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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997,
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-19656
NEXTEL COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3939651
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1505 FARM CREDIT DRIVE, MCLEAN, VA 22102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 394-3000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: CLASS A COMMON
STOCK, $0.001 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated herein by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. [X]
Based on the closing sales price on March 2, 1998, the aggregate market
value of the voting and non-voting common stock held by nonaffiliates of the
registrant was $5,564,044,097.
On March 2, 1998, the number of shares outstanding of the registrant's
Class A Common Stock and Class B non-voting Common Stock, $0.001 par value was
252,664,929 and 17,830,000, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the Annual Meeting of
Stockholders scheduled to be held on or about May 14, 1998 are incorporated in
Part III, Items 10, 11, 12 and 13.
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NEXTEL COMMUNICATIONS, INC.
PART I
ITEM 1. BUSINESS
INTRODUCTION
On July 28, 1995, NEXTEL Communications, Inc., a corporation organized
under the laws of the State of Delaware in 1987 ("Old Nextel"), was merged with
ESMR, Inc. ("ESMR"), until then a wholly owned subsidiary of Motorola, Inc.
("Motorola"). ESMR was the surviving corporation in the merger (the "Motorola
Transaction") and succeeded to Old Nextel's assets and liabilities. ESMR changed
its name to Nextel Communications, Inc. ("Nextel" or the "Company"), effective
upon the consummation of the Motorola Transaction. References herein to Nextel
or the Company for periods prior to July 28, 1995 refer to Old Nextel as the
predecessor to the business and operations of Nextel. Unless the context
requires otherwise, references to the Company or to Nextel are intended to
include Nextel Communications, Inc. and its consolidated subsidiaries.
Information contained herein gives effect to the acquisition of
approximately 1,220,000 shares of the Company's Class A Common Stock, par value
$0.001 per share (the "Common Stock"), by Digital Radio L.L.C. (the "McCaw
Investor") on April 5, 1995, an additional acquisition of 8,163,265 shares of
the Company's Class A Convertible Redeemable Preferred Stock, par value $0.01
per share (the "Class A Preferred Stock") and 82 shares of the Company's Class B
Convertible Preferred Stock, par value $0.01 per share (the "Class B Preferred
Stock") by the McCaw Investor and the consummation of related transactions on
July 28, 1995 (the "McCaw Transaction"), the merger of OneComm Corporation
("OneComm") with and into Nextel on July 28, 1995 (the "OneComm Transaction"),
the consummation of the Motorola Transaction on July 28, 1995, the merger of a
subsidiary of Nextel with American Mobile Systems Incorporated ("AMS") on July
31, 1995 (the "AMS Transaction"), the merger of Dial Page, Inc. ("Dial Page")
with and into Nextel on January 30, 1996 (the "Dial Page Transaction") and the
merger of a subsidiary of the Company with Pittencrieff Communications, Inc.
("PCI") on November 12, 1997 (the "PCI Transaction").
OVERVIEW
Nextel provides a wide array of digital and analog wireless communications
services throughout the United States. The Company offers a differentiated,
integrated package of digital wireless communications services under the Nextel
brand name, primarily to business users, and as of December 31, 1997, provided
service to approximately 1,270,700 digital subscriber units in the United
States. The Company's digital network constitutes one of the largest integrated
wireless communications systems utilizing a single transmission technology in
the United States. At December 31, 1997, the Company's digital network was
operational in areas in which approximately 65% of the total United States
population lives or works, providing coverage in or around 75 of the top 100
metropolitan statistical areas ("MSAs") in the United States. In addition to its
digital networks, Nextel also operates analog wireless networks which provide
analog specialized mobile radio ("SMR") services throughout the continental
United States and in Hawaii to approximately 583,000 analog SMR subscriber units
as of December 31, 1997. Nextel has significant SMR spectrum holdings in and
around every major business and population center in the country, including all
of the top 50 MSAs in the United States.
Nextel's digital network in the United States has been developed to replace
its remaining traditional analog SMR systems with advanced mobile communications
systems employing digital technology with a multi-site configuration permitting
frequency reuse ("Digital Mobile network"). Since 1994, the number of digital
subscriber units in service has increased significantly, reflecting the
commencement of Digital Mobile network service in certain markets, increased
sales in markets in which Digital Mobile network services are
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provided and, to a limited extent, acquisitions. The following table summarizes
the approximate number of digital subscriber units in service in the United
States at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1994 1995 1996 1997
------ ------ ------- ---------
<S> <C> <C> <C> <C>
Digital subscriber units......................... 13,500 85,000 300,300 1,270,700
</TABLE>
A customer using Nextel's Digital Mobile network is able to access mobile
telephone services, two-way dispatch (which provides instant conferencing
capabilities and is marketed as Nextel's "Direct Connect"(SM) service), paging
and alphanumeric short-messaging service and, in the future, is expected to be
able to access data transmission. Nextel is implementing its Digital Mobile
network utilizing digital technology developed by Motorola (such technology is
referred to as the "integrated Digital Enhanced Network" or "iDEN"(TM)).
In addition, the Company operates or has investments in international
wireless companies through its indirect, wholly owned subsidiary Nextel
International, Inc. (formerly known as McCaw International, Ltd.; "Nextel
International"). Nextel International's subsidiaries or other entities in which
Nextel International holds equity or equivalent interests own and operate
wireless communications systems in Latin America, Asia and Canada and (together
with Nextel's domestic Digital Mobile network operations) provide service in ten
of the world's 25 largest cities. The Company's consolidated financial
statements include financial information reflecting the assets, liabilities and
results of operations relating to Nextel International and its consolidated
subsidiaries as of the dates or for the periods indicated therein. Additional,
more detailed and focused information relating to Nextel International may be
found in the periodic and other reports filed by Nextel International with the
Securities and Exchange Commission (the "Commission") pursuant to rules under
the Securities and Exchange Act of 1934, as amended and the rules thereunder
(the "Exchange Act"). Except as noted above and as otherwise expressly indicated
herein, the description of the Company's business herein refers to the Company's
United States operations.
Nextel's principal executive and administrative facility is located at 1505
Farm Credit Drive, McLean, Virginia 22102, and its telephone number is (703)
394-3000.
BUSINESS STRATEGY
Nextel's principal business objective is to offer high-capacity, high
quality, advanced communications services on its Digital Mobile network to its
customers in metropolitan markets throughout the United States and to become a
major participant in the global wireless communications business. The Company's
initial efforts to achieve this objective were focused on the consolidation of
the fragmented SMR industry through the acquisition of SMR systems and the
acquisition of SMR spectrum. More recently, these strategic efforts have been
expanded to include the accelerated deployment of the Company's Digital Mobile
network and the marketing of digital wireless services. The Company believes
that the following elements of its business strategy and characteristics of its
business distinguish its wireless service offerings from those of its
competitors in the wireless communications marketplace:
PROVIDE A DIFFERENTIATED, INTEGRATED PACKAGE OF WIRELESS SERVICES,
INCLUDING UNIQUE DIRECT CONNECT FEATURE: Nextel's Digital Mobile network
service provides a bundled product offering consisting of: (i) mobile telephone;
(ii) two-way dispatch; and (iii) paging and alphanumeric short-messaging
services accessible through a single device. Nextel's market research indicates
that a significant degree of overlap exists in the customer population for these
separate wireless communications service offerings. Accordingly, Nextel believes
that, for customers who already subscribe to or who would benefit by access to
multiple wireless services, the convenience of combining multiple wireless
communications options in a single handset and of consolidating all wireless
service charges into a single package price and billing statement are important
features that distinguish Nextel from many of its competitors.
Nextel's market research also indicates that a sizeable portion of business
users' communications involve contacting others within the same organization.
Nextel believes that its Direct Connect service is especially well suited to
address such intracompany wireless communications needs. The Direct Connect
service, which
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enables a user to instantly set up a conference on either a private (i.e.,
one-to-one) or group (i.e., one-to-many) basis, is a service that is not
included in any integrated service package currently available from competing
cellular and personal communications services ("PCS") operators. To further
expand the flexibility and convenience offered by its Direct Connect service to
users outside a single organization but within a single industry or interest
group in a particular dispatch service area, the Company pioneered the "Business
Net Service" concept. Business Net Service extends Direct Connect service beyond
a company's employees to suppliers or other parties involved in the same
industry. Finally, Nextel expects that its ability to offer a data transmission
capability to users of its Digital Mobile network in the future will increase
the attractiveness of its integrated service offerings to business users and
will supply an additional point of differentiation from its cellular and PCS
competitors.
FOCUS ON THE BUSINESS CUSTOMER: Nextel's corporate marketing strategy
focuses on targeting business users that Nextel believes will be likely to
perceive and appreciate the potential for Nextel's wireless communication
service capabilities to increase efficiencies and reduce costs in such users'
business activities. Nextel is currently concentrating its sales efforts on a
number of distinct occupational groupings of mobile workers, including personnel
in the transportation, delivery, real property and facilities management,
construction and building trades, landscaping and professional service sectors.
INNOVATIVE PRICING FEATURES: The Company has implemented pricing features
that it believes differentiate its services from those of its cellular
competitors. Such pricing features include: (i) no "roaming" charges assessed
for mobile telephone services provided to its customers traveling anywhere on
the Digital Mobile network outside the customer's home market in the United
States and in certain parts of Canada (through its roaming agreement with
Clearnet Communications, Inc. ("Clearnet"), a provider of analog and digital
wireless services in Canada); (ii) billing its mobile telephone service
customers based on the actual number of seconds of airtime used after the first
minute, in contrast to the common cellular industry practice of rounding all
calls up to the next minute; (iii) charging one airtime rate and a single
nationwide long distance rate, regardless of the time of day a call is made; and
(iv) pricing plans that allow the customer to aggregate the total number of
account minutes for all of such customer's subscriber units and reallocate the
aggregate minutes among subscriber units.
EXPANDED MARKETING PROGRAM AND DISTRIBUTION CHANNELS: The Company has
significantly expanded the scope and geographic coverage of its marketing
program and related advertising campaigns to enhance awareness of its brand name
and to stimulate additional interest in and demand for its services by stressing
their versatility, value, simplicity and quality. In March 1997, Nextel launched
a nationwide radio, television and print advertising campaign, coupled with
intensive targeted advertising programs in particular markets coinciding with
the launch of commercial service in those markets. The Company uses both direct
and indirect sales forces as part of its strategy to increase the number of
digital subscriber units placed in service on its Digital Mobile network. Nextel
expects to expand and enhance both direct and indirect distribution channels as
it further penetrates existing markets and expands its geographic reach.
STRATEGIC RELATIONSHIPS WITH CRAIG O. MCCAW AND MOTOROLA: Through December
31, 1997, Craig O. McCaw ("Mr. McCaw") and members of the McCaw family have
invested more than $600.0 million in the Company through purchases of the
Company's equity securities from the Company and Motorola. As of December 31,
1997, Mr. McCaw and his affiliates beneficially owned approximately 23.2% of the
common equity interest in the Company, giving effect to the exercise of all
presently exercisable options issued by Nextel to, and held by, the McCaw
Investor or other controlled affiliates of Mr. McCaw. The Company also benefits
from Mr. McCaw's more than 20 years experience in the wireless communications
business. Mr. McCaw currently serves as a member of the Company's Board of
Directors and also as Chairman of the Operations Committee of the Board, which
is responsible for formulating key aspects of the Company's business strategy.
See "-- Agreements with Significant Stockholders -- McCaw Interests."
Nextel has a number of important strategic and commercial relationships
with Motorola. Motorola provides the iDEN infrastructure and subscriber handset
equipment used throughout Nextel's domestic markets and in most of the
international markets served by Nextel International's affiliated operating
companies. The Company and Motorola also work closely together to improve
existing products and develop
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new technologies such as the modified version of the iDEN ("Reconfigured iDEN")
technology that is currently being deployed in Nextel's Digital Mobile network.
As of December 31, 1997, Motorola was the beneficial owner of an approximate
19.9% ownership stake in the Company, primarily as a result of the Motorola
Transaction. See "-- Agreements with Significant Stockholders -- Motorola."
1998 BUSINESS PLAN
In early 1997, Nextel finalized and began implementing a business plan for
the period from March 31, 1997 through December 31, 1998 that contemplated an
accelerated build-out of its Digital Mobile network in the United States
incorporating the Reconfigured iDEN technology (the "1997 Plan"). During 1997,
Nextel achieved a significant expansion of its Digital Mobile network and
experienced a large increase in the number of digital subscriber units in
service and system minutes of use. In particular:
- Digital subscriber units increased from approximately 300,300 to
approximately 1,270,700;
- Total net system minutes of use increased from approximately 94 million
in January to approximately 403 million in December;
- Approximately 2,100 additional digital cell sites were placed in service;
and
- Reconfigured iDEN coverage expanded from 6 to 75 of the top 100 MSAs.
This growth resulted in greater capital expenditures and net cash used in
Digital Mobile network operations in the final three quarters of 1997 than
estimated for purposes of developing the 1997 Plan. The Company has updated and
revised its business plan for its domestic operations, as it relates to 1998, in
light of its results and experience in building out and commercializing its
Digital Mobile network in 1997 (the "1998 Plan"). Nextel's 1998 Plan
contemplates further expansion of the Company's Digital Mobile network in a
manner that is directed at achieving additional penetration in its business
customer target base in markets where the Digital Mobile network is currently
operating, at selecting and prioritizing additional markets for expansion of
Digital Mobile network coverage by Nextel during 1998, and at enhancing the
quality and performance of its Digital Mobile wireless services offerings to
maintain and strengthen Nextel's competitive position relative to other existing
and emerging providers of digital wireless services in the United States. The
increased funding requirements reflected in the 1998 Plan include (i) a $1,050.0
million increase in total system infrastructure and capital costs over the
$1,450.0 million in such costs that were contemplated by the 1997 Plan for the
period from March 31, 1997 through December 31, 1998 (the "Plan Period") and
(ii) a $500.0 million increase in non-system capital expenditures and operating
losses over the $1,050.0 million of such expenditures and losses that were
contemplated by the 1997 Plan for the Plan Period. The 1998 Plan contemplates
that the Company's funding requirements for system and non-system capital
expenditures for 1998 will be approximately $1,496.0 million as compared to the
approximately $1,452.5 million in funding used for such purposes during 1997.
Such actual and contemplated capital expenditures exclude capital expenditures
relating to international operations and capitalized interest relating to the
Company's domestic and international operations for the respective periods.
By implementing the 1998 Plan, Nextel expects to further increase the
capacity of its Digital Mobile network to accommodate higher future growth in
subscribers and higher future system usage levels than previously anticipated,
to improve system performance and to continue to expand geographic coverage.
Approximately one-half of the increase in system capital expenditures reflected
in the 1998 Plan for the Plan Period relates to adding capacity to the Digital
Mobile network to accommodate increases in the number of subscribers and higher
levels of system usage. Approximately one-quarter of the increase in system
capital expenditures is associated with enhancements to produce improvements in
system performance, e.g. the construction of additional cell sites and the
deployment of additional base radios to produce greater "in building" coverage.
The balance of the increase in system capital expenditures arises from various
sources, particularly spending for additional switching and dispatch processing
capacity associated with higher anticipated system loads as well as systems
operations and management software upgrades and enhancements to improve network
performance.
The increase in non-system capital expenditures is largely associated with
the acquisition, construction or improvement of business information and
back-office systems required to meet billing, customer care and
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other business management and tracking activities associated with the growth of
the customer base and increased system usage. In addition to such system and
non-system capital expenditures, a significant amount of the incremental funding
requirements under the 1998 Plan is tied to increased working capital needs and
opportunistic uses of funds, such as discretionary acquisitions of additional
spectrum in privately negotiated transactions or Federal Communications
Commission ("FCC") auctions, which in certain instances may be deferred or
eliminated if sufficient cash is not available to pursue such uses. The 1998
Plan does not include amounts required to acquire Local Multipoint Distribution
Service ("LMDS") licenses in the recently concluded FCC auction, amounts
required in 1998 to pursue LMDS or other new business opportunities or other
potential transactions or investments that are not part of Nextel's domestic
digital and analog SMR wireless communications businesses and assets and related
corporate support services, personnel and overhead. See "-- Post-Fiscal Year
1997 Transactions and Developments--LMDS Auction." The incremental funding
requirements reflected in the 1998 Plan also result in part from the more
accurate cost data and estimates derived from the Company's actual experience
during 1997.
The 1998 Plan focuses on Nextel capturing an increased share of its
targeted customer population in markets where its Digital Mobile network is
currently operating (or is expected to be placed in operation during 1998).
Nextel believes that, assuming the Company successfully develops a sufficient
customer base in those markets, it will be positioned to compete effectively
against other wireless communications service providers. Although Nextel will
continue to focus on the deployment of its Digital Mobile network in additional
markets throughout the United States, Nextel will do so selectively and will
prioritize its new build opportunities in comparison to the potential commercial
returns from enhancing or expanding coverage and increasing capacity.
FISCAL YEAR 1997 TRANSACTIONS AND DEVELOPMENTS
800 MHz SMR AUCTION: The Company submitted bids totaling approximately
$88.8 million representing the highest bids for 475 of the 525 Economic Area
("EA") licenses being awarded by the FCC in the 800 MHz "upper 200 SMR" channel
auction, which concluded on December 8, 1997. Although Nextel successfully bid
for rights to almost 10 MHz of spectrum in areas covering all 50 states and
approximately 98% of the United States' population, the FCC has not yet granted
these licenses to Nextel and petitions to deny the grant have been filed. See
"-- Regulation." Assuming Nextel is granted the licenses, it can gain full use
of them only if the Company relocates certain incumbent licensees to other
portions of the 800 MHz band pursuant to established FCC rules or otherwise
obtains the agreement of such incumbent licensees to Nextel's use of the
relevant frequencies.
PCI MERGER: Nextel entered into an Agreement of Merger and Plan of
Reorganization dated as of October 2, 1996, as amended, with PCI providing for
the merger of PCI with a wholly-owned indirect subsidiary of Nextel. PCI had
approximately 6,000 800 MHz SMR channels covering a total population of over 27
million people predominantly in the states of Texas, Oklahoma, New Mexico and
Arizona. The PCI Transaction closed on November 12, 1997, resulting in the
issuance (or reservation for issuance) of a total of approximately 6.2 million
shares of Common Stock valued at $169.6 million.
OCTOBER NOTES ISSUANCE: On October 22, 1997, Nextel completed the sale in
a private placement transaction of $1,129.1 million principal amount at maturity
of its 9.75% Senior Serial Redeemable Discount Notes due 2007 (such securities
issued originally and any securities issued in exchange therefor in the related
exchange offer completed January 22, 1998 collectively, the "October Notes").
Nextel received approximately $682.0 million in net cash proceeds from the sale
of the October Notes (the "October Notes Proceeds"). Cash interest will not
accrue on the October Notes prior to October 31, 2002. The October Notes are
senior unsecured indebtedness of Nextel and rank pari passu in right of payment
with all unsubordinated, unsecured indebtedness of Nextel.
SEPTEMBER NOTES ISSUANCE: On September 17, 1997, Nextel completed the sale
in a private placement transaction of $840.0 million in principal amount at
maturity of its 10.65% Senior Redeemable Discount Notes due 2007 (such
securities issued originally and any securities issued in exchange therefor in
the related exchange offer completed January 14, 1998, collectively, the
"September Notes" and together with the October Notes, the "1997 Notes"). Nextel
received approximately $486.0 million in net cash proceeds from the sale of the
September Notes (the "September Notes Proceeds"). Cash interest will not accrue
on the
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September Notes prior to September 15, 2002. The September Notes are senior
unsecured indebtedness of Nextel and rank pari passu in right of payment with
all unsubordinated, unsecured indebtedness of Nextel.
ADDITIONAL CREDIT FACILITIES: On September 4, 1997, the Company entered
into definitive agreements which increased the Company's total secured financing
capacity under its bank and vendor financing agreements from approximately $2.0
billion to $2.5 billion. These financing agreements were effectively replaced or
terminated on March 13, 1998 in connection with the funding of the Bank Credit
Facility (as defined herein). See "Post-Fiscal Year 1997 Transactions and
Developments -- New Bank Financing."
