... $4,213 $ 230 $ 72 $ 28 $4,487
======== ======== ====== ========== =======
YEAR ENDED JUNE 30, 1992
Allowance for doubtful accounts........... $ 298 $4,127 $ -- $ 212 $4,213
======== ======== ====== ========== =======
</TABLE>
- ---------------
(1) Uncollectible accounts written off and recovery of doubtful receivable from
a former officer (see notes 5 and 6 of notes to the consolidated financial
statements).
See accompanying independent auditors' report.
S-6
<PAGE> 400
SCHEDULE X
AMERICAN MOBILE SYSTEMS INCORPORATED AND SUBSIDIARY
SUPPLEMENTARY STATEMENTS OF OPERATIONS INFORMATION
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B
- ------------------------------------------------------------- --------------------------------
CHARGED TO COSTS AND EXPENSES
FISCAL YEAR ENDED JUNE 30,
--------------------------------
ITEM 1994 1993 1992
- ------------------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Maintenance and repairs...................................... $ 165 $ 147 $ 91
Amortization of intangibles.................................. 1,096 1,122 1,048
Taxes, other than income and payroll taxes................... 37 55 *
Advertising costs............................................ 78 39 *
</TABLE>
- ---------------
* Less than 1% of sales.
See accompanying independent auditors' report.
S-7
<PAGE> 401
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C> <C>
2.1 -- Agreement and Plan of Merger, dated as of April 25, 1995, by and between NEXTEL
Communications, Inc. ("Nextel"), American Mobile Systems Incorporated ("AMS")
and Mobile Communications of Florida, Inc. ("MCF") (attached as Appendix A to
the Proxy Statement/Prospectus and filed on May 2, 1995 (Commission File Number
0-19656) and incorporated herein by reference).
2.2 -- Amendment No. 1 to the Agreement and Plan of Merger, dated as of May 17, 1995,
by and among Nextel, AMS and MCF (attached as Appendix A to the Proxy
Statement/Prospectus).
2.3 -- Agreement and Plan of Reorganization, dated as of February 7, 1994, between
Nextel and PowerFone Holdings, Inc. ("PowerFone") (filed as Exhibit No. 2.1 to
Amendment No. 2 to Nextel's Registration Statement No. 33-73388 on Form S-4 (the
"PowerFone S-4 Registration Statement") filed on February 9, 1994 (Commission
File No. 0-19656) and incorporated herein by reference).
2.4 -- Agreement of Merger, dated as of April 14, 1994, between PowerFone and PF
Acquisition Corp., a wholly owned subsidiary of Nextel (filed as Exhibit No. 2.2
to Nextel's Form 8-K report dated April 14, 1994 and filed on April 28, 1994
(Commission File No. 0-19656) and incorporated herein by reference).
2.5 -- Agreement and Plan of Reorganization, dated as of December 21, 1992, between
Nextel (under its prior name, "Fleet Call, Inc.") and Dispatch Communications,
Inc. ("DisCom") (filed as Exhibit No. 2.1 to Nextel's Registration Statement No.
33-61010 on Form S-4 filed on June 22, 1993 (the "DisCom S-4 Registration
Statement") and incorporated herein by reference).
2.6 -- Agreement of Merger, dated as of December 21, 1992, as amended, between DisCom
and FC New York, Inc., a wholly owned subsidiary of Nextel (filed as Exhibit 2.2
to the DisCom S-4 Registration Statement and incorporated herein by reference).
2.7 -- Agreement and Plan of Reorganization, dated as of April 29, 1994, among Nextel,
Questar Corporation, Advanced MobileComm, Inc., Robert C. Mearns and Francis G.
Fuson (filed on July 19, 1994 as Exhibit No. 10.51 to the Annual Report on Form
10-K/A of Nextel for the fiscal year ended March 31, 1994 (Commission File No.
0-19656) and incorporated herein by reference).
2.8 -- Agreement and Plan of Merger, dated as of July 13, 1994, by and between Nextel
and OneComm Corporation ("OneComm") (filed as Exhibit No. 2.1 to Nextel's Form
8-K report dated July 26, 1994 filed on July 26, 1994 (Commission File No.
0-19656) and incorporated herein by reference).