MCCAW INVESTOR OPTION EXERCISE: On July 28, 1997 (the "Option Closing"),
the McCaw Investor exercised in full its option (the "First Option") to purchase
15.0 million shares of Common Stock for an aggregate cash purchase price of
$232.5 million (the "McCaw Option Proceeds").
SERIES D PREFERRED STOCK ISSUANCE: On July 21, 1997, Nextel completed the
sale in a private placement transaction of 500,000 shares of its 13% Series D
Exchangeable Preferred Stock mandatorily redeemable 2009 (the shares of such
stock so issued originally, any shares of such stock issued in exchange therefor
in the related exchange offer completed December 18, 1997 and any shares of such
stock issued as payment in kind dividends thereon, collectively, the "Series D
Preferred Stock") with a liquidation preference of $1,000 per share. Nextel
received approximately $482.0 million in net cash proceeds from the sale of the
Series D Preferred Stock (the "Series D Preferred Stock Proceeds"). Dividends on
the Series D Preferred Stock accrue at an annual rate of 13% of the liquidation
preference, are cumulative from the date of issuance and are payable quarterly
in cash or, on or prior to July 15, 2002, at the sole option of Nextel, in
additional shares of Series D Preferred Stock.
CONSENT SOLICITATION: In June 1997, Nextel obtained the consent from the
holders of its five issues of Senior Redeemable Discount Notes outstanding prior
to 1997 (the "Old Senior Notes"), to certain amendments to and waivers of
certain provisions of the respective related indentures (as amended, the "Old
Indentures") pursuant to a consent solicitation (the "Consent Solicitation") at
a cost of approximately $67.2 million in cash payments to validly consenting
holders. Also, in connection with the Consent Solicitation, Nextel offered
shares of Common Stock to validly consenting holders of the Old Senior Notes.
Approximately 3.9 million of such shares were subscribed for an aggregate
purchase price of approximately $63.7 million (the "Subscription Proceeds").
ISSUANCE OF NEW OPTION: On March 20, 1997, the Company completed the
purchase of an option to acquire 25.0 million shares of Common Stock (the
"Comcast Option") from an affiliate of Comcast Corporation, for an aggregate
purchase price of $25.0 million. In connection with the agreements relating to
the exercise of the First Option, an affiliate of Mr. McCaw purchased, for an
aggregate purchase price of $25.0 million, an option, in replacement of the
Comcast Option, to purchase 25.0 million shares of Common Stock (the "New
Option") of which 15.0 million shares are purchaseable at $16.00 per share and
10.0 million shares are purchaseable at $18.00 per share, in either case at any
time through July 28, 1998.
NEXTEL INTERNATIONAL 1997 FINANCING: In March 1997, Nextel International
completed a private placement (the "1997 NI Private Placement") of 951,463 units
yielding approximately $500.0 million in gross proceeds. Each unit is comprised
of a 10-year senior discount note (the "1997 NI Notes") and a warrant to
purchase 0.38748 shares of Nextel International common stock exercisable at a
price of $9.99 per share. The 1997 NI Notes have a 13.0% yield to maturity, are
noncallable for five years, and require no interest payments for the first five
years. The warrants are exercisable any time after March 6, 1998, and expire in
March 2007. In connection with the issuance of the 1997 NI Notes, Nextel
International agreed to use its best efforts to complete a registered offering,
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), to
exchange such 1997 NI Notes for substantially identical notes of equivalent
value. Such exchange offer was completed on September 6, 1997.
NEXTEL MEXICO: During 1997, through a series of transactions, the Company,
through Nextel International, increased its equity interest in Comunicaciones
Nextel de Mexico S.A. de C.V. ("Nextel Mexico," formerly Corporacion Mobilcom
S.A. de C.V.) from 30.1% to 100% for consideration equal to approximately $132.2
million.
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NEXTEL BRAZIL: In January 1997, Nextel acquired 81% of the outstanding
shares of Wireless Ventures of Brazil, Inc. ("WVB"), an operator of analog SMR
systems in Brazil, for a purchase price of $186.3 million which was paid with
approximately 12.0 million shares of Common Stock, through a merger of WVB with
a wholly-owned subsidiary of Nextel. Nextel simultaneously contributed its
interest in WVB, which has been renamed McCaw International (Brazil), Ltd.
("Nextel Brazil"), to Nextel International. On September 26, 1997, Nextel S.A.
(formerly Airlink S.A.), a subsidiary of Nextel Brazil and the indirect holder
of Nextel Brazil's SMR channels and related operating assets in Brazil, acquired
(i) 49% of the capital stock of MCS Telefonia, Ltda. ("MCS"), an indirect wholly
owned subsidiary of Motorola; (ii) an option to purchase the remaining 51% of
the capital stock of MCS; and (iii) certain assets of MCS (collectively the "MCS
Transaction"). The MCS option is exercisable for $3.2 million upon receipt of
certain necessary approvals from Brazilian regulatory authorities. In connection
with the MCS Transaction, Motorola acquired 5% of the outstanding capital stock
of Nextel S.A., which effectively diluted Nextel International's ownership in
its Brazilian operations to 77%.
POST-FISCAL YEAR 1997 TRANSACTIONS AND DEVELOPMENTS
NEW BANK FINANCING: Nextel, Nextel Finance Company, a wholly owned
subsidiary of Nextel ("NFC"), and certain other subsidiaries of Nextel entered
into definitive agreements, which became effective on March 13, 1998, with
respect to a secured credit facility arranged by Barclays Capital, Chase
Securities, Inc., J.P. Morgan Securities Inc., NationsBanc Montgomery Securities
L.L.C. and Toronto-Dominion Securities (USA), Inc. (the "Bank Credit Facility").
The Bank Credit Facility replaces a prior credit facility initially arranged on
September 30, 1996, as amended (the "Old Bank Credit Facility"). The credit
agreement relating to the Bank Credit Facility (the "Bank Credit Agreement")
provides for up to $3.0 billion of secured financing, consisting of a $1.5
billion revolving loan and $1.5 billion in term loans. Concurrently with the
effectiveness of the Bank Credit Facility, the Company made and applied
borrowings pursuant to certain of the term loans thereunder to repay the
indebtedness outstanding under and to terminate its secured credit facility with
Motorola and certain other lenders (the "Vendor Credit Facility") and terminated
the additional vendor credit facility pursuant to which additional secured
borrowings of up to $200.0 million were available from Motorola. Nextel
contemplates accessing the Bank Credit Facility to finance investments and
acquisitions, to fund capital expenditures and for working capital and general
corporate purposes. Borrowings under the Bank Credit Facility are secured by
liens on assets of Nextel's subsidiaries that are "restricted" subsidiaries
under the terms of Nextel's public indentures (the "Nextel Indentures") relating
to the Company's various outstanding issues of senior discount notes (the
"Nextel Notes") and bear interest payable quarterly at an adjustable rate
calculated based either on the prime rate or LIBOR. The Nextel Indentures
contain provisions that operate to limit the amount of borrowings available
under the Bank Credit Facility in certain circumstances. See "-- Risk
Factors -- Nextel to Require Additional Financing" and "-- Forward Looking
Statements" and Part II, Item 7, "Management's Discussion and Analysis and
Results of Operations."
The maturity date of the $1.5 billion revolving loan and a $500.0 million
portion of the term loans is March 31, 2006. The maturity date of the remaining
$1.0 billion portion of the term loans is September 30, 2006. Notwithstanding
the foregoing, (i) the maturity of the revolving credit facility and the $500.0
million term loan facility will be accelerated to the date that is six months
prior to the earliest maturity date for the then outstanding Old Senior Notes,
unless the aggregate principal amount of all the Old Senior Notes is less than
$1.0 billion and (ii) the maturity of the $1.0 billion term loan facility, will
be accelerated to the date that is three months prior to the earliest maturity
date for the then outstanding Old Senior Notes unless the aggregate principal
amount of all outstanding Old Senior Notes is less than $1.0 billion. Access to
the Bank Credit Facility is required for Nextel to implement the 1998 Plan. See
"-- Risk Factors -- Nextel to Require Additional Financing," and "-- Forward
Looking Statements" and Part II, Item 7, "Management's Discussion and Analysis
and Results of Operations."
TENDER OFFER AND CONSENT SOLICITATION: On March 3, 1998, Nextel commenced
a cash tender offer and related consent solicitation with respect to all of the
outstanding 11.5% Senior Redeemable Discount Notes due 2003 and 12.25% Senior
Redeemable Discount Notes due 2004 (collectively, the "Targeted Notes"). The
tender offer and consent solicitation is scheduled to conclude April 3, 1998.
Based on tenders made through March 20, 1998, the Company estimates that the
total amount of funds required by the Company to pay the
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aggregate amount due with respect to the Targeted Notes tendered and all related
consents delivered in connection with such tender offer and consent
solicitation, assuming that all relevant conditions to the tender offer are
satisfied and the Company accepts such tendered Targeted Notes, will be
approximately $736.8 million. The Company intends to use a portion of the
February Notes Proceeds (as defined below) to make such payments.
LMDS AUCTION: On February 18, 1998, the FCC commenced an auction of
spectrum in the 28 GHz - 31 GHz range, known as LMDS. In connection with its
participation in the LMDS auction and potential pursuit of LMDS-related business
opportunities, the Company has entered into a joint venture with NextLink
Communications, Inc. ("NextLink"). NextLink, a publicly traded company that is
controlled by Mr. McCaw, provides local facilities based telecommunications
services, with an emphasis on delivering switched services to commercial
customers. NextLink files periodic and other reports with the Commission
pursuant to the Exchange Act, and additional information concerning NextLink is
contained in such Exchange Act reports. The joint venture is being conducted
through NextBand Communications, L.L.C. ("NextBand") which participated in the
FCC's LMDS spectrum auction. As of the conclusion of the LMDS spectrum auction
on March 25, 1998, NextBand had submitted $134.7 million in bids that
represented the highest bids with respect to the auction of LMDS spectrum in 42
Basic Trading Areas (as defined herein) covering approximately 96 million people
throughout the United States. Under the terms of the joint venture, one half of
the bid amount is to be funded by the Company.
SERIES E PREFERRED STOCK ISSUANCE: On February 11, 1998, Nextel completed
the sale of 750,000 shares of 11.125% Series E Exchangeable Preferred Stock
mandatorily redeemable 2010 (the shares of such stock so issued originally, any
shares of such stock issued in exchange therefor in the Series E Preferred Stock
Exchange Offer (as defined herein) and any shares of such stock issued as
payment in kind dividends thereon, collectively the "Series E Preferred Stock"),
with a liquidation preference of $1,000 per share, generating approximately
$727.9 million in net proceeds (the "Series E Preferred Stock Proceeds").
Dividends on the Series E Preferred Stock accrue at an annual rate of 11.125% of
the liquidation preference, are cumulative from the date of issuance and are
payable quarterly in cash or, on or prior to February 15, 2003, at the sole
option of Nextel, in additional shares of Series E Preferred Stock.
The shares of the Series E Preferred Stock were issued in a private
placement transaction, have not been registered with the Commission under the
Securities Act and may not be sold absent registration or an applicable
exemption from the registration requirements. In connection with the issuance of
the Series E Preferred Stock, Nextel agreed to use its best efforts to file with
the Commission and cause to become effective a registration statement with
respect to a registered offer to exchange the then outstanding Series E
Preferred Stock for an equal number of shares of 11.125% Series E Exchangeable
Preferred Stock that have been registered pursuant to the Securities Act (the
"Series E Preferred Stock Exchange Offer"). In the event that the Series E
Preferred Stock Exchange Offer is not consummated prior to specified dates, the
dividend accrual rate applicable to the Series E Preferred Stock will increase
by specified amounts until the Series E Preferred Stock Exchange Offer is
consummated or certain other requirements are met.
FEBRUARY NOTES ISSUANCE: Concurrent with the sale of the Series E
Preferred Stock, on February 11, 1998, Nextel completed the sale of $1,627.0
million principal amount at maturity of its 9.95% Senior Serial Redeemable
Discount Notes due 2008 (the "February Notes"). The issue price of the February
Notes, which mature on February 15, 2008, was $614.71 per $1,000 principal
amount at maturity (generating approximately $975.9 million in net proceeds (the
"February Notes Proceeds")) representing a yield to maturity of 9.95% computed
on a semi-annual bond equivalent basis from the date of issuance. Cash interest
will not accrue on the February Notes prior to February 15, 2003, and will be
payable on February 15 and August 15 of each year commencing August 15, 2003, at
a rate of 9.95% per annum. The February Notes are senior unsecured indebtedness
of Nextel and rank pari passu in right of payment with all unsubordinated,
unsecured indebtedness of Nextel.
The February Notes were issued in a private placement transaction and have
not been registered with the Commission under the Securities Act and may not be
sold absent registration or an applicable exemption from the registration
requirements. In connection with the issuance of the February Notes, Nextel has
agreed to use
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its best efforts to file with the Commission and cause to become effective a
registration statement with respect to a registered offer to exchange the then
outstanding February Notes for an equal principal amount at maturity of its
9.95% Senior Redeemable Discount Notes due 2008 that have been registered
pursuant to the Securities Act (the "February Notes Exchange Offer"). In the
event that the February Notes Exchange Offer is not consummated prior to
specified dates, additional incremental interest on the accreted value of the
February Notes will accrue until the February Notes Exchange Offer is
consummated or certain other requirements are met.
NEXTEL INTERNATIONAL JAPAN INVESTMENT: On March 17, 1998, Nextel
International purchased a 21% equity interest in J-Com Co., Ltd., a digital SMR
provider in Japan ("J-Com") for a purchase price of approximately $0.6 million.
Nextel International also provided a shareholder loan of approximately $32.1
million to J-Com. J-Com's licenses cover more than 125 million people. DJSMR
Business Partnership, a Japanese partnership in which an affiliate of Motorola
is the majority partner, holds a 49% equity interest in J-Com. The remaining
equity interests in J-Com are held by Nichimen Corporation, an investment firm
(which holds a 25% equity interest), and ORIX Corporation, a leasing firm (which
holds a 5% equity interest).
NEXTEL INTERNATIONAL 1998 NOTES ISSUANCE: On March 12, 1998, Nextel
International completed the sale in a private placement transaction of $730.0
million in principal amount at maturity of its 12 1/8% Senior Discount Notes due
2008 (the "1998 NI Notes"). Nextel International received approximately $387.0
million in net proceeds to be used for system and related capital expenditures
and other general corporate purposes of Nextel International and its
subsidiaries and restricted affiliates.
The 1998 NI Notes were issued in a private placement transaction and have
not been registered with the Commission under the Securities Act and may not be
sold absent registration or an applicable exemption from the registration
requirements. In connection with the issuance of the 1998 NI Notes, Nextel
International has agreed to use its best efforts to file with the Commission and
cause to become effective a registration statement with respect to a registered
offer to exchange the then outstanding 1998 NI Notes for an equal principal
amount at maturity of its 12 1/8% Senior Discount Notes due 2008 that have been
registered pursuant to the Securities Act (the "1998 NI Notes Exchange Offer").
In the event that the 1998 NI Notes Exchange Offer is not consummated prior to
specified dates, additional incremental interest on the accreted value of the
1998 NI Notes will accrue until the 1998 NI Notes Exchange Offer is consummated
or certain other requirements are met.
WIRELESS INDUSTRY OVERVIEW
DEVELOPMENT OF THE WIRELESS COMMUNICATIONS INDUSTRY. Today's wireless
communications industry began in 1970 when the FCC reallocated 115 MHz of radio
spectrum in the 800/900 MHz bands from the federal government and UHF television
to land mobile service use to provide high-quality, high-capacity communications
services to vehicle-mounted and hand-held portable telephones and other two-way
radio units. The FCC allocated initially 40 MHz for cellular service (which were
allocated in equal blocks to two cellular operators in each MSA or Rural
Statistical Area ("RSA")) and 30 MHz for private radio services, including SMR.
The FCC later increased the allocations to 50 MHz for cellular service and 46
MHz for private radio services due to capacity constraints. The remaining 19 MHz
were divided among six different services. Because of regulatory delays, the
first commercial cellular systems were not operational until 1983. Since then,
however, growth in the industry has been rapid, with approximately 57.2 million
mobile telephone units (consisting of analog cellular, digital cellular and PCS
units) in service at December 31, 1997. The first SMR systems became operational
in 1974, and SMR units in service had grown to approximately 3.1 million by
December 31, 1997 (consisting of both analog SMR units and wide-area digital SMR
units). The number of other private radio users is estimated to be approximately
17.0 million as of December 31, 1997.
SMR AND CELLULAR/PCS TELEPHONY. The cellular telephone industry was
created by the FCC as a regulated duopoly. The FCC awarded only two licenses to
provide cellular service in the service area of any
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given MSA or RSA. Subsequently, the FCC allocated 120 MHz of spectrum in the
1.8-2.2 GHz band for the provision of PCS, which include mobile wireless
communications services similar to those provided over Nextel's Digital Mobile
network. The FCC has awarded three 30 MHz and three 10 MHz PCS licenses for this
spectrum on either a Major Trading Area ("MTA") or a Basic Trading Area ("BTA")
(each as defined in the Rand McNally Commercial Atlas) market definition through
a competitive bidding process. Since August 10, 1996, SMR operators have been
subject to the same common carrier obligations as cellular and PCS operators,
although the amount of spectrum assigned to a single SMR licensee typically is
less than that assigned to cellular and PCS licensees. See "-- Regulation."
Within the limitations of available spectrum and technology, SMR operators are
authorized to provide mobile communications services to business and individual
users, including mobile telephone, two-way dispatch, paging and mobile data
services.
In the past, however, SMR operators generally have not been able to provide
mobile telephone service competitive with that provided by cellular operators
because of various factors affecting SMR system capacity and quality. The
primary factors affecting capacity include: the smaller portion of the radio
spectrum allocated to SMR, the assignment of SMR frequencies on a non-contiguous
basis, regulations and procedures that initially served to spread ownership of
SMR licenses among a large number of operators in each market, thereby further
limiting the amount of SMR spectrum available to any particular operator, and
traditional SMR technology, which employs analog transmission and a single site,
high-power transmitter configuration, thus precluding the use of any given SMR
frequency by more than one caller at a time within a given licensed service
area. Partially as a result of these capacity constraints, SMR operators
traditionally have emphasized two-way dispatch service, which involves shorter
duration communications than mobile telephone service and places less demand on
system capacity.
The traditional analog SMR market, therefore, has been oriented largely to
customers such as contractors, service companies and delivery services that have
significant field operations and need to provide their personnel with the
ability to communicate directly with one another, either on a one-to-one or
one-to-many basis, within a limited geographic area. As a result of the
foregoing, the broader market of wireless communications users that are
primarily interested in mobile telephone service has to date been served only on
a limited basis by the traditional analog SMR operators.
NEXTEL'S DIGITAL MOBILE NETWORK
DIGITAL MOBILE NETWORK SERVICES. The Company is designing and constructing
its Digital Mobile network to support a variety of service offerings, including
mobile telephone, two-way dispatch, paging and short-messaging services and, in
the future, data transmission. The Company's Digital Mobile networks provide
customers desiring mobile telephone service with access to features competitive
with those offered by current wireless communications services, such as the
"hand-off" of calls from one site to another and "in-building" signal
penetration for improved portable performance in selected high usage areas. In
addition to the mobile telephone and two-way dispatch functions, the Digital
Mobile network has been designed to include a signaling or paging capability,
which also has been built into each subscriber unit, to enable a customer to
receive alphanumeric short-text messages. In addition, the Company's Digital
Mobile network has been designed to offer customers additional features, such as
voicemail, call hold, call waiting, no-answer or busy-signal transfer, call
forwarding, three way calling and two lines.
Nextel International's operating subsidiaries and affiliated entities plan
to construct and operate digital networks employing iDEN technology in major
metropolitan market areas located in Brazil, Mexico, Argentina, Peru and the
Philippines. Nextel has entered into interoperability agreements with Clearnet
and with Nextel Mexico to provide, among other things, for coordination of
customer identification and validation necessary to facilitate cross-border
roaming service in North America.
DIGITAL MOBILE NETWORK TECHNOLOGY. The Digital Mobile network, as
currently deployed by the Company, combines the advanced iDEN digital technology
developed and designed by Motorola, with a low-power, multi-site
transmitter/receiver configuration that permits frequency reuse. The iDEN
technology being deployed by Nextel shares many common components with the
Global System for Mobile Communications ("GSM") technology that has been
established as the digital cellular communications standard in Europe and
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is a variant of the GSM technology that is being deployed by certain PCS
operators in the United States. The design of the Company's existing and
proposed Digital Mobile network currently is premised on dividing a service area
into multiple sites. Each site contains a low-power transmitter, receiver and
control equipment (the "base station"). The base station in each site is
connected by microwave, fiber optic or telephone line to a computer controlled
switching center (the "switching center"). The switching center controls the
automatic hand-off of calls from site to site as a subscriber travels,
coordinates calls to and from a subscriber unit and connects calls to the public
switched telephone network, in the case of mobile telephone calls. In the case
of two-way dispatch, the switching center connects the subscriber initiating the
call to the other subscriber (in the case of a private call) or to a number of
other subscribers (in the case of a group call) to whom the call is directed in
the requested service areas. Northern Telecom, Inc. has supplied the mobile
telephone switches for the Digital Mobile network. At December 31, 1997, the
Company had 17 operational switches and approximately 4,000 cell sites
constructed and in operation in its Digital Mobile network.
Currently, there are three principal digital technology formats that are
being assessed or proposed for deployment or deployed currently by providers of
cellular telephone service or by certain PCS providers or licensees in the
United States. One such format is Time Division Multiple Access ("TDMA") digital
transmission technology, a version of which, known as "three-time slot TDMA,"
has been and is expected to be deployed by certain cellular operators. The
second principal format, known as Code Division Multiple Access ("CDMA") digital
transmission technology, has been and is expected to be deployed by certain
other cellular and PCS operators. The third principal format, known as GSM-PCS,
is an updated, up-banded, PCS-adapted version of the TDMA-based GSM digital
technology format. GSM-PCS has been deployed and is expected to be deployed by
certain PCS operators.
Although TDMA, CDMA and GSM-PCS are digital transmission technologies, and
thus share certain basic characteristics and areas of contrast to analog
transmission technology, TDMA, CDMA and GSM-PCS are not compatible or
interchangeable with each other. The Motorola proprietary first generation iDEN
technology originally incorporated in Nextel's Digital Mobile network is known
as "six-time slot TDMA" and the successor to such first generation iDEN
technology, known as "Reconfigured iDEN," is currently being deployed in
Nextel's Digital Mobile network. Although each of these versions of Motorola's
proprietary iDEN technology is based on the TDMA technology format, each differs
in a number of significant respects from the TDMA technology versions being
assessed or deployed by cellular operators and PCS licensees in the United
States, which differences may have important consequences. Additionally, unlike
the three-time slot TDMA technology format being utilized for the mobile
telephone function in the Reconfigured iDEN technology platform or the
three-time slot TDMA technology format being utilized by certain cellular
providers, the first generation iDEN technology, as well as the "six-time slot
TDMA" technology utilized for the two-way dispatch function in the Reconfigured
iDEN technology platform, can carry up to six voice and/or control paths per
channel.
The implementation of Digital Mobile network design and technology
increases significantly the capacity of the Company's existing SMR channels.
This increase in capacity is accomplished in two ways. First, each channel is
capable of carrying up to six voice and/or control paths by employing the
six-time slot TDMA digital technology or up to three voice and/or control paths
by employing the three-time slot TDMA digital technology. Each voice is
converted into a stream of data bits that are compressed before being
transmitted, allowing each of the time-slotted voice and/or control paths to be
transmitted on the same channel without causing interference. Upon receipt of
the coded voice data bits, the subscriber unit decodes the voice signal. By
using the Reconfigured iDEN technology, the Company achieves an approximate six
times improvement in channel utilization capacity for channels used for two-way
dispatch service and an approximate three times improvement in channel
utilization for channels used for mobile telephone service.
The second means of increasing capacity is based on employing a system
design in use in the cellular industry that reuses each channel many times
throughout the market area. The ability to reuse channels results from placing
transmitters at low elevation sites and restricting the power output to not more
than 100 watts effective radiated power (which creates a service area of less
than one mile to thirty miles, depending on the terrain and the power setting).
The use of six-time slot TDMA technology for two-way dispatch service and
three-time slot TDMA technology for mobile telephone service, in combination
with Nextel's reuse of its
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licensed frequencies in a cellular-type system design, permits Nextel to utilize
its current holdings of spectrum more efficiently.
TECHNOLOGY COMMITMENTS. Pursuant to the equipment purchase agreements
between Nextel and Motorola first entered into in 1991, as subsequently amended
by, among others, the amendment entered into in connection with the Motorola
Transaction (the "Prior Equipment Agreement Amendment") and by the Second
Equipment Agreement Amendment entered into in connection with the McCaw
Transaction (the "Second Equipment Agreement Amendment"), Motorola provides the
iDEN infrastructure and subscriber handset equipment to Nextel throughout its
markets (such equipment purchase agreements, as amended, being referred to
herein as the "Equipment Purchase Agreements"). The Company expects to rely on
Motorola for the manufacture of a substantial portion of the equipment necessary
to construct its Digital Mobile network and all of its Digital Mobile handset
equipment for the foreseeable future. See "-- System Construction and
Suppliers." The Equipment Purchase Agreements govern Nextel's rights and
obligations regarding purchases of system infrastructure equipment manufactured
by Motorola. Nextel has, among other things, agreed (subject to certain
conditions) to purchase and install iDEN system infrastructure equipment during
the four-year and six-year periods beginning on August 4, 1994 sufficient to
cover 70% and 85%, respectively, of the United States population. In addition,
subject to the applicable terms and conditions under the Second Equipment
Agreement Amendment, Nextel has agreed to deploy Reconfigured iDEN technology
and, until August 4, 1999 and subject to certain conditions, to purchase from
Motorola at least 50% of the base radios Nextel purchases in any calendar year.
Such Nextel system infrastructure equipment purchases 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.
Nextel continuously reviews alternate technologies as they are developed.
To date, however, 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. Having been the high bidder on
475 EA licenses in the recent 800 MHz SMR auction, Nextel has the opportunity to
operate on up to an average of 10 MHz of contiguous spectrum in nearly every
market in the United States. See "-- Fiscal Year 1997 Transactions and
Developments -- 800 MHz SMR Auction." By relocating incumbent operators out of
this spectrum, assuming the FCC grants Nextel these licenses, Nextel will have
access to contiguous channel blocks, similar to its cellular and PCS
competitors. Nextel continues to pursue regulatory initiatives that would
provide SMR operators, including Nextel, with additional rights to use
contiguous blocks of spectrum. See "-- Regulation." The availability of a
significant block of contiguous spectrum would permit the introduction of a
broader range of technology options not available on non-contiguous spectrum
blocks. However, Nextel's consideration of such alternative technologies,
independent of technological feasibility, would likely be materially affected by
Nextel's contractual obligations to Motorola regarding domestic deployment and
utilization of iDEN technology as well as the additional capital requirement
associated with the deployment of an alternative technology. See " -- Risk
Factors -- Reliance on One Principal Supplier in Implementation of the Digital
Mobile Network."
SYSTEM CONSTRUCTION AND SUPPLIERS. The first step required to achieve the
build-out of the Digital Mobile network in a market is the completion of the
radio design plan, which typically takes about four months. This stage involves
the selection of specific areas in the market for the placement of base station
sites and the identification of specific frequencies that will be employed at
each site in the initial configuration. Sites are selected on the basis of their
proximity to targeted customers, the ability to acquire and build the site and
frequency propagation characteristics. Site procurement efforts include
obtaining leases and permits, and in many cases, zoning approvals. This site
acquisition process for the initial system to be constructed in a market,
depending on the number of sites, typically takes from two to eighteen months.
Preparation of each site for equipment installation, including construction of
equipment shelters, towers and power systems, grounding, ventilation and air
conditioning, typically takes six weeks, while equipment installation, testing
and pre-operational systems optimization generally takes an additional six weeks
prior to commencing system operation. Following commencement of system
operations in a selected market, the Company expects to add new sites to such
system continually in order to improve coverage and capacity. See "-- Forward
Looking Statements."
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It is expected that for the next few years of Digital Mobile network
operations by Nextel, Motorola and competing manufacturers who are licensed by
Motorola will be the only manufacturers of subscriber equipment that is
compatible with Nextel's Digital Mobile network. 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. Currently,
however, there are no arrangements in effect with any additional manufacturers
to supply Nextel with an alternative source for either iDEN system
infrastructure or subscriber equipment.
CONVERSION TO DIGITAL MOBILE NETWORK. In order to activate Digital Mobile
network service in a market, the Company must have available a certain number of
800 MHz frequencies that have been cleared of analog SMR traffic in that market
("channel recovery"). Channel recovery may involve transferring 800 MHz
customers to 900 MHz channels or other 800 MHz analog SMR channels. Upon launch
of commercial service in a market, the Company commences marketing the Digital
Mobile network services to potential customers, including certain of its
existing SMR analog system customers, and converts 800 MHz frequencies to the
Digital Mobile network as such customers migrate ("migration"). The Company has
commenced its channel recovery and migration efforts for existing customers in
each of the markets in which its Digital Mobile network has been activated. The
Company expects that only a portion of its SMR channels in most of its markets
will be needed for the initial phase of the Digital Mobile network build-out.
Accordingly, the Company expects to have the opportunity to move affected
customers off its analog SMR network to the Digital Mobile network gradually to
avoid any significant disruption of service to customers. See "--Risk
Factors -- Risks of Implementation of Digital Mobile Network" and "-- Forward
Looking Statements."
MARKETING. Nextel's marketing strategy focuses on targeting business users
that Nextel believes will be likely to perceive and appreciate the potential for
Nextel's wireless communication service capabilities to increase efficiencies
and reduce costs in such users' business activities. Nextel is currently
concentrating its sales efforts on a number of distinct occupational groupings
of mobile workers, including personnel in the transportation, delivery, real
property and facilities management, construction and building trades,
landscaping and professional service sectors. See "-- Business Strategy."
Nextel continues to believe that its ability to deliver a full line of
mobile communications services in an integrated package using a single,
multi-function subscriber unit on its Digital Mobile network significantly
differentiates the Company from other providers of wireless communications
services. The progress of Nextel's Digital Mobile network services marketing
efforts is and will continue to depend upon numerous factors including system
performance, subscriber equipment performance and the ability to deliver
services that satisfy customer needs and expectations. Nextel reviews its
business and marketing plans in consideration 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. See "-- Forward Looking Statements."
COMPETITION. Each of the markets in which the Company's Digital Mobile
network operates or will operate is served by multiple other wireless
communications service providers. In each of the markets where the Company's
Digital Mobile network operates, the Company may compete with the two
established cellular licensees in such market and as many as six PCS licensees.
A substantial number of the entities that have been awarded PCS licenses are
current cellular communications service providers and joint ventures of current
and potential wireless communications service providers, many of which have
financial resources, subscriber bases and name recognition greater than Nextel.
PCS operators will likely compete with Nextel in providing some or all of the
services available through the Company's Digital Mobile network. Additionally,
the Company expects that existing cellular service providers, some of which have
been operational for a number of years and have significantly greater financial
and technical resources, subscriber bases and name recognition than Nextel, will
continue to upgrade their systems to provide digital wireless communications
services competitive with those available on the Company's Digital Mobile
network. Moreover, cellular and wireline companies have been granted authority
to participate in dispatch and SMR services, respectively. Nextel also expects
its Digital Mobile network business to face competition from other technologies
and services
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developed and introduced in the future. See "-- Risk Factors -- Success of
Nextel is Dependent on its Ability to Compete."
Pursuant to the Omnibus Appropriations Act of 1997, the FCC reallocated and
auctioned 30 MHz of 2.3 GHz spectrum to wireless services in the first quarter
of 1997. However, the strict operational and technical limitations the FCC
placed on use of the spectrum will likely prohibit the provision of mobile
services using current technology. Additionally, the FCC has reallocated 220 MHz
of radio spectrum for use by "emerging telecommunications technologies," such as
PCS, low-earth orbit satellites and mobile satellite systems. The FCC has
authorized a consortium of communications companies to provide nationwide mobile
satellite services. Additionally, the FCC recently reallocated 36 MHz of the
former analog television channels to commercial services, including broadcasts,
fixed and mobile services. Nextel cannot predict how these technologies will
develop or what impact, if any, they will have on Nextel's ability to compete
for wireless communications services customers.
NEXTEL'S EXISTING ANALOG SMR OPERATIONS
The Company's existing analog SMR operations focus primarily on two-way
radio service provided to customers who need the ability to communicate with one
another in the field, either on a one-to-one or one-to-many basis. Due to
capacity constraints on its existing analog SMR systems in major metropolitan
areas, Nextel has been able to offer mobile telephone service on such systems to
only a limited number of its customers.
At December 31, 1997, the Company provided analog SMR service to
approximately 583,000 units.
MANAGEMENT AGREEMENTS. In addition to SMR systems for which it is the
licensed owner, the Company manages analog SMR systems licensed to third parties
in certain of its markets. The management agreements generally have terms of 15
or 30 years. In many cases, the Company holds an option to acquire managed SMR
systems.
MARKETING. The Company markets its existing analog SMR services primarily
to businesses that employ fleets of vehicles requiring two-way radio capability
and, to a limited extent, to customers who require both two-way radio and mobile
telephone service, such as sales or service managers. The Company's sales
efforts are directed to both the 900 MHz and 800 MHz systems. The Company
utilizes a direct sales and marketing force as well as independent equipment
dealers. Subscriber units sold by the Company's sales force for use on existing
analog SMR networks are typically installed and maintained by the Company's
service departments. In addition, the service departments are responsible for
system maintenance for most of the Company's existing analog SMR networks. The
Company's marketing of its analog SMR service may be affected in certain markets
by the activation of its Digital Mobile networks in such markets. See
"-- Nextel's Digital Mobile Network."
COMPETITION. The Company's existing analog SMR operations compete in each
market with a number of other operators of traditional analog SMR networks
providing service on the 220 MHz, 800 MHz and 900 MHz bands. The Company's
analog operations also compete with SMR and private radio operators utilizing
other frequencies for the provision of two-way dispatch services, with cellular
operators and, in certain markets, with PCS systems operators, that offer
services similar to the mobile telephone service now offered on traditional
analog SMR networks. At the present time, analog cellular systems are generally
believed to offer better quality wireless telephone transmission (at a higher
price) than traditional analog SMR operators. On March 7, 1995, the FCC
authorized cellular operators to offer two-way dispatch services, which allows
cellular operators to offer, upon installation of the necessary infrastructure
equipment, a service that may be competitive with analog SMR two-way dispatch
service. Additionally, Nextel's analog SMR operations may face competition in
the future from other SMR operators utilizing digital technology.
AGREEMENTS WITH SIGNIFICANT STOCKHOLDERS
MCCAW INTERESTS. Pursuant to the terms of the Securities Purchase
Agreement dated as of April 4, 1995, as amended, among Nextel, the McCaw
Investor and Mr. McCaw (the "McCaw Securities Purchase
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Agreement") and certain other related agreements and documents, (i) the McCaw
Investor purchased on April 5, 1995 from Nextel, approximately 1.2 million
shares of Common Stock for an aggregate purchase price of approximately $14.9
million; and (ii) the McCaw Investor purchased on July 28, 1995 from Nextel, for
an aggregate purchase price of $300.0 million, an aggregate of 8.2 million units
consisting of a total of (a) approximately 8.2 million shares of Class A
Preferred Stock; (b) 82 shares of Class B Preferred Stock; and (c) options to
acquire an aggregate of up to 35.0 million shares of Common Stock at exercise
prices ranging from $15.50 to $21.50 per share (15.0 million of which were
purchased upon exercise of the First Option on July 28, 1997 and approximately
4.9 million of which were transferred in November 1997). In addition, in
connection with the agreements relating to the exercise of the First Option, an
affiliate of Mr. McCaw, Option Acquisition, L.L.C. ("Option Acquisition"),
purchased the New Option which entitles Option Acquisition to acquire 25.0
million shares of Common Stock of which 15.0 million shares are purchaseable at
$16.00 per share and 10.0 million shares are purchaseable at $18.00 per share,
in either case at any time through July 28, 1998. See "-- Fiscal Year 1997
Transactions and Developments -- Issuance of New Option." As a result of certain
transfers and option exercises, at December 31, 1997 affiliates of Mr. McCaw
beneficially owned approximately 7.9 million shares of Class A Preferred Stock
convertible into approximately 23.7 million shares of Common Stock, 82 shares of
Class B Preferred Stock and options to purchase up to an aggregate of
approximately 40.5 million shares of Common Stock at prices ranging from $12.25
to $21.50 per share.
Additionally, in connection with such equity investments, Nextel, the McCaw
Investor and Mr. 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 antidilutive 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 (which transfer restrictions, as they
relate to shares of Common Stock owned by the McCaw Investor, were largely
removed on July 28, 1997, at the closing of the exercise of the First Option).
Finally, on July 28, 1995, pursuant to agreements between the McCaw Investor and
Motorola entered into in connection with the McCaw Securities Purchase
Agreement, the McCaw Investor purchased 4.0 million shares of Common Stock from
Motorola and Motorola granted to the McCaw Investor the option to purchase up to
an additional 9.0 million shares of Common Stock held by Motorola (2.0 million
of which were purchased on September 3, 1997 and approximately 1.6 million of
which were transferred in November 1997).
Pursuant to the McCaw Securities Purchase Agreement, Nextel's Restated
Certificate of Incorporation (the "Certificate of Incorporation") and Nextel's
By-Laws (the "Nextel By-Laws"), Nextel, the McCaw Investor and Mr. McCaw have
established certain arrangements relating to the governance of Nextel associated
with such investments, including, without limitation, the rights relating to
designation by the McCaw Investor and election of three representatives of the
McCaw Investor to the Board of Directors of the Company representing not less
than 25% of the Board of Directors. Currently, the McCaw Investor has designated
only two directors for election to the Board of Directors.
Pursuant to the McCaw Securities Purchase Agreement, the Certificate of
Incorporation and the Nextel By-Laws, a five-member Operations Committee of the
Board of Directors was created, and the McCaw Investor is entitled to have a
majority of the members of such Operations Committee selected from among the
McCaw Investor's representatives on the Board of Directors.
The Operations Committee has 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 Board of
Directors and committees thereof, as well as nomination and oversight of certain
executive officers. Currently, both of the McCaw Investor's designees on the
Board of Directors also serve as members of the Operations Committee, of which
Mr. McCaw is the chairman. The Board of Directors, by a majority vote, may
override actions taken or proposed by the Operations Committee, although doing
so would give rise to a $25.0 million 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 (an aggregate stated
value of
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approximately $290.5 million) and the immediate vesting of the shares subject to
the Incentive Option (as defined below) granted pursuant to the McCaw Incentive
Option Agreement (as defined below). However, the Board of Directors, 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, or to commence dividend accruals with respect to the
Class A Preferred Stock or to accelerate the vesting of the options granted
pursuant to the McCaw Incentive Option Agreement. In addition, the Board of
Directors also may act to terminate the Operations Committee, although such
action by the Board of Directors would, in certain circumstances, result in the
obligation to make such a liquidated damages payment and result in the
commencement of such dividend accrual and the accelerated vesting of the related
options.
The McCaw Securities Purchase Agreement, the Certificate of Incorporation
and the Nextel By-Laws also delineate a number of circumstances, chiefly
involving or resulting from certain events with respect to the McCaw Investor or
Mr. McCaw, in which the Operations Committee could be terminated but such
liquidated damages payment, dividend accrual and vesting of 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 certain then existing securities holdings
and relationships), until the later of (i) five years after the closing of the
McCaw Transaction or (ii) one year after the termination of the Operations
Committee, neither the McCaw Investor nor its controlled affiliates will
participate in other two-way terrestrial-based mobile wireless communications
systems in the region that includes any part of North America or South America,
unless such opportunities first have been presented to and rejected by Nextel in
accordance with the provisions of the McCaw Securities Purchase Agreement.
Pursuant to an agreement 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 Common Stock held by Motorola accordingly, subject to (i) the right of any
Motorola-designated members of the Board of 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 Common Stock held by
Motorola.