2.9 -- Agreement and plan of Contribution and Merger, dated August 4, 1994, by and
among Nextel, Motorola, Inc., ESMR, Inc. and ESMR Sub, Inc. (filed as Exhibit
No. 2.1 to Nextel's Form 8-K report dated August 4, 1994, and filed on August
16, 1994 (Commission File No. 0-19656) and incorporated herein by reference).
2.10 -- Agreement of Merger and Plan of Reorganization, dated as of February 17, 1995,
by and between Nextel and Dial Page, Inc. (filed as Exhibit No. 2.1 to Nextel's
Form 8-K report dated February 17, 1995 filed on March 2, 1995 (Commission File
No. 0-19656) and incorporated herein by reference).
3.1 -- Certificate of Incorporation of Nextel, as amended (filed as Exhibit No. 4.1 to
Nextel's Form 8-K report dated July 22, 1993 and filed on July 29, 1993
(Commission File
No. 0-19656) and incorporated herein by reference).
3.2 -- By-laws of Nextel (filed as Exhibit No. 3.2 to Nextel's Annual Report on Form
10-K for the fiscal year ended March 31, 1993 and filed on May 28, 1993
(Commission File No. 0-19656) and incorporated herein by reference).
</TABLE>
<PAGE> 402
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C> <C>
4.1 -- Certificate of Incorporation of Nextel, as amended (filed as Exhibit No. 4.1 to
Nextel's Form 8-K report dated July 22, 1993 and filed on July 29, 1993
(Commission File No. 0-19656) and incorporated herein by reference).
4.2 -- By-laws of Nextel (filed as Exhibit No. 3.2 to Nextel's Annual Report on Form
10-K for the fiscal year ended March 31, 1993 and filed on May 28, 1993
(Commission File No. 0-19656) and incorporated herein by reference).
4.3 -- Letter Agreement between Motorola, Inc. and Fleet Call, dated as of November 4,
1991 (filed as Exhibit No. 10.47 to Nextel's Registration Statement No. 33-43415
on Form S-1 filed on October 18, 1991 (the "S-1 Registration Statement") and
incorporated herein by reference).
4.4 -- Financing and Security Agreement between Motorola, Inc., Smart SMR of
California, Inc. and Fleet Call, dated as of November 1, 1991 (filed on November
15, 1991 as Exhibit No. 10.49 to the S-1 Registration Statement and incorporated
herein by reference).
4.5 -- Financing and Security Agreement between Motorola, Inc., Smart SMR of Illinois,
Inc. and Fleet Call, dated as of November 1, 1991 (filed on November 15, 1991 as
Exhibit 10.50 to the S-1 Registration Statement and incorporated herein by
reference).
4.6 -- Financing and Security Agreement between Motorola, Inc., Smart SMR of Texas,
Inc. and Fleet Call, dated as of November 1, 1991 (filed on November 15, 1991 as
Exhibit No. 10.51 to the S-1 Registration Statement and incorporated herein by
reference).
4.7 -- Financing and Security Agreement between Motorola, Inc., Smart SMR of New York,
Inc. and Fleet Call, dated as of November 1, 1991 (filed on November 15, 1991 as
Exhibit No. 10.52 to the S-1 Registration Statement and incorporated herein by
reference).
4.8 -- Commitment Letter, dated October 16, 1991, between Fleet Call and Northern
Telecom Finance Corporation (filed as Exhibit No. 4.4 to the S-1 Registration
Statement and incorporated herein by reference).
4.9 -- Financing and Security Agreement between Northern Telecom Finance Corporation,
Smart SMR of California, Inc. and Fleet Call, dated as of November 1, 1991
(filed on November 15, 1991 as Exhibit No. 10.54 to the S-1 Registration
Statement and incorporated herein by reference).
4.10 -- Financing and Security Agreement between Northern Telecom Finance Corporation,
Smart SMR of Illinois, Inc., and Fleet Call, dated as of November 15, 1991
(filed on November 15, 1991 as Exhibit No. 10.55 to the S-1 Registration
Statement and incorporated herein by reference).
4.11 -- Financing and Security Agreement between Northern Telecom Finance Corporation,
Smart SMR of Texas, Inc. and Fleet Call, dated as of November 15, 1991 (filed on
November 15, 1991 as Exhibit No. 10.56 to the S-1 Registration Statement and
incorporated herein by reference).