Concurrently with the execution of the McCaw Securities Purchase Agreement,
Nextel entered into a Management Support Agreement (the "Support Agreement")
with Eagle River, Inc., an affiliate of the McCaw Investor ("Eagle River")
pursuant to which Eagle River provides management and consulting services to
Nextel, the Board of Directors and the Operations Committee from 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") concurrently with the execution of the McCaw
Securities Purchase Agreement granting to Eagle River the option to purchase an
aggregate of 1.0 million shares of Common Stock at an exercise price of $12.25
per share (the "Incentive Option"). The Incentive Option expires on April 4,
2005, and became exercisable with respect to 400,000 shares on April 4, 1997 and
becomes exercisable for an additional 200,000 shares in each of the three years
thereafter. On February 10, 1998, Nextel and Eagle River agreed to amend the
McCaw Incentive Option Agreement to remove the shares issuable upon exercise of
the Incentive Option from registration pursuant to Nextel's previously filed
Form S-8 registration statements, confirm the applicability of certain demand
and "piggyback" registration rights. Additionally, pursuant to the Support
Agreement, the Company agreed to reimburse Eagle River for all out-of-pocket
costs, plus up to $200,000 per year for all allocable overhead costs reasonably
incurred by Eagle River in connection with the performance of its obligations
under the Support Agreement. Payments in the amount of $504,000 were made to
Eagle River pursuant to the Support Agreement during fiscal year 1997.
MOTOROLA. On July 28, 1995, Nextel consummated the Motorola Transaction
pursuant to which Nextel effectively acquired all of Motorola's 800 MHz SMR
licenses in the continental United States in exchange for 59.5 million shares of
common stock (comprised of 41.7 million shares of Common Stock and 17.8 million
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shares of Nextel's Class B non-voting common stock (the "Non-Voting Common
Stock")). Pursuant to the agreement relating to the Motorola Transaction,
Motorola currently has the right to nominate two persons for election as members
of the Board of Directors; although, to date, Motorola has exercised such right
only with respect to one director. Also, in connection with the Motorola
Transaction, Nextel entered into an agreement for the purchase of Motorola
infrastructure equipment and Motorola agreed to provide additional vendor
financing for such equipment purchases. The agreements relating to the Motorola
Transaction also include certain provisions concerning Nextel's choice of
technology deployment, the licensing of additional equipment manufacturers and
the selection of strategic equity investors, as well as 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 (which
equity interest is currently held by Nextel International) in exchange for 2.5
million shares of Common Stock, which was consummated effective as of October
19, 1994.
On July 28, 1995, Motorola sold to the McCaw Investor 4.0 million shares of
Common Stock at $12.25 per share and granted to the McCaw Investor the option to
purchase up to an additional 9.0 million shares of Common Stock over a six-year
period. The first tranche of such option (the "Motorola First Tranche") became
exercisable for up to 2.0 million shares of Common Stock at $15.50 per share
during the 30-day period following the second anniversary of the closing of the
Motorola Transaction, and the remaining options will become exercisable for up
to an additional 2.0 million 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 5.0 million 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"). The McCaw Investor
exercised the Motorola First Tranche in full and purchased 2.0 million shares of
Common Stock from Motorola on September 3, 1997. In the event the Motorola
Second Tranche is exercised for only a portion of the shares covered thereby,
the number of shares purchasable in the Motorola Third Tranche will be reduced
to the percentage of the Motorola Second Tranche actually purchased. In
addition, Motorola has granted to the McCaw Investor a right of first offer or a
right of first refusal to purchase shares of Common Stock that are owned by
Motorola. In November 1997, the McCaw Investor transferred portions of the
Motorola Second Tranche and Motorola Third Tranche relating to an aggregate of
approximately 1.6 million of the shares subject thereto.
REGULATION
The licensing, operation, acquisition and sale of Nextel's SMR businesses
are regulated by the FCC. SMR regulations have undergone significant changes
during the last four years and continue to evolve as new FCC rules and
regulations are adopted pursuant to the Omnibus Budget Reconciliation Act of
1993 ("OBRA '93") and the Telecommunications Act of 1996 ("TCA '96").
With regard to the licensing of Nextel's Digital Mobile networks, Nextel
subsidiaries currently hold site-specific FCC licenses to use SMR radio channels
in each of their markets. Unlike the spectrum licenses assigned to other
wireless service providers, i.e., cellular and PCS, which are granted on a
geographic-area basis (e.g., MTA or MSA), SMR licenses historically were granted
on a site-by-site basis, requiring Nextel to obtain numerous licenses to
construct and operate its SMR systems. In addition, each of these SMR station
licenses generally must be a minimum of 70 miles away from all non-affiliated
SMR base stations operating on the same SMR frequencies (referred to as
"co-channel protection") and must be constructed and operational within one year
of grant or the licenses will cancel automatically.
Prospectively, 800 MHz SMR licenses will be assigned on a geographic area
basis, similar to cellular and PCS licenses. Late last year, the FCC auctioned
the upper 200 800 MHz SMR channels in three blocks (20 channels, 60 channels and
120 channels) per EA throughout the U.S. (hereinafter, the "Upper Channel
Auction"). These EA licenses will permit the licensee to construct and operate
base stations on any authorized channel throughout the licensed geographic area.
Significantly, the EA licenses permit system modifications within the service
area without prior FCC approval, thus providing the same operational flexibility
currently provided cellular and PCS licensees.
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Nextel was the high bidder on 475 of the 525 EA licenses auctioned at the
Upper Channel Auction, covering all 50 states. Pursuant to the FCC's auction
rules, Nextel has submitted applications for each of the licenses. On January
21, 1998, the FCC released a public notice announcing the acceptance of Nextel's
and other bidders' applications. On February 20, 1998, two parties filed
petitions to deny all of Nextel's applications. One other party filed a petition
to deny Nextel's application for the channel blocks in the New York City EA.
Nextel opposed those petitions in filings made on March 4 and March 5, 1998.
Each of the three petitioners replied to Nextel's oppositions on March 17, 1998.
Should the FCC grant Nextel's upper channel EA licenses, Nextel will have
the authority to relocate incumbent providers to the lower 800 MHz channels.
Relocation of these incumbents will provide Nextel the ability to achieve
contiguous blocks of spectrum. Any incumbents that are not relocated must be
afforded co-channel protection by Nextel. Pursuant to the FCC's construction
rules, Nextel must provide system coverage to one-third of the population of
each of its licensed EA within three years and two-thirds of the population of
the EA within five years, and Nextel must construct 50% of its licensed channels
in at least one location within each EA within three years. Given Nextel's
existing constructed analog and digital footprint, these buildout requirements
already have been achieved in a substantial number of markets.
The FCC is expected to commence an auction of the lower 230 800 MHz
channels during 1998. Although the channels will be auctioned on an EA basis,
the channel blocks will be smaller than those awarded on the Upper Channel
Auction, licensing winning bidders on blocks of five or 50 channels. After the
auction of the lower 800 MHz channels, incumbents therein will not be subject to
relocation, and EA licensees must provide co-channel protection to incumbents,
who will be permitted to operate within their assigned interference contours,
provided that all affected co-channel incumbent licensees consent. EA licensees
on the lower channels must construct systems adequate to cover one-third of the
population in their service area within three years of license grant, and
two-thirds within five years. Alternatively, EA licensees may show "substantial
service" to the geographic area within five years.
A number of incumbent SMR operators have appealed the FCC's new 800 MHz
licensing rules to the United States Court of Appeals for the District of
Columbia Circuit, and two parties requested a court-imposed stay of the auction.
The Court denied these motions for stay, and the Upper Channel Auction was held
as scheduled. While the pending litigation has not had an immediate impact on
the 800 MHz auction schedule, the future development of the case and its
ultimate outcome may affect any subsequent auctions of 800 MHz SMR spectrum.
Additionally, a number of parties are seeking FCC reconsideration of the lower
channel auction and service rules.
In August 1994, when the FCC first began to consider geographic-area
licensing for 800 MHz SMRs, all 800 MHz SMR licensing was frozen (i) due to a
large backlog of SMR applications and (ii) in an effort to stabilize the 800 MHz
SMR landscape to prepare for new geographic-area licensing. In the spring of
1996, the FCC was able to process all of the backlogged applications, resulting
in a number of license grants to Nextel. Many of these grants were the subject
of petitions for reconsideration, but Nextel has retained a large number of
these granted licenses, which will enable further implementation of Nextel's
Digital Mobile network. Although the Upper Channel Auction signaled the end of
the freeze on these channels, the freeze remains in effect on the lower
channels.
At the same time it suspended all 800 MHz SMR licensing, the FCC
established a waiver process whereby parties could obtain new licenses if they
could show that their application (i) affects only channels on which the
applicant is already permanently licensed and (ii) affects coverage only within
the applicant's geographic area. Nextel and other SMR licensees subsequently
filed numerous applications pursuant to this waiver process, and have continued
to pursue FCC grant of these applications. On October 23, 1996, the Chief of the
Wireless Telecommunications Bureau released an order directing the FCC's
Licensing Division to process the waiver applications. On February 6 and 7,
1997, Nextel was granted nearly all of its waiver applications. A few of those
grants have been challenged by other SMR license applicants, and these grants
and challenges are still pending.
As a Commercial Mobile Radio Services ("CMRS") provider, the Company's use
and aggregation of radio spectrum, its technical operation and, in some cases,
its relationship with third parties, are regulated by
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the FCC. For example, the FCC imposes on Nextel and other CMRS operators a 45
MHz CMRS spectrum cap, thus limiting the amount of CMRS spectrum (e.g.,
cellular, PCS, and SMR) any single provider can hold. No more than 10 MHz of SMR
spectrum in the 800 MHz SMR service can be attributed to one entity, however,
under existing rules. Cellular licensees and wireline companies have been
granted the authority to participate in dispatch and SMR services, respectively.
The FCC also requires Nextel to permit its services to be resold, to permit
manual roaming by users with technically compatible equipment, to provide
enhanced 911 services by April 1998, to contribute to federal and state
Universal Service Funds (as defined below) and to offer local telephone number
portability by as early as mid-1999. Additionally, the FCC is considering the
imposition of an automatic roaming obligation on all CMRS providers. The FCC has
not thus far imposed a requirement that all CMRS providers provide
interconnection to all other CMRS providers, but has stated that it will
consider interconnection complaints on a case-by-case basis and that it may
consider in the future whether to impose more general interconnection
obligations. Each of these existing and potential regulatory obligations could
have an impact on Nextel's operations. However, some of the obligations, such as
enhanced 911, are coupled with a right to recover the costs of implementation.
Nextel is studying the cost of enhanced 911 implementation and working with
state and local officials to establish cost recovery mechanisms.
In its implementation of TCA '96, the FCC recently established new federal
universal service mechanisms that will affect CMRS operators. Under the new
rules, wireless service providers potentially are eligible to receive universal
service subsidies for the first time; however, they also are required to
contribute to both federal and state universal service funds (the "Universal
Service Funds"). The FCC recently denied petitions for reconsideration arguing
that CMRS providers are not required to contribute to state universal service
programs. A number of parties have challenged the FCC's universal service order
and the cases have been consolidated in the United States Court of Appeals for
the Fifth Circuit in New Orleans. A judicial determination could result in a
change in CMRS carrier support payments required for federal universal service
programs. The ultimate resolution of the federal universal service rules could
affect CMRS carrier contribution obligations to state universal service
programs. At this time, however, many states are moving forward with Universal
Service Fund programs, a number of which require contributions, varying greatly
from state to state, from CMRS carriers.
On July 18, 1997, the FCC determined that the National Exchange Carrier
Association ("NECA") will be the temporary administrator of the universal
service program. All entities potentially contributing to the program were
required to file a revenue worksheet with NECA by September 1, 1997. Universal
service payment obligations began on January 1, 1998. Under current rules,
Nextel will be required to contribute an amount equal to 0.72% of its total
revenues and an additional 3.19% of its interstate revenues to the federal
Universal Service Fund. At the state level, Nextel currently is contributing to
some state funds (e.g. Kansas universal service fund, which currently assesses a
fee of 9.89% of gross intrastate revenues, which may increase to up to 14%
within the next two years).
As is true for cellular service and PCS system operators, the
interconnection of subscriber units with the public switched telephone network
requires Nextel to obtain certain exchange and interexchange services from
telephone companies. In June 1996, the FCC adopted a national regulatory
framework for implementing the local competition provisions of TCA '96,
including adoption of rules delineating interconnection obligations of incumbent
local exchange carriers ("LECs"), unbundling requirements for incumbent LECs,
network elements, requirements for access to local rights of way, dialing parity
and telephone numbering and number portability, and requirements for resale of
and nondiscriminatory access to incumbent LEC services. The FCC established a
national regulatory framework that sets pricing standards and negotiation and
arbitration guidelines. However, the United States Court of Appeals for the
Eighth Circuit vacated certain of such standards and guidelines, on the grounds
that the FCC lacked the authority to bind state regulators on the matter of
local pricing of interconnection. As a result, landline interconnection pricing
and other issues where the FCC attempted to set a national framework will be
left to state-by-state determinations.
The Eighth Circuit, however, also determined that the FCC had special
authority over CMRS carriers and their interconnection to incumbent LECs.
According to the Eighth Circuit decision, national interconnec-
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tion rules will be maintained for Nextel's CMRS operations. The FCC appealed the
Eighth Circuit decision to the Supreme Court, which has set the case for hearing
in its October 1998 Term. In response to the Eighth Circuit's initial decision,
the FCC released a public notice reminding interested parties that CMRS specific
incumbent LEC interconnection rules remain in effect pending further FCC action.
The FCC also is considering whether additional action should be taken to further
develop CMRS-LEC interconnection rules in light of the Eighth Circuit decision.
Furthermore, the FCC recently adopted new rules limiting the use of
customer proprietary network information by telecommunications carriers,
including incumbent LECs, in marketing a broad range of telecommunications
services to their customers, and the customers of affiliated companies. These
new rules may affect the Company and the way it conducts its business,
particularly its ability to compete against incumbent LECs with wireless
affiliates. However, the Company does not anticipate that the rules will result
in a significant adverse impact on its financial position, results of operation
or liquidity.
Allegations of harmful effects from the use of hand-held cellular phones
have prompted new studies concerning the safety of the emissions of
electromagnetic energy from hand-held wireless phones. In August 1996, however,
the FCC adopted new standards for evaluating the extent to which wireless
facilities will expose both employees and the public to radio frequency
radiation. At that time, the FCC determined that state and local regulation of
radio frequency radiation from facilities used to provide "personal wireless
services" is preempted to the extent the facilities comply with the FCC's radio
frequency exposure limits. On August 25, 1997, the FCC affirmed the radio
frequency exposure limits adopted in 1996. At that time, it also revised a
number of rules, including extending the transition period for implementing
federal radio frequency emissions guidelines for existing facilities, and
expanded the coverage of its radio frequency emissions regulations to include
all SMR operators, rather than covering only those operators that offer services
comparable to cellular and PCS. In the face of an increase in local siting
disputes, the FCC concurrently issued a notice of proposed rulemaking to
consider, among other things, the procedure for obtaining relief from state and
local regulations pertaining to the placement of facilities, guidelines
governing the types of information that a state or local government can request
to judge compliance with FCC emissions rules, and the adoption of a presumption
that facilities licensed by the FCC comply with the FCC's radio frequency
emissions guidelines.
Nextel also is subject to limitations on foreign government investment as
set forth in the Communications Act of 1934, as amended (the "Communications
Act"). The Communications Act currently restricts foreign ownership or control
over CMRS licenses, which include SMR licenses. The FCC recently decided to
consider the opportunities that other nations provide to U.S. companies in their
communications industries as a factor in deciding whether to permit higher
levels of indirect foreign ownership in companies controlling common carrier and
certain other radio licenses. The TCA '96 relaxes these restrictions by
eliminating the statutory provisions restricting foreign officers and directors
in licensees and their parent corporations. In February 1997, the U.S.
government entered into a World Trade Organization ("WTO") agreement with
respect to telecommunications. The agreement requires the United States, among
other things, to afford "national" treatment to foreign investors of WTO
countries seeking indirect ownership of CMRS licenses in the United States.
These changes, and the FCC's rules implementing the agreement, will permit
additional foreign investment and participation in the United States' wireless
marketplace and therefore will enhance competition. The WTO agreement became
effective on February 5, 1998. The FCC's rules implementing the WTO became
effective on February 9, 1998.
On October 3, 1997, the FCC released an order establishing uniform rules
governing incumbent LEC participation in broadband CMRS within each LEC's
landline telephone region. These rules will expire on January 1, 2002 unless
extended by the FCC. While the FCC eliminated the requirement in its cellular
rules for full structural separation of the incumbent LEC cellular affiliate
from the LEC landline affiliate, the FCC adopted a new set of rules designed to
address incentives incumbent LECs may have to engage in anticompetitive
practices against CMRS providers, such as discriminatory interconnection,
cost-shifting and anticompetitive pricing. The FCC also recently released a
notice of inquiry on calling party pays ("CPP"), a mechanism that would allow
CMRS providers to offer service plans under which callers to CMRS customers
would pay for the calls that they make. A calling party pays offering would
establish a system similar to that
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used in European countries. Comments and reply comments were filed in the
proceeding, and on February 23, 1998, the Cellular Telecommunications Industry
Association ("CTIA") filed a petition at the FCC seeking expedited consideration
of CPP rules. Comments and reply comments on CTIA's petition are due May 8, 1998
and June 8, 1998, respectively.
STATE REGULATIONS AND LOCAL APPROVALS
In OBRA '93, Congress preempted states from regulating rates or entry into
CMRS, including SMR. The scope of the allowable level of state regulations of
CMRS, however, remains unclear since Congress allowed states to retain
jurisdiction over CMRS carriers' "other terms and conditions" of service. OBRA
'93 does not identify the "other terms and conditions" of CMRS service that can
be regulated by the states, and the resolution of this issue will impact the
extent to which SMR providers will be subject to state regulation of CMRS. Some
states have eliminated all regulation of CMRS providers, e.g. Virginia, while
others, such as Kentucky and Louisiana, continue to require CMRS tariff filings.
The siting of base stations also remains subject to state and local jurisdiction
although Congress attempted to limit abuses of that authority in adopting
Section 704 of the TCA '96. Petitions seeking clarification of states' siting
authority are currently pending at the FCC.
Future changes in regulation or legislation affecting Digital Mobile
network service and the recent allocation of additional CMRS spectrum by
Congress and the FCC could materially adversely affect Nextel's business.
EMPLOYEES
At December 31, 1997, the Company had approximately 6,400 full-time
employees. None of the Company's employees are covered by a collective
bargaining agreement, and the Company believes that its relationship with its
employees is good.
RISK FACTORS
The Company's business, financial condition and future prospects are
subject to a number of risks and contingencies. Those that the Company regards
currently among the most significant are summarized below. See also "-- Forward
Looking Statements."
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 the Company's
Digital Mobile network. Nextel has incurred net losses since its inception,
including losses attributable to common stockholders of approximately $1,643.0
million for the year ended December 31, 1997. Nextel had an accumulated deficit
totaling approximately $2,749.1 million at December 31, 1997. In addition,
Nextel has experienced significant negative net cash flows since its inception.
Nextel anticipates that it will continue to experience significant net losses
and significant negative net cash flow during the ongoing deployment of its
Digital Mobile network over the next several years. Nextel's ability 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
Nextel's operations will become profitable. See "-- Nextel to Require Additional
Financing" and "-- Forward Looking Statements."
RISKS OF IMPLEMENTATION OF DIGITAL MOBILE NETWORK. The implementation of
the Company's Digital Mobile network involves systems design, site procurement,
construction, electronics installation, receipt of necessary FCC and other
regulatory approvals, channel recovery (freeing a certain number of 800 MHz
frequencies from SMR analog traffic) 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
its Digital Mobile network (where such network is not already in commercial
operation) in any particular market in accordance with its current plans and
schedules. See "-- Forward Looking Statements."
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IMPLEMENTATION OF DIGITAL MOBILE NETWORK SUBJECT TO RISKS OF DEVELOPING
TECHNOLOGY. As described previously, TDMA, CDMA and GSM-PCS are the three
principal digital technology formats that are being assessed or proposed for
deployment or have been deployed by providers of cellular telephone service or
certain entities that have been awarded PCS licenses to provide wireless
communications services in the United States. Although TDMA, CDMA and GSM-PCS
are digital transmission technologies, and thus share certain basic
characteristics and areas of contrast to analog transmission technology, TDMA,
CDMA and GSM-PCS are not compatible or interchangeable with each other.
Motorola's proprietary Reconfigured iDEN digital technology is currently
being deployed in Nextel's Digital Mobile network. Although Reconfigured iDEN is
based on the TDMA technology format it differs in a number of significant
respects from the TDMA technology versions being assessed or deployed by
cellular operators and PCS licensees in the United States, which differences may
have important consequences.
In the future, a digital transmission technology other than TDMA may gain
acceptance sufficient to adversely affect the resources devoted by third parties
in developing or improving TDMA-based technologies and the market acceptance of
TDMA-based technologies such as iDEN. Moreover, currently existing digital
cellular technology formats cannot be utilized on Nextel's present SMR spectrum
holdings. Accordingly, if any improvements were to be made to such currently
existing digital cellular technology formats, the prospect of achievement of
parallel improvements in the TDMA-based iDEN technology presently utilized by
Nextel is not certain. See "-- Forward Looking Statements."
Customer acceptance of the services offered by Nextel will be affected by
technology-based differences and also by the operational performance and
reliability of system transmissions on Nextel's Digital Mobile network. Nextel
encountered certain technology and system performance issues with respect to
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 transmission quality of mobile telephone
services utilizing Nextel's Digital Mobile network prior to the second quarter
of 1996 in those markets where Nextel's Digital Mobile network had been launched
using the first generation iDEN technology. Nextel and Motorola took actions to
address system performance issues in general, and voice transmission quality
concerns in particular, which the Company believes successfully resolved such
issues and concerns. However, similar actions and other measures, most of which
can be categorized as systems optimization, are expected to be ongoing
activities connected with Nextel's operation of its Digital Mobile network.
Moreover, Nextel expects that systems optimization, software loading and planned
maintenance activities will be ongoing components of its operation of the
Digital Mobile network that will periodically require the scheduled turndown of
selected subsystems in Nextel's Digital Mobile network during periods of very
low system traffic, typically at night or on weekend days. See "-- Forward
Looking Statements."
Moreover, the satisfactory resolution of certain system performance issues
in a particular market or at a particular stage of operation will 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 network, and future upgrades or modifications to the digital Mobile
network may have unexpected adverse effects on performance issues previously
addressed and resolved. Each of Motorola and Nextel believes, however, that a
large portion of the hardware and software adjustments developed in the course
of system development and technology 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 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 address related system performance issues
successfully. See "-- Forward Looking Statements."
Any future inability to address and resolve satisfactorily performance
issues that affect customer acceptance of Digital Mobile network service could
delay or adversely affect the further successful commercialization of the
Digital Mobile network and could adversely affect the business and financial
prospects of Nextel. If Nextel for any reason is unable to implement its Digital
Mobile network as currently contemplated to be deployed and provide service to
its target customers that is competitive with the services of
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other wireless communications providers, Nextel would be unable, utilizing its
analog SMR technology and systems, to provide mobile telephone services
comparable to those provided by other cellular and PCS wireless communications
services providers or to achieve significant further subscriber growth. See
"-- Forward Looking Statements."
NEXTEL TO REQUIRE ADDITIONAL FINANCING. Nextel anticipates that, for the
foreseeable future, it will be utilizing significant amounts of its available
cash for capital expenditures for the construction and enhancement of its
Digital Mobile network, operating expenses relating both to the Digital Mobile
network and to its analog SMR business, potential acquisitions (including the
acquisition of rights to spectrum through the recently concluded 800 MHz
auction, acquisition of LMDS spectrum through the joint venture conducted
through NextBand in the recently concluded LMDS spectrum auction and any future
auctions of spectrum by the FCC), debt service requirements and other general
corporate expenditures. Nextel anticipates that its cash utilization for capital
expenditures and other investing activities and operating losses will continue
to exceed its cash flows from operating activities over the next several years.
During the year ended December 31, 1997, Nextel's average monthly cash
utilization rate for investing activities (principally attributable to capital
expenditures for the build-out of the Company's Digital Mobile network and
acquisitions) was approximately $160.2 million, and its average monthly net cash
used in operating activities was approximately $30.2 million. Such average
monthly amounts are not necessarily representative of Nextel's anticipated
future experience in such areas, but are expected to continue to be at
significant levels during 1998 in connection with the implementation of Nextel's
1998 Plan and the related build-out, expansion and enhancement of its Digital
Mobile network.
In connection with the Company's implementation of its 1998 Plan in its
domestic markets, Nextel has estimated that the external funding required to
meet the cash needs of its domestic business activities during 1998, including
principally the purchase or redemption of the remaining Targeted Notes, the
funding of anticipated capital expenditures and acquisitions (including the
remaining balance due for acquisitions of licenses in the FCC's 800 MHz spectrum
auction concluded in December 1997 but excluding amounts to acquire LMDS
licenses), and operating losses, will be approximately $2,970.0 million, which
includes approximately $1,335.0 million of system infrastructure and other
system capital costs relating to Nextel's Digital Mobile network. Such estimates
are based in part on the Company's experience in 1997 and on a number of
significant assumptions, including assumptions regarding continued subscriber
growth and increased demand for the Company's wireless services and enhancements
to existing Digital Mobile system infrastructure to expand and improve systems
coverage and performance to address competitive pressures faced or anticipated
by the Company in its domestic markets. Additionally, the 1998 Plan does not
include amounts required to acquire LMDS licenses or to pursue LMDS or other new
business opportunities or other potential transactions or investments that are
not part of Nextel's domestic digital and analog SMR wireless communications
businesses and assets and related corporate support services, personnel and
overhead. See "-- 1998 Business Plan." The telecommunications industry is
rapidly evolving and there can be no assurance that the Company will not
experience levels of demand for its services or competitive pressures that
differ from those experienced in 1997 and from those assumed in developing the
Company's 1998 Plan, which could cause an increase in the Company's need for
additional financing. See "-- Forward Looking Statements."
The Bank Credit Agreement currently provides for up to $3.0 billion in
secured financing, subject to the satisfaction or waiver of applicable borrowing
conditions which are secured by liens on assets of Nextel's subsidiaries that
are "restricted" subsidiaries under the Nextel Indentures. Of such financing,
$1.0 billion of term loan financing was drawn as of March 13, 1998. The
availability of such financing is subject to Nextel's satisfying certain
requirements under the Old Indentures, which require Nextel to issue new equity
for cash as a condition to obtaining access to all amounts not constituting
"permitted debt" (as such term is defined in the Old Indentures). Based upon the
amount of new equity issued, and debt incurred, through March 13, 1998 Nextel
estimates that approximately $250.0 million of the amounts available under the
Bank Credit Facility cannot be accessed under the Old Indenture requirements
(other than to refinance existing debt) until either (i) proceeds of the prior
debt incurrences (including the February Notes Proceeds) are applied to
refinance notes issued under the Old Indentures (See "Post Fiscal Year 1997
Transactions and Developments -- Tender Offer and Consent Solicitation") or (ii)
the Company issues additional equity for cash that would
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support the incurrence of additional debt. See "Part II, Item 7, Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Future Capital Needs and Resources." The Company expects that it
will be acquiring more than $250.0 million of Targeted Notes tendered pursuant
to the currently pending tender offers therefor. If such Targeted Notes are so
acquired, the Company may access the entire $3.0 billion available under the
Bank Credit Facility in compliance with the debt incurrence requirements set
forth in the Old Indentures.
Assuming (i) that Nextel secures access to all of the available funds under
the Bank Credit Facility and (ii) that the New Option is exercised for cash and
Nextel receives the $420.0 million in proceeds from such exercise, Nextel
believes that such amounts, coupled with the Company's available cash and cash
equivalents, including the proceeds from the financing transactions completed in
1998 that remain after completion of the tender offers for the Targeted Notes,
will provide funds that in the aggregate are expected to be more than sufficient
to implement the Company's 1998 Plan and meet the other currently anticipated
cash needs of the domestic business activities contemplated by the 1998 Plan
through the end of 1998 and to fund the Company's share of the purchase price
for the LMDS spectrum acquired by NextBand. See "Post-Fiscal Year 1997
Transactions and Developments -- LMDS Auction." Thereafter, Nextel may require
substantial additional financing to fund further deployment, expansion and
enhancement of its Digital Mobile network, to fund operating losses and for
other purposes. To the extent the Company's existing financing sources are
insufficient to meet such needs, the Company may seek to raise additional
capital from public or private equity or debt sources. See "-- Forward Looking
Statements."
The availability of borrowings pursuant to the Bank Credit Facility is
subject to certain conditions, and there can be no assurance that such
conditions will be met. Moreover, there can be no assurance that the New Option
will be exercised for cash, and that Nextel will receive the proceeds therefrom,
or that any other outstanding options will be exercised for cash. The Bank
Credit Facility, the Nextel Indentures, and the terms of the certificate of
designation for the Series E Preferred Stock (the "Series E Certificate") and of
the certificate of designation for the Series D Preferred Stock (the "Series D
Certificate") contain and will continue to contain provisions that operate to
limit the amount of borrowings that may be incurred by Nextel. The Bank Credit
Agreement also requires Nextel and its relevant subsidiaries at specified times
to maintain compliance with certain operating and financial covenants or ratios
including certain covenants and ratios specifically related to leverage, which
may become more stringent over time. In addition, Nextel's capital needs, and
its ability to adequately address those needs through debt or equity funding
sources, are subject to a variety of factors that cannot presently be predicted
with certainty, such as the commercial success of Nextel's Digital Mobile
network, the amount and timing of Nextel's capital expenditures and operating
losses and the market price of the Common Stock. See "-- Forward Looking
Statements."
Nextel currently is aware of numerous factors and considerations, any one
or more of which could have a material effect on the timing and/or amount of the
future funding to be required by Nextel, but Nextel cannot currently quantify
with precision either the magnitude or the certainty of the effects associated
with any such factors. These factors include: (i) the uncertainty of legal
challenges lodged against the 800 MHz SMR auction that was completed on December
8, 1997; (ii) the uncertainty of legal challenges to Nextel's applications for
licenses on which Nextel was the high bidder at the 800 MHz auction; (iii) the
amounts that will be required to accomplish retuning or acquisition of 800 MHz
incumbent channels in spectrum blocks for which Nextel was the high bidder at
the 800 MHz auction; (iv) the possibility that Nextel will be able to obtain
geographic area licenses on the lower 800 MHz channels through an FCC auction;
(v) the potential commercial opportunities and risks associated with
implementation of Nextel's 1998 Plan; and (vi) the net impact on Nextel's
capital plan of certain developments currently expected to increase capital
needs (e.g., the additional capital needed if Nextel acquires for cash
additional spectrum in certain markets to increase the capacity and/or
efficiency of Nextel's operating its Digital Mobile network in such markets, the
additional capital needed for more extensive construction of the Digital Mobile
network in additional market areas acquired or that may be acquired in the
future, the additional capital needed to produce more robust coverage in
existing and new Nextel Digital Mobile network markets, additional capital
required to pursue new telecommunications service offerings or business
opportunities (including LMDS spectrum acquisitions), and the expenditures
associated with analog SMR station construction requirements under the currently
effective
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FCC 800 MHz channel licensing approach) that may be offset (whether wholly or
partially) by other developments anticipated to (or to have the potential to)
reduce capital needs (e.g., co-location of antenna and/or transmitter sites with
other providers of wireless services in the relevant markets, reductions in
infrastructure and subscriber unit prices obtained from Motorola including
reductions pursuant to the Second Equipment Agreement Amendment and subsequent
agreements, alternative and more economical means for increasing system
capacity, other than constructing additional cell sites and/or installing
additional base radios, such as use of so-called "smart antennas," mini-cells
and software-driven and/or system design performance enhancements). Many of the
foregoing involve elements wholly or partially beyond Nextel's control or
influence. Other considerations in addition to the factors identified above may
significantly affect Nextel's decisions to seek additional financing, including
general economic conditions, conditions in the telecommunications and/or
wireless communications industry and the feasibility and attractiveness of
structuring particular financings for specific purposes (e.g., separate
capital-raising activities with respect to international activities and
opportunities). See "-- Forward Looking Statements."
Nextel has had and may in the future have discussions with third parties
regarding potential equity investments and debt financing arrangements to
satisfy actual or anticipated 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. The ability
of Nextel to incur additional indebtedness (including, in certain circumstances,
indebtedness incurred under the Bank Credit Agreement is and will be limited by
the terms of the Nextel Indentures, the Series E Certificate, the Series D
Certificate and the Bank Credit Agreement.
At present, other than the existing equity or debt financing arrangements
that have been consummated and/or disclosed herein, Nextel has no commitments or
understandings with any third parties to obtain any material amount of
additional equity or debt financing. Moreover, no assurances can be made that
Nextel will be able to obtain any such additional financing in the amounts or at
the times such financing may be required, or that, if obtained, any such
financing would be on acceptable terms. Nextel also anticipates that it will
continue to experience significant operating losses and negative net cash flows
during the ongoing build out phase of the Digital Mobile network over the next
several years. Accordingly, there can be no assurances as to whether or when the
operations of Nextel will become profitable. As a result of Nextel's anticipated
continuing losses, the uncertainty regarding the exercise of options and
warrants, the total availability of financing under the Bank Credit Facility,
and the impact of Reconfigured iDEN and other matters discussed above, there can
be no assurance that Nextel will have adequate capital, or will be able to
successfully structure acceptable arrangements with third parties, to implement
the contemplated expansion and enhancement of its Digital Mobile network.
Failure to obtain such financing could result in the delay or abandonment of
some or all of the Company's acquisition, development and expansion plans and
expenditures which could have a material adverse effect on its business,
financial condition and prospects. See "-- Forward Looking Statements."
SUCCESS OF NEXTEL IS DEPENDENT ON ITS ABILITY TO COMPETE. Nextel's success
depends on its Digital Mobile network's ability to compete with other wireless
communications systems in each relevant market and the Company's ability to
successfully market integrated wireless communications services. 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 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
network. See "-- Nextel's Digital Mobile Network -- Competition" and
"-- Marketing."
Following implementation of its Digital Mobile network and completion of
related system optimization activities, Nextel's Digital Mobile network will
compete with established and future wireless communications operators to attract
customers to its service in each of the markets in which the Company operates
such Digital Mobile network. Nextel's ability to compete effectively with other
wireless communications service providers will depend on a number of factors,
including the continued satisfactory performance of iDEN technology, the
establishment and maintenance of roaming service among the Company's market
areas and
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the further development of cost effective direct and indirect channels of
distribution for the Company's Digital Mobile network products and services.
Although Nextel has made significant progress in these areas to date, no
assurance can be given that such objectives will be completely achieved.
Moreover, Nextel must compete with current cellular communications providers and
current or potential wireless communication service providers, many of which
have financial resources, subscriber bases and name recognition greater than
Nextel. See "-- Ability to Manage Growth" and "-- Forward Looking Statements."
While Nextel believes that the mobile telephone service currently being
provided on its Digital Mobile network utilizing the Reconfigured iDEN
technology is similar in function to and achieves performance levels competitive
with those being offered by other current wireless communications service
providers in Nextel's market areas, there are (and will in certain cases
continue to be) differences between the services provided by Nextel and by
cellular and/or PCS system operators and the performance of their respective
systems. Nextel currently offers its mobile telephone customers the ability to
"roam" among Nextel's existing Digital Mobile network market areas, which
currently represent coverage of areas in which approximately 65% of the United
States population lives or works. Accordingly, Nextel will not be able to
provide roaming service comparable to that currently available from cellular and
certain PCS system operators, which have roaming agreements covering each
other's markets throughout the United States, unless and until a nationwide
Digital Mobile network build-out is substantially completed. In addition, if
either PCS or cellular operators provide two-way dispatch services in the
future, Nextel's competitive advantage may be impaired.
Subscriber units on the Company's Digital Mobile network are not compatible
with those employed on cellular or PCS systems, and vice versa. This lack of
interoperability may impede Nextel's ability to attract cellular or PCS
subscribers or those new mobile telephone subscribers that desire the ability to
access different service providers in the same market. Nextel currently markets
a multi-function subscriber unit that is (and is likely to remain) significantly
more expensive than analog handsets and is (and is likely to remain) somewhat
more expensive than digital cellular or PCS handsets that do not incorporate a
comparable multi-function capability. Accordingly, the prices expected to be
charged to Nextel for the subscriber handsets to be used by Nextel's Digital
Mobile network customers will be higher than those charged to operators for
analog cellular handsets and may be higher than those charged to operators for
digital cellular handsets. However, Nextel believes that its multi-function
subscriber units currently are competitively priced compared to multi-function
(mobile telephone service and alphanumeric short-text messaging) digital
cellular and PCS handsets. During the transition to digital technology, certain
participants in the United States cellular industry are offering subscriber
units with dual mode (analog and digital) compatibility. Additionally, certain
analog cellular system operators that directly or through their affiliates also
are constructing and operating digital PCS systems have made available to their
customers dual mode/dual band (800 MHz cellular/1900 MHz PCS) subscriber units,
to combine the enhanced feature set available on digital PCS systems within
their digital service coverage areas with the broader wireless coverage area
available on the analog cellular network. Nextel does not have comparable hybrid
subscriber units available to its customers.
Additionally, there can be no assurances that existing analog SMR customers
will be willing to invest in new subscriber equipment necessary to migrate to
the Company's Digital Mobile network, nor can there be any assurance that a
sufficient number of customers or potential customers of Nextel's Digital Mobile
network will be willing to accept system coverage limitations as a trade-off for
the enhanced multi-function wireless communications package provided by the
Company on its nationwide Digital Mobile network. Over the past several years as
the number of wireless communications providers in Nextel's market areas has
increased, the prices of such providers' wireless service offerings to customers
in those markets have generally been decreasing. The Company may encounter
further market pressures to reduce its Digital Mobile network service offering
prices to respond to particular short term, market specific situations (such as
special introductory pricing packages that may be offered by new providers
launching their service in a market) or to remain competitive in the event that
wireless service providers generally continue to reduce the prices charged to
their customers. Moreover, because many of the cellular operators and certain of
the PCS 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, that could be offered by Nextel and may be able to offer services to
customers at prices that are below prices
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that Nextel is able to offer for comparable services. Thus, Nextel's ability to
compete based on the price of its Digital Mobile network subscriber units and
service offerings will be limited. Nextel cannot predict the competitive effect
that any of these factors, or any combination thereof, will have on Nextel. See
"-- Forward Looking Statements."
Cellular operators and certain PCS operators and entities that have been
awarded PCS licenses each control more spectrum than is allocated for SMR
service in each of the relevant market areas. Each cellular operator is licensed
to operate 25 MHz of spectrum and certain PCS licensees have been licensed for
30 MHz of spectrum in the markets in which they are licensed, while no more than
21.5 MHz is available in the 800 MHz band to all SMR systems, including Nextel's
systems, in those markets. The control of more spectrum gives cellular operators
and such PCS licensees the potential for more system capacity, and, therefore,
more subscribers, than SMR operators, including Nextel. Nextel believes that it
generally has adequate spectrum to provide the capacity needed on its Digital
Mobile network currently and for the reasonably foreseeable future. See
"-- Forward Looking Statements."
The Company has been increasing over time the proportion of its Digital
Mobile network customers that it obtains through its indirect distributor
network, and Nextel currently anticipates that it will rely more heavily on
indirect distribution channels to achieve greater market penetration for its
digital wireless service offerings. As the Company expands its retail subscriber
base through increased reliance on indirect distribution channels, and as price
competition in the wireless industry intensifies, the average revenue per
subscriber unit is expected to decrease and the churn rate is expected to
increase. See "-- Forward Looking Statements."
ABILITY TO MANAGE GROWTH. As a result of the commencement of Digital
Mobile network service in certain markets and increased sales in markets in
which Digital Mobile network services are provided and, to a limited extent,
acquisitions, the number of subscriber units in service on Nextel's Digital
Mobile network has increased substantially over the past several years.
The ability of Nextel to continue to add increasing numbers of subscribers
on its Digital Mobile network is dependent on a variety of factors. Among the
more important of such factors is Nextel's ability to successfully plan for
additional system capacity in its market areas at levels adequate to accommodate
anticipated new subscribers and the related increases in system usage. One
important factor influencing system capacity is the amount of spectrum available
to Nextel in a particular market area. Although Nextel continues to pursue
opportunities to acquire additional SMR spectrum in its market areas, Nextel
believes that its present holdings of 800 MHz spectrum are generally adequate
for the current and reasonably foreseeable operation of its Digital Mobile
network.