4.12 -- Financing and Security Agreement between Northern Telecom Finance Corporation,
Smart SMR of New York, Inc. and Fleet Call, dated as of November 15, 1991 (filed
on November 15, 1991 as Exhibit No. 10.57 to the S-1 Registration Statement and
incorporated herein by reference).
4.13 -- Indenture between Nextel and The Bank of New York, as Trustee, dated August 15,
1993 (the "August Indenture") (filed as Exhibit No. 4.13 to the PowerFone S-4
Registration Statement and incorporated herein by reference).
4.14 -- Form of Note issued pursuant to the August Indenture (included in Exhibit 4.13).
4.15 -- Indenture between Nextel and The Bank of New York, as Trustee, dated as of
February 15, 1994 (the "February Indenture") (filed as Exhibit No. 4.1 to
Nextel's Form 8-K report dated February 16, 1994 and filed with the Commission
on March 1, 1994 and incorporated herein by reference).
4.16 -- Form of Note issued pursuant to the February Indenture (included in Exhibit
4.15).
</TABLE>
<PAGE> 403
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- --------------------------------------------------------------------------------
<C> <C> <S>
4.17 -- Stock Purchase Agreement by and between Nippon Telegraph and Telephone
Corporation and Nextel, dated as of January 20, 1994 (filed as Exhibit 4.17 to
the PowerFone S-4 Registration Statement and incorporated herein by reference).
5* -- Opinion of Jones, Day, Reavis & Pogue.
8.1* -- Opinion of Jones, Day, Reavis & Pogue with respect to certain tax matters.
8.2* -- Opinion of Baker & Botts, L.L.P. with respect to certain tax matters.
10.1 -- Stock Purchase Agreement, dated August 25, 1993, by and between Nextel and AMS
(filed as Exhibit No. 23 to Nextel's Registration Statement No. 33-740102 on
Form S-3 filed on January 13, 1994 and incorporated herein by reference).
10.2 -- Amendment, dated August 4, 1994, to the Enhanced Specialized Mobile Radio System
Equipment Purchase Agreement, between Nextel and Motorola, dated as of November
1, 1991, as amended and to the Letter Agreement, between Nextel and Motorola,
dated as of November 4, 1991, as amended (collectively the "Equipment Purchase
Agreements") (Portions of this exhibit have been omitted pursuant to a grant of
confidential treatment) (filed as Exhibit 10.02 to Amendment No. 1 of the ESMR
S-4 Registration Statement dated June 7, 1995 and filed on June 7, 1995
(Commission File No. 33-91716) and incorporated herein by reference).
10.3 -- Second Amendment to Equipment Purchase Agreements dated as of April 4, 1995
(Portions of this exhibit have been omitted pursuant to a grant of confidential
treatment) (filed as Exhibit 10.03 to Amendment No. 1 of the ESMR S-4
Registration Statement dated June 7, 1995 and filed on June 7, 1995 (Commission
File No. 33-91716) and incorporated herein by reference).
10.4 -- Securities Purchase Agreement, dated as of April 4, 1995, by and among Nextel,
Digital Radio, L.L.C. and Craig O. McCaw (filed as Exhibit No. 2.1 to Nextel's
8-K report dated April 10, 1995 filed on April 11, 1995 (Commission File No.
0-19656) and incorporated herein by reference).
23.1* -- Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5).
23.2* -- Consents of Deloitte & Touche, LLP
23.3* -- Consent of Coopers & Lybrand, L.L.P.
23.4* -- Consent of Arthur Andersen LLP
23.5* -- Consents of KPMG Peat Marwick, LLP
23.6* -- Consent of Ernst & Young LLP.
23.7* -- Consent of Baker & Botts, L.L.P. (included in Exhibit 8).
23.8* -- Consent of Salomon Brothers.
24 -- Powers of Attorney.
99.1 -- Indentures for Senior Redeemable Discount Notes due 2004, dated as of January
13, 1994, between OneComm Corporation (formerly Cencall Communications Corp.)
and the Bank of New York (filed as Exhibit 99.2 to Nextel's Registration
Statement No. 33-93182 on Form S-4, (the "OneComm S-4" Registration Statement")
filed on June 7, 1995 (Commission File No. 0-19656) and incorporated herein by
reference).