An important factor influencing the ability to increase the number of
subscribers is the availability of a sufficient quantity of cell sites, system
infrastructure equipment and subscriber units, of the appropriate models and
types, to meet the demands and preferences of potential subscribers to the
Digital Mobile network. To date, Nextel has been able to secure sufficient cell
sites at appropriate locations in its markets to meet planned system coverage
and capacity targets, and also has been able to obtain adequate quantities of
base radios and other system infrastructure equipment from Motorola and other
suppliers, and adequate volumes and mix of subscriber units and related
accessories from Motorola, to meet subscriber and system loading rates. See
"-- Reliance on One Principal Supplier in Implementation of Digital Mobile
Network" and "-- Forward Looking Statements."
Other factors affecting Nextel's ability to successfully add customers on
its Digital Mobile network include (i) the adequacy and efficiency of its
information systems, business processes and related support functions; (ii)
reducing the length of time from customer order to commencement of service (the
"activation cycle") on the Digital Mobile network to maintain the activation
cycle typically encountered for "off the shelf" cellular and PCS wireless
service offerings; and (iii) improving the efficiency and speed of the processes
for the Company's customer service and accounts receivable collection functions
to adequately respond to the needs of a growing customer base on the Digital
Mobile network and the increasing amounts of billed digital service and
equipment revenue. Customer reliance on Nextel's customer service functions may
increase as more Digital Mobile network customers are added through indirect
distribution channels.
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Although the Company has taken steps to refine, improve, and scale-up its
back-office and support systems and processes, there can be no assurance that
such systems and processes will achieve levels of capacity, or improvements in
speed and efficiency, sufficient to meet customer and network growth and
demands, or will be able to do so on a timely basis. Any inability of the
Company to timely meet Digital Mobile network capacity needs, to have access to
suitable cell sites and infrastructure and subscriber equipment in any one or
more of its market areas, or to develop when and as required improvements or
expansions to its systems and processes adequate to meet desired levels of
customer activation and increased levels of usage and demand for wireless
services on the Digital Mobile network could decrease or postpone subscriber
growth, or delay or otherwise impede billing and collection of amounts owed,
thereby adversely affecting Nextel's revenues, business and prospects. See
"-- Forward Looking Statements."
RELIANCE ON ONE PRINCIPAL SUPPLIER IN IMPLEMENTATION OF DIGITAL MOBILE
NETWORK. Pursuant to the Equipment Purchase Agreements, between Nextel and
Motorola, Motorola provides the iDEN infrastructure and subscriber handset
equipment to Nextel throughout its markets. Nextel expects that it will need to
rely on Motorola for the manufacture of a substantial portion of the equipment
necessary to construct its Digital Mobile network and handset equipment for the
foreseeable future. The Second Equipment Agreement Amendment limits Nextel's
ability to deploy a "Switch in Technology" which, under the Second Equipment
Agreement Amendment, is defined to mean a decision by Nextel before August 4,
1999 to install and use digital radio frequency technology as an alternative to
iDEN on more than 25% of its SMR channels in the 806-824 MHz band in one or more
of its top 20 domestic markets, or the utilization by Nextel of any of its SMR
channels for voice interconnect on certain United States cellular and/or PCS
radio telephony standards. Nextel may not implement such a Switch in Technology
unless (1) 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 (2) Nextel or the McCaw Investor offers to acquire
the remainder of Motorola's shares of Common Stock at a per share price of at
least 110% of the average of the closing prices of the Common Stock over the 30
trading days 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 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.
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. Due to the considerable present uncertainty surrounding
the factors that might affect such a decision, including the additional capital
requirements associated with the deployment of an alternative technology, the
performance characteristics and customer perceptions of Reconfigured iDEN, or of
competing digital technologies and possible future improvements in Reconfigured
iDEN technology platform, it is impossible to predict if or when such a decision
could be made. See "-- Forward Looking Statements."
NEXTEL'S PROSPECTS ARE DEPENDENT ON GOVERNMENTAL REGULATION. The
licensing, operation, acquisition and sale of Nextel's SMR businesses are
regulated by the FCC. FCC regulations have undergone significant changes during
the last three years and continue to evolve as new FCC rules and regulations are
adopted pursuant to the OBRA '93 and the TCA '96. Nextel's ability to conduct
its business is dependent, in part, on its compliance with FCC rules and
regulations. Future changes in regulation or legislation affecting Digital
Mobile network service and Congress' and the FCC's continued allocation of
additional CMRS spectrum could materially adversely affect Nextel's Digital
Mobile network business. See "-- Regulation" and "-- Forward Looking
Statements."
NEXTEL SUSCEPTIBLE TO CONTROL BY SIGNIFICANT STOCKHOLDERS. Based on
securities ownership information relating to Nextel as of December 31, 1997, and
giving effect (on such date) to the conversion of the outstanding shares of
Nextel's preferred stock and Non-Voting Common Stock and the exercise in full of
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(i) two separate options held by the McCaw Investor exercisable for periods of
four and six years, respectively, from July 28, 1995, to acquire an aggregate of
up to 15.0 million shares of Common Stock at exercise prices ranging from $18.50
to $21.50 per share, (ii) the Incentive Option held by Eagle River, to purchase
an aggregate of 1.0 million shares of Common Stock at an exercise price of
$12.25, which vests over a five-year period from April 4, 1995, (iii) the New
Option issued to Option Acquisition to acquire 15.0 million shares at $16.00 per
share and 10.0 million shares at $18.00 per share on or prior to July 28, 1998,
(iv) the options granted on July 28, 1995 to the McCaw Investor by Motorola to
purchase up to approximately 5.4 million shares of Common Stock over a six-year
period and (v) a warrant held by Motorola to purchase approximately 2.9 million
shares of Common Stock, entities controlled by Mr. McCaw would hold
approximately 24.4% and Motorola would hold approximately 15.1% of the Common
Stock that would be outstanding as of such date.
Pursuant to the McCaw Securities Purchase Agreement and certain other
related agreements and documents, the McCaw Investor can exert certain influence
with respect to significant aspects of the Company's business and strategy. See
"-- Agreements with Significant Stockholders -- McCaw Interests." Based upon
their respective ownership positions, if the McCaw Investor and Motorola chose
to act together, such parties could have a sufficient voting interest in Nextel,
among other things, to (1) exert effective control over the approval of
amendments to the Certificate of Incorporation, mergers, sales of assets or
other major corporate transactions as well as other matters submitted for
stockholder vote, (2) defeat a takeover attempt and (3) otherwise control
whether particular matters are submitted for a vote of the stockholders of
Nextel. Although Motorola has made certain commitments as described in
"-- Agreements with Significant Stockholders -- McCaw Interests," Nextel is not
aware of any current agreements among the McCaw Investor and Motorola with
respect to the ownership or voting of Common Stock and neither Motorola nor the
McCaw Investor has indicated to Nextel that it has any 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 Board
of Directors other than persons it is entitled to designate under the terms of
the securities it owns or of the McCaw Securities Purchase Agreement. Upon
request of Nextel, the McCaw Investor has also agreed to cause shares of Common
Stock, the voting of which is controlled by it or its affiliates, to be voted in
a manner proportionate to the votes of other holders of Common Stock in the
election of directors so designated by the Board of Directors.
Each of the McCaw Investor and Motorola has and (subject to the terms of
applicable agreements between such parties and Nextel) may have an investment or
interest in entities that provide wireless telecommunications services that
could potentially compete with Nextel. Under the McCaw Securities Purchase
Agreement, the McCaw Investor, Mr. McCaw and their Controlled Affiliates (as
defined in the McCaw Securities Purchase Agreement) may not, for a period of
time after consummation of the McCaw Transaction, participate in other two-way
terrestrial-based mobile wireless communications systems in the region that
includes any part of North America or South America unless such opportunities
have first been presented to and rejected by Nextel 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 Corp. ("AT&T") resulting from AT&T's acquisition of McCaw Cellular
Communications, Inc. ("McCaw Cellular") which investment may not exceed 3% of
the outstanding stock of AT&T). Such restrictions terminate on the later to
occur of July 28, 2000 or one year after the termination of the Operations
Committee.
POTENTIAL CONFLICT OF INTEREST RELATIONSHIP WITH MOTOROLA. Motorola and
its affiliates have and currently are engaged 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
("Motorola LMPS") may not, prior to July 28, 1998, make use (with certain
limited exceptions) of the customer lists conveyed by Motorola to ESMR in
connection with the Motorola Transaction 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 until July 1998, Motorola LMPS will not solicit other
iDEN customers and neither Motorola LMPS nor Motorola's credit corporation
30
<PAGE> 31
subsidiary will make any equity investment in, or provide equipment/vendor
financing to, certain iDEN customers with respect to purchases of iDEN
equipment.
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, Motorola's role as a significant stockholder of Nextel, in addition to
its role as a major creditor and supplier, also creates potential conflicts of
interest, particularly with regard to significant transactions. See "-- Forward
Looking Statements."
CONCERNS ABOUT MOBILE COMMUNICATIONS HEALTH RISK MAY AFFECT PROSPECTS OF
NEXTEL. Allegations have been made, but not proven, that the use of portable
mobile communications devices may pose health risks due to radio frequency
emissions from such devices. Studies performed by wireless telephone equipment
manufacturers have investigated these allegations, and a major industry trade
association and certain governmental agencies have stated publicly that the use
of such phones poses no undue health risk. 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.
DEPENDENCE ON KEY PERSONNEL. In early 1996, Nextel added a number of key
personnel to its senior management team. The Company's business plans and
strategies contemplating an accelerated nationwide build-out, expansion and
enhancement of its Digital Mobile network and related aggressive advertising and
marketing campaigns largely have been developed by, and are expected to be
implemented with, the active involvement and participation of many members of
the Company's senior management team, including particularly each of Messrs.
Akerson, Donahue, Shindler, West, Kelly and Sidman. The loss of the services of
any of these individuals could have a material adverse effect on the Company.
See "Executive Officers of the Registrant."
RISKS ASSOCIATED WITH FOREIGN OPERATIONS. Because the Company owns
interests in and operates international wireless companies through Nextel
International, it is subject to the risks inherent in such foreign operations
including: (i) political, economic and social conditions in the foreign
countries in which such operations are conducted; (ii) currency risks and
exchange controls; (iii) potential inflation in the applicable foreign
economies; (iv) the impact of import duties on the cost and/or prices of
infrastructure equipment and subscriber handsets; and (v) foreign taxation of
earnings and payments received by Nextel International from its operating
subsidiaries. Although the risks associated with the foreign operations
conducted through Nextel International have not adversely impacted the Company's
operating results to date, there can be no assurance that they will not do so in
the future, particularly as such operations expand in scope, scale and
significance.
FORWARD LOOKING STATEMENTS
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995: A number of the matters and subject areas discussed in the "Risk
Factors" section and elsewhere in this Annual Report on Form 10-K for the year
ended December 31, 1997 that are not historical or current facts deal with
potential future circumstances and developments. The discussion of such matters
and subject areas is qualified by the inherent risks and uncertainties
surrounding future expectations generally, and also may materially differ from
Nextel's actual future experience involving any one or more of such matters and
subject areas. Nextel has attempted to identify, in context, certain of the
factors that it currently believes may cause actual future experience and
results to differ from Nextel's current expectations regarding the relevant
matter or subject area. The operation and results of Nextel's wireless
communications business also may be subject to the effect of other risks and
uncertainties in addition to the relevant qualifying factors identified
elsewhere in the foregoing "Risk Factors" section, including, but not limited
to, general economic conditions in the geographic areas and occupational market
segments that Nextel is targeting for its Digital Mobile network service, the
availability of adequate quantities of system infrastructure and subscriber
equipment and components to meet Nextel's service deployment and marketing plans
and customer demand, the success of efforts to improve and satisfactorily
address any issues relating to the Company's Digital Mobile network performance,
the continued
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<PAGE> 32
successful performance of the Reconfigured iDEN technology being deployed in the
Company's various market areas, the ability to achieve market penetration and
average subscriber revenue levels sufficient to provide financial viability to
the Company's Digital Mobile network business, the Company's ability to timely
and successfully accomplish required scale-up of its billing, collection,
customer care and similar back-room operations to keep pace with customer growth
and increased system usage rates, growth in levels of accounts receivables being
generated by the Digital Mobile network customer base, access to sufficient debt
or equity capital to meet Nextel's operating and financing needs, the quality
and price of similar or comparable wireless communications services offered or
to be offered by Nextel's competitors, including providers of cellular and PCS
service, future legislative or regulatory actions relating to SMR services,
other wireless communications services or telecommunications generally and other
risks and uncertainties described from time to time in Nextel's reports and,
with specific reference to risk factors relating to international operations, in
Nextel International's reports, filed with the Commission.
ITEM 2. PROPERTIES
The Company leases its principal executive and administrative office, which
is located at 1505 Farm Credit Drive, in McLean, Virginia, comprising
approximately 80,400 square feet, for an initial term of 10 years, expiring
August 14, 2006, with two five-year renewal options. The Company also leases for
certain administrative operations approximately 110,000 square feet of office
space in Denver, Colorado, under a lease expiring in 2004; approximately 95,600
square feet of office space in Norcross, Georgia, under a lease expiring in
2005; approximately 50,000 square feet of office space in McLean, Virginia,
under a lease expiring in 2005; and approximately 48,300 square feet in
Rutherford, New Jersey, under a lease expiring in 2001. The Company also leases
office facilities for sales, maintenance and administrative operations in its
markets. There were 155 office leases in effect at December 31, 1997, with terms
ranging from 1 to 10 years (not including extensions related to the exercise of
renewal options).
The Company leases antenna sites for the transmission of its radio service
which are located, in the case of its analog SMR operations, primarily on either
building tops or mountain tops and in the case of its Digital Mobile networks
operations, on towers, generally at heights ranging from 150 to 300 feet above
the ground. The terms on approximately 97% of the leases range from
month-to-month to 20 years. As of December 31, 1997, the Company had
approximately 2,500 site leases for its analog SMR business in the United States
and approximately 4,000 constructed sites at leased locations in the United
States for its Digital Mobile network. The Company also owns properties and
transmission towers where management considers it is in the best interest of the
Company to do so. See "Item 1. -- Business -- Nextel's Digital Mobile
Network -- System Construction and Suppliers" for a discussion of factors
relevant to additional equipment, transmission and antenna sites that will need
to be procured and constructed in connection with the implementation of the
Company's Digital Mobile network in the designated markets.
ITEM 3. LEGAL PROCEEDINGS
On July 10, 1995, a lawsuit titled In Re Nextel Communications Securities
Litigation was filed in the United States District Court in the District of New
Jersey. This litigation, which is being pursued as a class action, amends and
consolidates three previously filed class action complaints and seeks damages
allegedly incurred by certain stockholders and claimed to result from
defendants' alleged violations of Section 10(b) of the Exchange Act as amended
and Rule 10b-5 promulgated thereunder. The litigation also makes claims of fraud
and deceit. Specifically, plaintiffs claim that such damages resulted from
certain alleged false and misleading statements made by defendants regarding the
digital communications technology developed by Motorola and deployed by Nextel
in its Digital Mobile network. While Nextel cannot predict the outcome of this
litigation, Nextel believes that the claims against it are without merit and
intends to vigorously defend against them. On July 23, 1997, the United States
District Court in the District of New Jersey declined to grant Nextel's motions
to dismiss pursuant to Federal Rule of Civil Procedure Rules 12(b)(6) and (9)(b)
substantially all of the causes of action alleged in the plaintiff's complaint
filed in this lawsuit. Most recently, Nextel filed a motion to deny class
certification. A ruling on the motion has not yet been made.
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<PAGE> 33
On September 19, 1994, a lawsuit titled Charles Dascal v. Morgan O'Brien,
Becker, Gurman, Lukas, Meyers, O'Brien and McGowan, P.C. and Nextel
Communications, Inc., was filed in the Circuit Court of Dade County, Florida.
The lawsuit, which has been transferred to the United States District Court for
the Southern District of Florida, seeks compensatory damages, lost profits and
special damages based on the defendants' alleged breach of fiduciary duty,
misappropriation of trade secrets, negligent misrepresentation, fraud,
conversion, civil theft, breach of good faith and fair dealing and unjust
enrichment. The claims, which primarily concern alleged conduct by Nextel's
current Vice Chairman and former Chairman of the Board, Morgan O'Brien, in the
late 1970's and early 1980's prior to the formation of Nextel, assert that
business plans allegedly formulated by the plaintiff relating to the development
of a wireless communications system were disclosed to, and have been improperly
used by, the defendants. On September 13, 1994, the Board of Directors
determined that Morgan O'Brien in his capacities as an officer, director and
authorized representative of Nextel, was entitled to indemnification in respect
of this matter. Nextel has filed counterclaims against Mr. Dascal and has also
filed third-party claims against Tel Air Network, Inc. ("Tel Air"), and Knight-
Ridder, Inc. ("Knight-Ridder"). The counterclaim against Mr. Dascal has been
dismissed and the Company is currently not aware of any other ruling with
respect to the third-party claims against Tel Air and Knight-Ridder. Nextel also
has moved for summary judgment for dismissal of Mr. Dascal's claims against
Nextel and Mr. O'Brien. To date there has been no ruling on that motion. While
Nextel cannot predict the outcome of this litigation, Nextel believes that the
claims against it are without merit and intends to vigorously defend against
them. A trial date has been set for mid-1998.
Unless otherwise indicated, the relevant plaintiffs have not specified
amounts of damages being sought. Given Nextel's assessment of the claims
asserted against it in each such lawsuit, and in other pending or threatened
litigation (including litigation incidental to the conduct of its business),
Nextel does not believe that such lawsuits, individually or in the aggregate,
will have a material adverse effect on Nextel's financial condition, results of
operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the period commencing October 1, 1997 and concluding December 31, 1997,
which is the final quarter covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following section provides certain information regarding those persons
serving as executive officers of the Company as of March 12, 1998. All of such
executive officers were most recently elected to their present officer positions
by action of the Board of Directors of Nextel. There is no family relationship
between any of the executive officers of the Company, or between any of such
officers and any of the Directors of the Company. Officers of the Company are
elected to serve until their successors have been elected.
DANIEL F. AKERSON. (49) Mr. Akerson has served as Chairman of the Board and
Chief Executive Officer since joining the Company on March 6, 1996. From 1993
until March 5, 1996, Mr. Akerson served as a general partner of Forstmann Little
& Co., a private investment firm ("Forstmann Little"). While serving as a
general partner of Forstmann Little, Mr. Akerson also held the positions of
Chairman of the Board and Chief Executive Officer of General Instrument
Corporation, a technology company acquired by Forstmann Little. From 1983 to
1993, Mr. Akerson held various senior management positions with MCI
Communications Corporation, including President and Chief Operating Officer. Mr.
Akerson serves as a director of American Express Company and America OnLine,
Inc.
MORGAN E. O'BRIEN. (53) Mr. O'Brien has served as a director of the Company
since co-founding the Company in 1987. Since March 1996, Mr. O'Brien has served
as a Vice Chairman of the Board of Directors. From 1987 to March 5, 1996, Mr.
O'Brien served as Chairman of the Board of Directors, and from 1987 to October
16, 1994, Mr. O'Brien also served as General Counsel of the Company. Mr. O'Brien
was with the firm of Jones, Day, Reavis & Pogue, an international law firm, from
January 1986 to January 1990, during which time he served as partner-in-charge
of the firm's telecommunications section from January 1986 until co-founding the
Company in 1987. Mr. O'Brien also served as a consultant to Jones, Day, Reavis &
Pogue
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from January 1990 to October 1991. From June 1979 until April 1987, Mr. O'Brien
was in private legal practice and represented major SMR operators in proceedings
before the FCC. From October 1970 to June 1979, Mr. O'Brien served in a variety
of legal and managerial positions with the FCC in the areas of private radio and
radio common carrier administration. Mr. O'Brien serves on the Board of
Directors of CTIA, a leading wireless communications trade association.
TIMOTHY M. DONAHUE. (49) Mr. Donahue has served as President of the Company
since joining the Company on February 1, 1996 and as a director of the Company
since May 1996. On February 29, 1996, Mr. Donahue was elected to the additional
position of Chief Operating Officer of the Company. From 1986 to January 1996,
Mr. Donahue held various senior management positions with AT&T Wireless
Services, Inc. ("AT&T Wireless"), most recently Regional President for the
Northeast.