99.2 -- Indentures for Senior Redeemable Discount Notes due 2005, dated as of December
22, 1993, between Dial Call Communications, Inc. and the Bank of New York (filed
as Exhibit 99.3 to the OneComm S-4 Registration Statement and incorporated
herein by reference).
99.3 -- Indentures for Senior Redeemable Discount Notes due 2004, dated as of April 25,
1994, between Dial Call Communications, Inc. and the Bank of New York (filed as
Exhibit 99.4 to the OneComm S-4 Registration Statement and incorporated herein
by reference).
</TABLE>
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* Filed herewith.
** Unless otherwise indicated, all exhibits have been previously filed.
<PAGE> 1
EXHIBIT 5
JONES, DAY, REAVIS & POGUE
2300 TRAMMELL CROW CENTER
2001 ROSS AVENUE
DALLAS, TEXAS 75201
June 21, 1995
NEXTEL Communications, Inc.
201 Route 17 North
Rutherford, New Jersey 07070
Re: Registration of 4,201,000 Shares of Class A
Common Stock, Par Value $0.001 Per Share
of NEXTEL Communications, Inc.
Gentlemen:
We are acting as counsel for NEXTEL Communications, Inc., a Delaware
corporation (the "Company"), in connection with the issuance by the Company of
up to 4,201,000 shares of Class A Common Stock, par value $0.001 per share, of
the Company (the "Shares") pursuant to an Agreement and Plan of Merger, as
amended (the "Merger Agreement"), dated as of April 25, 1995, by and among the
Company, American Mobile Systems Incorporated, a Delaware corporation, and
Mobile Communications of Florida, Inc., a Delaware corporation.
We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion. Based on the foregoing, but
subject to the qualifications and limitations set forth below, we are of the
opinion that the Shares are duly authorized, and when issued at or after the
Effective Time of the Merger as contemplated in and in accordance with the
Merger Agreement and the Registration Statement on Form S-4 filed by the Company
to effect the registration of the Shares under the Securities Act of 1933, as
amended (the "Registration Statement"), will be validly issued, fully paid and
nonassessable.
In rendering this opinion, as to certain factual matters, we have relied
upon certificates of officers of the Company and public officials, and have not
independently checked or verified the factual accuracy of the statements set
forth therein.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Proxy Statement/Prospectus constituting a part of such
Registration Statement.
Very truly yours,
JONES, DAY, REAVIS & POGUE
<PAGE> 1
EXHIBIT 8.1
JONES, DAY, REAVIS & POGUE
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
June 21, 1995
NEXTEL Communications, Inc.
201 Route 17 North
Rutherford, New Jersey 07070
Re: Proxy Statement/Prospectus of American Mobile Systems
Incorporated and NEXTEL Communications, Inc.
Dear Sirs:
We have acted as counsel to NEXTEL Communications, Inc. ("Nextel") in
connection with the Registration Statement on Form S-4 of Nextel to which this
opinion appears as an exhibit (the "Registration Statement"), which includes the
Proxy Statement/Prospectus of American Mobile Systems Incorporated and Nextel.
Unless otherwise indicated, any defined term used herein shall have the same
meaning as in the Proxy Statement/Prospectus. We hereby confirm that, assuming
the due receipt of customary representations as described under the heading
"Federal Income Tax Consequences" in the Proxy Statement/Prospectus, in our
opinion the statements in the Proxy Statement/Prospectus under the heading
"Federal Income Tax Consequences" are accurate in all material respects.
We hereby consent to the filing with the Securities and Exchange Commission
of this opinion as an exhibit to the Registration Statement.
Very truly yours,
JONES, DAY, REAVIS & POGUE
<PAGE> 1
EXHIBIT 8.2
BAKER & BOTTS L.L.P.
885 THIRD AVENUE
SUITE 1900
NEW YORK, NEW YORK 10022
June 21, 1995
American Mobile Systems Incorporated
20920-C Warner Center Lane
Woodland Hills, California 91367
Re: Proxy Statement/Prospectus of American Mobile Systems
Incorporated and NEXTEL Communications, Inc.
Dear Sirs:
We have acted as counsel to American Mobile Systems Incorporated ("AMS") in
connection with the Registration Statement on Form S-4 of NEXTEL Communications,
Inc. ("Nextel") to which this opinion is attached as an exhibit (the
"Registration Statement"), which includes the Proxy Statement/Prospectus of AMS
and Nextel. We hereby confirm that, assuming the due receipt of customary
representations as described under the heading "Federal Income Tax Consequences"
in the Proxy Statement/Prospectus, in our opinion the statements in the Proxy
Statement/Prospectus under the heading "Federal Income Tax Consequences" are
accurate in all material respects.
We hereby consent to the filing with the Securities and Exchange Commission
of this opinion as an exhibit to the Registration Statement.
Very truly yours,
Baker & Botts, L.L.P.
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to the
Proxy Statement/Prospectus of Nextel Communications, Inc. on Form S-4 of our
report dated March 10, 1995, appearing in the Transition Report on Form 10-K of
Nextel Communications, Inc. for the nine months ended December 31, 1994, and to
the reference to us under the headings "Experts" and "Accounting Treatment" in
the Prospectus, which is part of this Registration Statement.
Deloitte & Touche, LLP
New York, New York
June 26, 1995
<PAGE> 2
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use and incorporation by reference in this Amendment No.
1 to the Proxy Statement/Prospectus of Nextel Communications, Inc. on Form S-4
of our report dated February 22, 1994 relating to the consolidated financial
statements of PowerFone Holdings, Inc. and subsidiary, appearing in the
Prospectus which is part of this Registration Statement, and to the reference to
us under the heading "Experts" in such Prospectus.
Deloitte & Touche, LLP
Washington, D.C.
June 26, 1995
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion and incorporation by reference in this
registration statement filed on Form S-4, of our report dated March 7, 1994 on
our audit of the financial statements of Advanced MobileComm of Nevada, Inc.,
Advanced MobileComm of Southern California, Inc. and Advanced MobileComm of
Colorado, Inc. (collectively, Advanced MobileComm West). We also consent to the
reference of our firm under the caption "Experts."
Coopers & Lybrand, L.L.P.
Boston, Massachusetts
June 26, 1995
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
Arthur Andersen LLP
Atlanta, Georgia
June 26, 1995
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
OneComm Corporation:
We consent to the use of our report dated January 27, 1995, included in and
incorporated by reference in the registration statement on Form S-4 of Nextel
Communications, Inc. relating to the consolidated balance sheets of OneComm
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the years in the three-year period ended December 31, 1994. We
also consent to the reference to our firm under the heading "Experts" in the
proxy statement/prospectus.
KPMG Peat Marwick LLP
Denver, Colorado
June 26, 1995
<PAGE> 2
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
American Mobile Systems Incorporated:
We consent to the use of our reports dated August 26, 1994, included in and
incorporated by reference in the registration statement on Form S-4 of Nextel
Communications, Inc. relating to the consolidated balance sheets of American
Mobile Systems Incorporated and subsidiary as of June 30, 1994 and 1993, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended June 30, 1994, and
all related schedules. We also consent to the reference to our firm under the
heading "Experts" in the proxy statement/prospectus.
Our reports dated August 26, 1994, contain an explanatory paragraph that
states that the Company is a defendant in a consolidated complaint filed on
behalf of persons who purchased the Company's common stock during the period
from July 1, 1990 through March 24, 1992 and alleges that damages were suffered
as a result thereof. The consolidated financial statements included herein do
not include any adjustments that might result from the outcome of that
uncertainty.
KPMG Peat Marwick LLP
Denver, Colorado
June 26, 1995
<PAGE> 3
EXHIBIT 23.5
CONSENT OF KPMG PEAT MARWICK LLP REGARDING THE FINANCIAL
STATEMENTS OF THE 800MHZ SPECIALIZED MOBILE RADIO TERRITORY
OF MOTOROLA, INC. (NEXTEL PROPERTIES) (A BUSINESS WITHIN THE NETWORK
SERVICES DIVISION (DIVISION) OF MOTOROLA, INC. (PARENT)) (THE TERRITORY)
The Board of Directors
Motorola, Inc.:
We consent to the use of our report included and incorporated by reference
herein on the financial statements of the 800MHz Specialized Mobile Radio
Territory of Motorola, Inc. (Nextel Properties) (a business within the Network
Services Division (Division) of Motorola, Inc. (Parent)) (the Territory), and to
the related reference to our firm under the heading "Experts" in the
registration statement filed on Form S-4.