STEVEN M. SHINDLER. (35) Mr. Shindler joined the Company in May 1996 and
serves as Vice President and Chief Financial Officer. Between 1987 and 1996, Mr.
Shindler was an officer with Toronto Dominion Bank, where most recently he was a
Managing Director in its Communications Finance Group.
BARRY WEST. (52) Mr. West joined the Company in March 1996 and serves as
Vice President and Chief Technology Officer. Prior thereto, Mr. West served in
various senior positions with British Telecom for more than five years, most
recently as Director of Value-Added Services and Corporate Marketing at Cellnet,
a cellular communications subsidiary of British Telecom.
THOMAS KELLY. (50) Mr. Kelly joined the Company in April 1996 and serves as
Vice President of Marketing. Between 1993 and 1996, Mr. Kelly was Regional Vice
President of Marketing for AT&T Wireless. Prior to joining AT&T, Mr. Kelly
worked for 12 years with the marketing consulting firm of Howard Bedford Nolan,
where he was most recently an Executive Vice President.
ROBERT S. FOOSANER. (55) Mr. Foosaner joined the Company in April 1992 and
serves as Vice President and Chief Regulatory Officer. Prior to joining the
Company, Mr. Foosaner was a partner at the law firm of Jones, Day, Reavis &
Pogue where he most recently served as head of the communications group. Before
joining the law firm in November 1986, Mr. Foosaner held various positions at
the FCC where he most recently served as Chief, Private Radio Bureau.
KEITH D. GRINSTEIN. (37) Mr. Grinstein has served as President, Chief
Executive Officer and as a director of Nextel International since January 1996.
From January 1991 to December 1995, Mr. Grinstein was President and Chief
Executive Officer of the aviation communications division of AT&T Wireless.
Prior thereto, Mr. Grinstein held a number of positions at McCaw Cellular and
its subsidiaries, including Vice President, General Counsel and Secretary of LIN
Broadcasting Company, a subsidiary of McCaw Cellular, and Vice President and
Assistant General Counsel of McCaw Cellular. Mr. Grinstein is a director of
Clearnet.
THOMAS J. SIDMAN. (43) Mr. Sidman has served as Vice President and General
Counsel of the Company since joining the Company on October 17, 1994. From
January 1988 to October 1994, Mr. Sidman was a partner of Jones, Day, Reavis &
Pogue specializing in corporate and securities law and mergers and acquisitions.
A.J. LONG. (36) Mr. Long has served as Vice President and Treasurer since
joining the Company in June 1996. From June 1994 to June 1996, Mr. Long served
as Assistant Treasurer at Sprint Communications, L.P. ("Sprint"). From January
1993 to June 1994, Mr. Long served as Manager of Mergers and Acquisitions at
Sprint. From August 1991 to January 1993, Mr. Long served as Manager of
Corporate Audit Staff at Sprint.
WILLIAM G. ARENDT. (40) Mr. Arendt has served as Vice President and
Controller since joining the Company in May 1997. From June 1996 until joining
the Company, Mr. Arendt was Vice President and Controller for Pocket
Communications, Inc., a PCS company. From September 1992 until June 1996, he was
Controller for American Mobile Satellite Corporation. Prior thereto, he was with
Ernst & Young LLP for twelve years.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
MARKET FOR COMMON STOCK
Nextel's Common Stock is traded on the Nasdaq Stock Market ("NSM") under
the symbol "NXTL." Prior to February 3, 1997, the Common Stock traded under the
symbol "CALL." The table below presents high and low closing price information
for the Common Stock as reported by the NSM for the periods indicated.
<TABLE>
<CAPTION>
QUARTERLY COMMON STOCK PRICE RANGES FOR THE
YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1996
--------------------- ---------------------
QUARTER ENDED HIGH LOW HIGH LOW
------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
March 31........................................ $15.750 $12.875 $18.875 $13.500
June 30......................................... 19.188 12.250 23.375 16.750
September 30.................................... 29.438 19.688 20.250 14.375
December 31..................................... 31.000 22.500 18.500 12.750
</TABLE>
NUMBER OF STOCKHOLDERS OF RECORD
As of March 27, 1998, the number of stockholders of record of the Company's
Common Stock was 3,788. Nextel has authority to issue shares of Non-Voting
Common Stock, which are convertible on a share-for-share basis into shares of
Common Stock. As of March 27, 1998, there was a single stockholder of record
holding all of the 17,830,000 outstanding shares of Non-Voting Common Stock, and
a single stockholder of the Company's Class A Preferred Stock and Class B
Preferred Stock. The Company's Series D Preferred Stock and Series E Preferred
Stock are not listed or traded on any established public trading market and are
not convertible into the Company's Common Stock.
DIVIDENDS
The Company has not paid any dividends on the Common Stock, and does not
plan to pay dividends on the Common Stock for the foreseeable future. The Nextel
Indentures and the Bank Credit Agreement presently prohibit, and are expected to
operate so as to continue to prohibit, Nextel from paying dividends. In
addition, the collateral security mechanisms and related provisions associated
with the Bank Credit Facility limit the amount of cash available to make
dividends, loans and cash distributions to Nextel from Nextel's subsidiaries
that operate the Digital Mobile network in Nextel's markets. Provisions in the
indentures to which Nextel International is a party also place significant
restrictions on Nextel's ability to receive cash from Nextel International or
any of its subsidiaries. Accordingly, while such restrictions are in place, any
profits generated by such subsidiaries will not be available to Nextel for,
among other things, payment of dividends.
The Company anticipates that for the foreseeable future any cash flow
generated from its operations will be used to develop and expand the Company's
business. Any future determination as to the payment of dividends will be at the
discretion of the Company's Board of Directors and will depend upon the
Company's operating results, financial condition and capital requirements,
contractual restrictions, general business conditions and such other factors as
the Company's Board of Directors deems relevant. There can be no assurance that
the Company will pay dividends at any time in the future. Under certain limited
circumstances, the Company may be obligated to pay dividends on the Class A
Preferred Stock. See Part I, Item 1 "Business -- Agreements with Significant
Stockholders -- The McCaw Interests."
RECENT SALES OF UNREGISTERED SECURITIES
Nextel sold securities that were not registered under the Securities Act in
the following transaction during the fourth quarter of 1997: On October 22,
1997, Nextel completed the sale of $1,129.1 million principal amount at maturity
of the October Notes pursuant to Rule 144A and Regulation S under the Securities
Act to qualified institutional buyers and to persons outside the United States.
The issue price of the October Notes, which mature on October 31, 2007, was
$619.96 per $1,000 principal amount at maturity, representing a yield to
maturity of 9.75% computed on a semi-annual bond equivalent basis from the date
of issuance. Nextel
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received approximately $682.0 million in October Notes Proceeds. Morgan Stanley
& Co. Incorporated, Chase Securities, Inc., J.P. Morgan Securities, Inc.,
NationsBanc Montgomery Securities, Inc., TD Securities (USA) Inc. and Credit
Suisse First Boston Corporation acted as placement agents and received
approximately $17.5 million in fees in connection with the sale of the October
Notes. The foregoing transaction was effected pursuant to the exemption of
Section 4(2) of the Securities Act and Rule 144A and Regulation S thereunder in
reliance upon the representations of the purchasers of the October Notes.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain consolidated financial data for the
periods indicated and should be read in conjunction with the Consolidated
Financial Statements, related notes and other financial information appearing
elsewhere in Part II of this Form 10-K Annual Report (dollar amounts in
thousands, except per share amounts).
<TABLE>
<CAPTION>
NINE MONTHS FISCAL YEAR
YEAR ENDED DECEMBER 31, ENDED ENDED
--------------------------------------- DECEMBER 31, MARCH 31,
1997 1996 1995 1994(1) 1994
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(2):
Revenues...................... $ 738,897 $ 332,938 $ 171,703 $ 74,857 $ 67,928
Cost of operations............ 284,549 247,717 151,718 51,406 28,666
Selling, general and
administrative expenses..... 865,791 330,256 193,321 85,077 41,107
Expenses related to corporate
reorganization(3)........... -- -- 17,372 -- --
Depreciation and
amortization................ 526,377 400,831 236,178 94,147 58,398
----------- ----------- ----------- ----------- ----------
Operating loss........... (937,820) (645,866) (426,886) (155,773) (60,243)
Interest (expense), net....... (378,032) (206,480) (89,509) (41,454) (18,101)
Other income (expense),
net(4)(5)................... 6,511 (10,866) (15,372) 33 3
Income tax (provision)
benefit..................... (258,726) 307,192 200,602 71,345 21,437
----------- ----------- ----------- ----------- ----------
Loss before extraordinary
item........................ (1,568,067) (556,020) (331,165) (125,849) (56,904)
Extraordinary item............ (45,787) -- -- -- --
Preferred dividends........... (29,119) -- -- -- --
----------- ----------- ----------- ----------- ----------
Loss attributable to common
stockholders................ $(1,642,973) $ (556,020) $ (331,165) $ (125,849) $ (56,904)
=========== =========== =========== =========== ==========
Basic and diluted loss per
share attributable to common
stockholders:
Loss before extraordinary
item........................ $ (6.41) $ (2.50) $ (2.31) $ (1.25) $ (0.73)
Extraordinary item............ (0.18) -- -- -- --
----------- ----------- ----------- ----------- ----------
$ (6.59) $ (2.50) $ (2.31) $ (1.25) $ (0.73)
=========== =========== =========== =========== ==========
Number of shares used in
computations(6)............. 249,320,000 222,779,000 143,283,000 100,639,000 78,439,000
=========== =========== =========== =========== ==========
</TABLE>
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<PAGE> 37
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------- MARCH 31,
1997 1996 1995 1994 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(7)....... $ 301,601 $ 139,681 $ 340,826 $ 301,679 $ 483,483
Marketable securities(8)........... 131,404 5,012 68,443 172,313 426,113
Current assets..................... 839,597 309,097 504,661 504,248 921,983
Intangible assets, net............. 4,699,746 4,076,300 3,549,622 1,451,780 889,912
Total assets....................... 9,227,801 6,472,439 5,547,256 2,918,985 2,229,832
Long-term debt(9).................. 5,038,250 2,783,041 1,687,829 1,193,096 1,113,268
Redeemable preferred stock(10)..... 529,119 -- -- -- --
Stockholders' equity............... 1,912,420 2,808,138 2,945,141 1,268,575 846,304
</TABLE>
- ---------------
(1) 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.
(2) See Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 2 to the Notes to Nextel's consolidated
financial statements for a description of acquisitions.
(3) See Note 2 to the Notes to Nextel's consolidated financial statements.
(4) Other expense in 1996 primarily reflects equity in the losses of certain
foreign investments accounted for under the equity method. See Note 2 to
the Notes to Nextel's consolidated financial statements.
(5) Other expense in 1995 includes a $15.0 million write-down of the investment
in Nextel Mexico as a result of the devaluation of the Mexican peso.
(6) Weighted average number of shares of Common Stock outstanding during the
respective periods.
(7) Includes approximately $159.8 million in cash and cash equivalents held by
Nextel International and its subsidiaries as of December 31, 1997, which
are not available to fund any of the cash needs of Nextel's domestic
Digital Mobile and analog SMR businesses due to restrictions contained in
the indenture relating to the 1997 NI Notes.
(8) Includes approximately $128.6 million in marketable securities held by
Nextel International and its subsidiaries as of December 31, 1997, which
are not available to fund any of the cash needs of Nextel's domestic
Digital Mobile and analog SMR businesses due to restrictions contained in
the indenture relating to the 1997 NI Notes.
(9) Excludes the current portions of long-term debt. See Note 6 to the Notes to
Nextel's consolidated financial statements.
(10) See Note 10 to the Notes to Nextel's consolidated financial statements.
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<PAGE> 38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following is a discussion of the consolidated financial condition and
results of operations of Nextel for the fiscal years ended December 31, 1997,
1996 and 1995, and certain factors that could affect Nextel's prospective
financial condition. The results of historical periods may not be indicative of
future performance. See Part I, Item 1 "Business -- Risk
Factors -- Forward-Looking Statements."
The Company's operating revenues primarily arise from its digital and
analog wireless communications businesses in the United States, particularly
from the provision of mobile telephone and two-way radio services and, to a
lesser extent, from sales and maintenance of related equipment. The Company's
consolidated financial statements include financial information reflecting the
assets, liabilities and results of operations relating to Nextel International
and its consolidated subsidiaries as of the dates or for the periods indicated
therein. To date Nextel International's operations have not had a material
impact on the Company's consolidated results of operations, and since March 1997
the funding needs relating to the international operations have been met largely
through separate financing arrangements entered into by Nextel International and
its operating subsidiaries and affiliates. Accordingly, except as noted above
and as otherwise expressly indicated herein, the description of the Company's
financial condition and results of operations herein refers to the Company's
United States operations. More detailed information relating to Nextel
International's financial condition and results of operations may be found in
the periodic and other reports filed by Nextel International with the Commission
pursuant to the Exchange Act.
The Company expects to continue to experience negative operating margins
while it is developing, building-out, enhancing and expanding its Digital Mobile
network and implementing related commercialization activities. In particular, as
additional markets are added to the Company's Digital Mobile network, the
Company expects to incur increased costs such as site rentals,
telecommunications expenses, systems and other capital expenses and license or
business acquisition costs. Selling, general and administrative expenses are
also expected to increase with the continuation and expansion of aggressive
national and regional marketing campaigns, increased sales and marketing and
network support staffing and continuing customer subsidies in connection with
the sale and installation of digital subscriber units in the United States.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 VS. YEAR ENDED DECEMBER 31, 1996
Service revenue for the year ended December 31, 1997 increased 139%
primarily attributable to the 323% increase in digital subscriber units in
service from approximately 300,300 at December 31, 1996 to approximately
1,270,700 at December 31, 1997. Service revenue did not keep pace with the rate
of increase in digital subscriber units primarily because approximately
two-thirds of the new customers were added in the last half of 1997. The
increase in service revenue reflects the commencement of Digital Mobile network
service in certain markets and increased sales in markets in which Digital
Mobile network services are provided. Key factors contributing to the Company's
customer growth include increased sales force and marketing staff, increased
distribution channels, expanded network capacity, declining prices for
equipment, increased consumer awareness and acceptance of wireless
communications and pricing plans targeted at particular market segments.
Additionally, average monthly revenue per digital unit increased from
approximately $54.00 to approximately $66.00 for the years ended December 31,
1996 and 1997, respectively. As the Company expands its retail subscriber base
through increased reliance on indirect distribution channels, and as price
competition in the wireless industry intensifies, the average revenue per
subscriber unit is expected to decrease.
The average churn rate for the Digital Mobile network operations has
increased from less than 1% per month for the year ended December 31, 1996 to
less than 1.3% per month for the year ended December 31, 1997. During the fourth
quarter of 1997, the average monthly churn rate was approximately 1.4%. Such
average monthly churn rate is expected to increase during 1998.
Total analog equipment sales and maintenance revenue for the year ended
December 31, 1997 decreased 25% primarily attributable to the decrease in analog
SMR subscriber units in service in the Company's United States markets to
approximately 583,000 at December 31, 1997. The decrease in analog SMR unit
sales and
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<PAGE> 39
the decrease in analog SMR subscriber units in service in the Company's United
States markets is a result of the Company's focus on digital unit sales, the
declining competitiveness of analog SMR services and related subscriber
equipment utilizing analog technology, the recapture by the Company of its
analog SMR frequencies for use in the operation of its Digital Mobile network
and the related migration of analog subscriber units to the Digital Mobile
network.
Cost of service revenue for the year ended December 31, 1997 increased 22%
primarily resulting from an increase in cell sites activated in 1997 as well as
an increase in airtime usage and an increase in digital subscriber units in
service. Service costs as a percentage of service revenue have decreased from
74% for the year ended December 31, 1996 to 38% for the year ended December 31,
1997, primarily as a result of economies of scale achieved due to the increase
in digital subscriber units in service.
Selling, general and administrative expenses for the year ended December
31, 1997 increased 162%, primarily related to increased staffing and other
back-office and customer care activities supporting the accelerated growth in
the Company's implementation and operation of the Digital Mobile network.
Selling expenses increased primarily due to increased sales and marketing labor
costs and related commission expenses. Also contributing to the increase was the
rollout of aggressive national and regional marketing campaigns to increase
awareness of Nextel's products and services associated with the full-scale
commercial launch of the Digital Mobile network incorporating the Reconfigured
iDEN technology beginning in March 1997. Selling and marketing expenses are
expected to increase as the Company continues to expand its presence in existing
markets and expands the geographic coverage of its Digital Mobile network. The
Company includes the loss generated from the sale of digital subscriber units in
selling, general and administrative expenses, as the loss primarily represents
marketing costs for the Digital Mobile network. The loss on Digital Mobile
subscriber equipment sales for the year ended December 31, 1997 increased by
493%, primarily reflecting the continued effect of customer subsidies and
discounts on increased sales of digital subscriber units and related digital
accessories and the expenses associated with programs designed to stimulate the
orderly migration of customers from the Company's traditional analog SMR systems
to its new Digital Mobile network systems. Competitive market pressures are
expected to result in a continued trend of negative gross margins on digital
equipment sales as the Company anticipates that it will continue to offer
customers subsidies and/or discounts in connection with the sale and
installation of digital subscriber units.
The Company recognized an aggregate of approximately $55.6 million and
$32.5 million, respectively, in bad debt expense for the year and the quarter
ended December 31, 1997. Bad debt expense as a percentage of total revenues,
including digital equipment revenues, increased to 5.6% in 1997 from 1.2% in
1996. The amount of bad debt expense recognized by the Company during 1997 was
significantly higher compared to 1996 as a result of a number of factors,
including principally delays in the billing of amounts due on purchases of
digital network subscriber equipment and the inability of the Company's billing
and collection systems, processes and personnel to fully keep pace with the
rapid growth of the Company's customer base and Digital Mobile network
utilization. As a result, the Company instituted a more comprehensive and
aggressive program for the collection of past due receivables in the latter part
of 1997 and increased its bad debt reserve, which contributed to the increased
bad debt expense. Nextel believes that it is pursuing appropriate activities and
already has taken a number of measures that it expects to result in the gradual
improvement of its billing and accounts receivable collection effectiveness in
1998. Nextel does not anticipate that the percentage of bad debt expense as
compared to total revenues will increase in 1998, although with the anticipated
growth of revenues, the absolute dollar amount of such expenses may increase.
Accordingly, the amount of bad debt expense recognized by the Company during
1997 should not be viewed as indicative of either the amount or level of bad
debt expense that the Company may recognize in future periods. See Part I, Item
1 "Business -- Forward Looking Statements".
Effective October 1, 1997, the Company changed the estimated useful lives
of certain intangible assets including FCC licenses and the excess of purchase
price over fair value of net assets acquired related to domestic acquisitions
from 20 to 40 years to better reflect the period over which the economic
benefits of such assets will be realized. The change in the estimated useful
lives of these intangible assets had the effect of decreasing amortization
expense by approximately $27.7 million for the quarter and the year ended
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<PAGE> 40
December 31, 1997. Depreciation and amortization for the year ended December 31,
1997 increased 31%, net of the effect of the change in useful lives of certain
intangible assets, reflecting the effect of the activation of additional cell
sites and switches, the expansion of the existing Digital Mobile network and the
effect of certain asset and license acquisitions during 1997. System assets
relating to the development of the Digital Mobile network represent the largest
portion of capital expenditures during the year ended December 31, 1997.
Depreciation of such assets begins upon commencement of commercial service. The
Company anticipates that depreciation and amortization expense will continue to
increase as the Company acquires additional FCC licenses and as the Company
constructs additional cell sites and switching facilities to expand the Digital
Mobile network.
Interest expense for the year ended December 31, 1997 increased 79%,
reflecting higher debt balances primarily attributable to additional borrowings
under the Company's secured credit facilities. Interest expense also increased
during 1997 as a result of the issuance of the 1997 NI Notes and the 1997 Notes.
Interest income for the year ended December 31, 1997 increased 42%,
reflecting higher average cash balances available for investment during the year
ended December 31, 1997 as compared to the prior year, primarily as a result of
the capital raised from the 1997 NI Notes and the proceeds received from the
issuance of the Series D Preferred Stock and the 1997 Notes.