KPMG Peat Marwick LLP
Chicago, Illinois
June 26, 1995
<PAGE> 4
EXHIBIT 23.5
ACCOUNTANTS' CONSENT
The Board of Directors
Dial Page, Inc.:
We consent to the use of our report included herein or incorporated by
reference and to the reference to our firm under the heading "Experts" in the
Proxy Statement.
KPMG Peat Marwick LLP
Greenville, South Carolina
June 26, 1995
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 8, 1994 with respect to the financial
statements of Questar Telecom, Inc. included in Amendment No. 1 to the
Registration Statement (Form S-4) and the related Proxy/Prospectus of NEXTEL
Communications, Inc. for the registration of 4,201,000 shares of Class A common
stock.
Ernst & Young LLP
Salt Lake City, Utah
June 26, 1995
<PAGE> 1
EXHIBIT 23.8
CONSENT OF SALOMON BROTHERS INC
We hereby consent to the references to our firm in the letter to AMS
stockholders and under the captions "SUMMARY -- D. THE MERGER -- Fairness
Opinion", "THE MERGER -- Background of the Merger", "THE
MERGER -- Recommendation of the AMS Board; Reasons of AMS for Engaging in the
Merger" and "THE MERGER -- Fairness Opinion" in the Registration Statement on
Form S-4 of NEXTEL Communications, Inc. relating to, among other things, the
proposed merger of American Mobile Systems Incorporated with and into NEXTEL
Communications, Inc. and to the inclusion of our opinion letter as Appendix B to
the Proxy Statement/Prospectus contained in such Registration Statement. In
giving this consent, we do not admit and we hereby disclaim that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder, nor do we admit that we are
experts with respect to any part of such Registration Statement within the
meaning of "experts" as used in the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
/s/ LAWRENCE M. INGENERI
Lawrence M. Ingeneri
Vice President
June 27, 1995
<PAGE> 1
AMERICAN MOBILE SYSTEMS INCORPORATED PROXY
20920-C Warner Center Lane
Woodland Hills, California 91367
The undersigned hereby appoints Richard G. Somers and Alice L. Cheung, and
each of them, with power of substitution, to represent and to vote on behalf of
the undersigned all of the shares of Common Stock, par value $.01 per share
("Common Stock"), of American Mobile Systems Incorporated, a Delaware
corporation ("AMS"), which the undersigned is entitled to vote at the special
meeting of holders of Common Stock to be held on July 27, 1995 at the Warner
Center Hilton, 6360 Canoga Avenue, Woodland Hills, California 91367 commencing
at 10:00 a.m. local time, and at any and all postponements or adjournments
thereof (the "Special Meeting"), hereby revoking all proxies heretofore given
with respect to such stock, upon the proposals identified below and more fully
described in the Notice of Special Meeting of Stockholders and Proxy
Statement/Prospectus relating to the Special Meeting, receipt of each of which
is hereby acknowledged.
The Board of Directors recommends a vote FOR the following proposals:
1. Proposal to approve and adopt the Agreement and Plan of Merger, dated as
of April 25, 1995, as amended, by and among AMS, NEXTEL Communications,
Inc., a Delaware corporation ("Nextel"), and Mobile Communications of
Florida, Inc., a Delaware corporation and a wholly owned subsidiary of
Nextel.
[ ] For [ ] Against [ ] Abstain
2. Election of Directors
[ ] For all nominees listed below (except as marked to the contrary
below).
[ ] Withhold authority to vote for all nominees listed below.
Nominees to be elected by holders of shares of Common Stock: GARY S.
HOWARD AND WILLIAM L. WEDUM.
(Instruction: To withhold authority to vote for any individual nominee
write that nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF AMS. IF
PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED HOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE
PROPOSALS IDENTIFIED ABOVE. IF ANY OTHER MATTERS ARE PRESENTED TO THE HOLDERS OF
THE COMMON STOCK FOR A VOTE AT THE SPECIAL MEETING, THIS PROXY WILL BE VOTED IN
ACCORDANCE WITH THE BEST JUDGMENT OF THE PERSONS APPOINTED AS PROXIES.
Please sign exactly as name(s) appears/appear below. When shares are held
in joint or similar capacity, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by the president or another
authorized officer. If a partnership, please sign in partnership name by an
authorized person.
Dated:
--------------------------------------
Name:
--------------------------------------
Signature:
--------------------------------------
Signature if held jointly:
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