Other income for the year ended December 31, 1997 was $6.5 million,
primarily reflecting a $10.6 million gain on the disposal of certain assets,
foreign currency transaction gains of $6.0 million and minority interest
attributable to losses of certain foreign investments that are consolidated of
$2.1 million offset by $13.1 million of equity in the net losses of certain
foreign investments accounted for under the equity method.
The Company recorded an income tax provision of $258.7 million in 1997,
compared to a benefit of $307.2 million in 1996. The effective tax rate for 1997
was 19.1%, compared with the 1996 effective tax rate of 35.6%. The 1997 results
were unfavorably impacted as a result of an increase in the Company's valuation
allowance related to net operating losses ("NOLs"). A significant portion of the
Company's deferred tax liabilities will reverse after current NOLs expire. After
considering this and other factors, including the change in useful lives of
certain intangible assets and recent operating results, the Company has
increased its valuation allowance in 1997 by $767.5 million. Of this amount,
approximately $384.1 million was recorded as a charge in the fourth quarter of
1997. In certain circumstances, Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," limits the recognition of income tax
benefits for NOLs to the amount of deferred tax liabilities that are expected to
reverse within the statutory carry forward period. This change is not expected
to have an impact on the Company's ability to utilize its NOLs for income tax
purposes.
During the fourth quarter of 1997, the Company purchased $166.2 million
book value of its 11.5% Senior Redeemable Discount Notes due 2003 and $81.8
million book value of its 12.25% Senior Redeemable Discount Notes due 2004 at a
cost in excess of related carrying amounts. Accordingly, the Company recorded an
extraordinary loss of approximately $45.8 million related to the early
retirement of debt. The extraordinary loss represented the difference between
the purchase price and the book value of such Targeted Notes on the date of
purchase plus unamortized debt issuance costs.
YEAR ENDED DECEMBER 31, 1996 VS. YEAR ENDED DECEMBER 31, 1995
Total revenues for the year ended December 31, 1996, increased 94% to
$332.9 million, compared to $171.7 million for the year ended December 31, 1995.
Service revenue increased 119% to $297.5 million. The increase in service
revenue was principally a result of a modest increase in subscriber units in
service attributable to the completion of the Dial Page Transaction, the
commencement of Digital Mobile network service in certain markets during 1996
and the increased units in service in markets that commenced Digital Mobile
network service in 1994 and 1995.
The increase in the total number of digital subscriber units in service as
of December 31, 1996, was approximately 215,300 units, to approximately 300,300
units as compared to the approximately 85,000 digital subscriber units in
service as of December 31, 1995, primarily reflecting continued expansion of the
Company's Digital Mobile network.
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<PAGE> 41
The average churn rate for the Digital Mobile network operations was less
than 1% per month for the year ended December 31, 1996. There was insufficient
history of customer activity on the Digital Mobile network to derive a
meaningful churn rate for the year ended December 31, 1995.
Cost of service revenue for the year ended December 31, 1996, increased 79%
to $221.4 million, compared to $123.5 million for the year ended December 31,
1995, primarily as a result of a modest increase in subscriber units in service
attributable to the completion of the Dial Page Transaction, the commencement of
Digital Mobile network service in certain markets during 1996 and the increased
units in service in markets that commenced Digital Mobile network service in
1994 and 1995. The direct costs associated with the Company's Digital Mobile
network, such as site rental and telephone expenses, will continue to increase
as additional Digital Mobile network markets are placed into service.
Selling, general and administrative expenses for the year ended December
31, 1996, increased 71% to $330.3 million, compared to $193.3 million for the
year ended December 31, 1995. The increase is primarily related to the increased
staffing and other activities to support the implementation and operation of the
Company's Digital Mobile network. Selling expenses increased also due to the
rollout of aggressive marketing campaigns associated with the full-scale
commercial launch of the Company's Digital Mobile network incorporating the
Reconfigured iDEN technology in certain markets in late 1996. Selling, general
and administrative expenses include a loss on Digital Mobile subscriber
equipment sales of $25.4 million in 1996, compared to a loss of $13.8 million in
1995, reflecting the continued effect of customer subsidies or discounts on
increased sales of Digital Mobile subscriber units during 1996 as compared to
1995 and the effect of migrating customers from traditional analog SMR systems
to the Company's Digital Mobile network.
Expenses related to the corporate reorganization for the year ended
December 31, 1995 reflect estimates of employee and facility related costs
resulting from the consolidation, resizing and relocation of the Company's
headquarters and customer care operations in connection with certain business
combinations consummated in 1995 (see note 2 to the Company's audited
consolidated financial statements). No such costs were recorded during the year
ended December 31, 1996.
Depreciation and amortization for the year ended December 31, 1996,
increased 70% to $400.8 million, compared to $236.2 million for the year ended
December 31, 1995, reflecting the effect of the Motorola, OneComm, AMS and Dial
Page Transactions (the "Acquisitions") and the activation of the Company's
Digital Mobile network in additional market areas. System assets relating to the
development of the Company's Digital Mobile network represent the largest
portion of capital expenditures during the period. Depreciation and amortization
of such assets begins upon commencement of commercial service in each market.
Interest income for the year ended December 31, 1996, decreased 18% to
$21.0 million, compared to $25.5 million for the year ended December 31, 1995.
The decrease relates to the utilization of cash for the development and
implementation of the Company's Digital Mobile network and to fund operating
activities.
Interest expense for the year ended December 31, 1996, increased 98% to
$227.5 million, compared to $115.0 million from the year ended December 31,
1995, reflecting principally increased interest expense attributable to the
assumption of OneComm's Senior Redeemable Discount Notes due 2004 and the Dial
Call Senior Redeemable Discount Notes due 2004 and 2005 in the Acquisitions and
interest expense attributable to increased borrowings under the Company's
secured credit facilities to fund capital expenditures, acquisitions and
operations.
Other expenses for the year ended December 31, 1996, were $10.9 million,
primarily reflecting equity in the losses of certain foreign investments
accounted for under the equity method.
The income tax benefit for the year ended December 31, 1996, was $307.2
million as compared to $200.6 million for the year ended December 31, 1995.
These benefits resulted from the utilization of net operating losses against
deferred tax liabilities. The effective tax rate for 1996 of 35.6% decreased
from 37.7% in 1995 as a result of a decrease in the utilization of state net
operating losses for financial reporting purposes.
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<PAGE> 42
LIQUIDITY AND CAPITAL RESOURCES
Nextel had net losses attributable to common stockholders of $1,643.0
million and $556.0 million for the fiscal years ended December 31, 1997 and
1996, respectively. Total expenses associated with developing and operating the
Company's Digital Mobile network have more than offset digital service revenues
and the operating earnings of the analog SMR operations, and are expected to
continue to offset such digital service revenues and analog SMR operating
earnings for the next several years. Nextel has consistently used external
sources of funds, primarily from equity issuances and the incurrence of debt, to
fund operations, acquisitions, capital expenditures and other non-operating
needs. For the next several years, Nextel intends to use its existing cash and
investments and externally generated funds from debt and equity sources (as
discussed below), to cover future needs, including the design, implementation
and operation of its Digital Mobile network.
Since December 31, 1996, working capital has increased by $137.3 million to
$70.7 million as of December 31, 1997. The increase in working capital is
primarily a result of the receipt of the net cash proceeds of the 1997 NI Notes,
and the Series D Preferred Stock and the 1997 Notes remaining after the
application of a portion thereof to reduce outstanding borrowings under the
Company's secured credit facilities and to repurchase a portion of the Targeted
Notes during 1997. Proceeds of the 1997 NI Notes were primarily used to finance
international activities. The Company's construction and operation of its
domestic Digital Mobile network have been and continue to be principally
financed by incurring long-term debt.
CASH FLOWS. Net cash used in operating activities for the year ended
December 31, 1997, increased by $157.8 million as compared to net cash used in
operating activities for the year ended December 31, 1996. Operating cash flows
were impacted by increased sales, advertising and marketing expenses related to
the full-scale commercial launch of the Digital Mobile network in March 1997, as
well as increased costs associated with back office and customer care activities
necessary to support the Company's accelerated growth plans.
Net cash used in investing activities was $2,048.4 million for the year
ended December 31, 1997. Cash used in investing activities during 1997 related
principally to (i) capital expenditures of $1,597.4 million for the build-out of
the Digital Mobile network, (including $101.9 million of capital expenditures
made by Nextel International in its international operations), (ii) $265.1
million of net cash used to acquire businesses and additional spectrum, (iii)
$126.4 million in net cash used to purchase marketable securities during the
period and (iv) $59.5 million in cash paid for investments in and advances to
certain foreign affiliates.
Net cash provided by financing activities during the year ended December
31, 1997 of $2,572.8 million consisted primarily of gross proceeds of $2.2
billion from the issuance of the 1997 NI Notes, the 1997 Notes and the Series D
Preferred Stock, offset in part by approximately $75.4 million in deferred
financing cost payments ($67.2 million of deferred financing costs relating to
the consent solicitation were offset in part by the approximately $63.7 million
in proceeds received from the offering of common stock to validly consenting
holders) as well as the use of approximately $283.3 million of such October
Notes Proceeds to purchase a portion of the Targeted Notes. Other sources of
cash provided by financing activities include $481.3 million from the net
borrowings under the Company's secured credit facilities, as well as the receipt
of approximately $281.9 million in proceeds from stock issuances and option
exercises. The resulting increase in cash and cash equivalents from December 31,
1996, was $161.9 million, to a balance of $301.6 million at December 31, 1997.
FUTURE CAPITAL NEEDS AND RESOURCES
Nextel anticipates that, for the foreseeable future, it will be utilizing
significant amounts of its available cash for capital expenditures for the
construction and enhancement of its domestic Digital Mobile network, operating
expenses relating both to such Digital Mobile network and to its domestic analog
SMR business, potential acquisitions (including the acquisition of rights to
spectrum through the recently concluded 800 MHz auction, acquisition of LMDS
spectrum through the joint venture conducted through NextBand in the recently
concluded LMDS spectrum auction and any future auctions of spectrum by the FCC),
debt service requirements and other general corporate expenditures. Nextel
anticipates that its cash utilization for capital expenditures and other
investing activities and operating losses will continue to exceed its cash flows
from operating activities over the next several years.
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<PAGE> 43
In connection with the Company's implementation of its 1998 Plan in its
domestic markets, Nextel has estimated that the external funding required to
meet the cash needs of its domestic business activities during 1998, including
principally the purchase or redemption of the remaining Targeted Notes, the
funding of anticipated capital expenditures and acquisitions (including the
remaining balance due for acquisitions of licenses in the FCC's 800 MHz spectrum
auction concluded in December 1997, but excluding amounts to acquire LMDS
licenses) and operating losses, will be approximately $2,970.0 million, which
includes approximately $1,335.0 million of system infrastructure and other
system capital costs relating to Nextel's Digital Mobile network expected to be
incurred during 1998. Such estimates are based in part on the Company's
experience in 1997 and on a number of significant assumptions, including
assumptions regarding continued subscriber growth and increased demand for the
Company's wireless services and enhancements to existing Digital Mobile system
infrastructure to expand and improve systems coverage and performance to address
competitive pressures faced or anticipated by the Company in its domestic
markets. Additionally, the 1998 Plan does not include amounts required to
acquire LMDS licenses or to pursue LMDS or other new business opportunities or
other potential transactions or investments that are not part of Nextel's
domestic digital and analog SMR wireless communications businesses and assets
and related corporate support services, personnel and overhead. See Part I, Item
1 "Business -- 1998 Business Plan." The telecommunications industry is rapidly
evolving and there can be no assurance that the Company will not experience
levels of demand for its services or competitive pressures that differ from
those experienced in 1997 and from those assumed in developing the Company's
1998 Plan, which could cause an increase in the Company's need for additional
financing. See Part I, Item 1 "Business -- Forward Looking Statements."
The Bank Credit Agreement currently provides for up to $3.0 billion in
secured financing, subject to the satisfaction or waiver of applicable borrowing
conditions. Of such financing, $1.0 billion of term loan financing was drawn as
of March 13, 1998. The availability of such financing is subject to Nextel's
satisfying certain requirements under the Old Indentures, which require Nextel
to issue new equity for cash as a condition to obtaining access to all amounts
not constituting "permitted debt" (as such term is defined in the Old
Indentures). Based upon the amount of new equity issued, and debt incurred,
through March 13, 1998 Nextel estimates that approximately $250.0 million of the
amounts available under the Bank Credit Facility cannot be accessed under the
Old Indenture requirements (other than to refinance existing debt) until either
(i) proceeds of the prior debt incurrences (including the February Notes
Proceeds) are applied to refinance notes issued under the Old Indentures (See
Part I, Item 1 "Business -- Post Fiscal Year 1997 Transactions and
Developments -- Tender Offer and Consent Solicitation") or (ii) the Company
issues additional equity for cash that would support the incurrence of
additional debt. The Company expects that it will be acquiring more than $250.0
million of Targeted Notes tendered pursuant to the currently pending tender
offers therefor. If such Targeted Notes are so acquired, the Company may access
the entire $3.0 billion available under the Bank Credit Facility in compliance
with the debt incurrence requirements set forth in the Old Indentures.
Assuming (i) that Nextel secures access to all of the available funds under
the Bank Credit Facility, and (ii) that the New Option is exercised for cash and
Nextel receives the $420.0 million in New Option Proceeds from such exercise,
the Company believes that such amounts, coupled with the Company's available
cash and cash equivalents, including proceeds from the financing transactions
completed in 1998 that remain after completion of the tender offers for the
Targeted Notes, will provide funds that in the aggregate are expected to be more
than sufficient to implement the Company's 1998 Plan and meet the other
currently anticipated cash needs of the domestic business activities
contemplated by the 1998 Plan through the end of 1998 not including capital
required to pursue new telecommunications service offerings or business
offerings (including LMDS spectrum acquisitions). Thereafter, Nextel may require
substantial additional financing to fund further deployment, expansion and
enhancement of its Digital Mobile network, to fund operating losses and for
other purposes. To the extent the Company's existing financing sources are
insufficient to meet such needs, the Company may seek to raise additional
capital from public or private equity or debt sources. See Part I, Item 1
"Business -- Forward Looking Statements."
The availability of borrowings pursuant to the Bank Credit Facility is
subject to certain conditions, and there can be no assurance that such
conditions will be met. Moreover, there can be no assurance that the New Option
will be exercised for cash and that Nextel will receive the proceeds therefrom,
or that any other outstanding options will be exercised for cash. The Bank
Credit Facility, the Nextel Indentures, and the terms
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<PAGE> 44
of the Series E Certificate and of the Series D Certificate contain and will
continue to contain provisions that operate to limit the amount of borrowings
that may be incurred by Nextel. The Bank Credit Agreement also requires Nextel
and its relevant subsidiaries at specified times to maintain compliance with
certain operating and financial covenants or ratios including certain covenants
and ratios specifically related to leverage which may become more stringent over
time. In addition, Nextel's capital needs, and its ability to adequately address
those needs through debt or equity funding sources, are subject to a variety of
factors that cannot presently be predicted with certainty, such as the
commercial success of Nextel's Digital Mobile network, the amount and timing of
Nextel's capital expenditures and operating losses and the market price of the
Common Stock. See Part I, Item 1 "Business -- Forward Looking Statements."
EFFECT OF INFLATION
Inflation is not a material factor affecting the Company's business.
General operating expenses such as salaries, employee benefits and lease costs
are, however, subject to normal inflationary pressures. From time to time the
Company may experience price changes in connection with the purchase of certain
system infrastructure and subscriber equipment that are based, in part, on
relative changes in pricing indices that are affected by inflationary pressures.
The Company does not currently believe that any of such price changes will be
material to the Company's business.
YEAR 2000 COMPLIANCE
As is the case with most other businesses using computers in their
operations, the Company is in the process of evaluating and addressing Year 2000
compliance of its computer systems. Such Year 2000 compliance efforts are
designed to identify, address and resolve issues that may be created by computer
programs being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
The Company is currently evaluating its computer systems and software to
determine whether they will function properly with respect to dates in the year
2000 and thereafter. This process involves assessing overall Year 2000 risk and
modifying or replacing certain hardware and software maintained by the Company,
as well as communicating with external service providers to ensure that they are
taking the appropriate action to remedy certain Year 2000 compliance issues of
their own. Based on its evaluation of such systems and software to date, the
Company does not believe that risks associated with the Year 2000 issues, as
they relate to the Company's computer systems and software, will have a material
adverse effect on its financial condition or results of operations. However, the
Company cannot independently assess the impact of Year 2000 risks, issues and
compliance activities and programs involving operators of public switch
telecommunications networks ("PSTNs") or other (such as electric utility)
service providers. The Company therefore must rely on PSTN and utility
providers' estimates of their own Year 2000 risks, issues and the status of
their related compliance activities and programs in the Company's own risk
assessment process. Because the Company's systems will be interconnected with
PSTNs and will be dependent upon the systems of other service providers, any
disruption of operations in the computer programs of such PSTNs or service
providers would likely have an impact on the Company's systems. Moreover, there
can be no assurance that such impact will not have a material adverse effect on
the Company's operations.
The total cost to the Company of its own Year 2000 assessment, compliance
and verification activities has not been and, based on its evaluation to date,
is not anticipated to be material to the Company's financial position or results
of operations in any given year.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), that establishes standards for reporting and display of comprehensive
income and is effective for fiscal years beginning after December 15,
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<PAGE> 45
1997. Components of comprehensive income include items such as net income and
changes in fair market value of available-for-sale securities and foreign
currency translation adjustments.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), that changes the standards for
reporting information about operating segments in annual financial statements
and requires reporting of selected information in interim financial reports.
SFAS 131 is effective for fiscal years beginning after December 15, 1997.
Both SFAS 130 and SFAS 131 require additional disclosure, but are not
expected to result in a material effect on the Company's financial position or
results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Nextel uses mandatorily redeemable preferred stock, senior discount notes,
and bank and vendor credit facilities to finance its operations. These
on-balance sheet financial instruments, to the extent they provide for variable
rates of interest, expose the Company to interest rate risk, with the primary
interest rate risk exposure resulting from changes in LIBOR or the prime rate
which are used to determine the interest rates that are applicable to borrowings
under the Company's bank credit facilities. Nextel uses off-balance sheet
derivative financial instruments, including interest rate swap and interest rate
protection agreements to partially hedge interest rate exposure associated with
both on-balance sheet financial instruments and anticipated debt transactions.
All of the Company's derivative financial instrument transactions are entered
into for non-trading purposes. The terms and characteristics of the derivative
financial instruments are matched with the underlying on-balance sheet
instrument or anticipated transaction and do not constitute speculative or
leveraged positions independent of these exposures.
Nextel International's revenues are denominated in foreign currencies while
a significant portion of its operations are financed through senior discount
notes and bank and vendor credit facilities which are denominated in U.S.
dollars. Accordingly, fluctuations in exchange rates relative to the U.S.
dollar, primarily those related to the Brazilian Real, expose the Company to
foreign currency exchange rate risk. In the near term, the Company's foreign
currency exchange rate exposure associated with the repayment of Nextel
International's debt obligations is limited as the terms of the senior discount
notes and bank and vendor credit facilities do not require principal payments
until after 1999. Accordingly, as of December 31, 1997, the Company has not
established any hedge or risk reduction strategies related to its foreign
currency exchange rate exposure.
The information below summarizes Nextel's sensitivity to market risks
associated with fluctuations in interest rates and foreign currency exchange
rates as of December 31, 1997 in U.S. dollars. To the extent that the Company's
financial instruments expose the Company to interest rate and foreign currency
exchange risk, they are presented within each market risk category in the table
below. The table presents principal cash flows and related interest rates by
year of maturity for the Company's mandatorily redeemable preferred stock,
senior discount notes, and bank and vendor credit facilities in effect at
December 31, 1997 and, in the case of the mandatorily redeemable preferred stock
and senior discount notes, exclude the potential exercise of the relevant
redemption features. The cash flows related to the variable portion of interest
rate swaps are determined by dealers using valuation models that estimate the
future level of interest rates, with consideration of the applicable yield curve
as of December 31, 1997. For interest rate swaps and the interest rate
protection agreement, the table presents notional amounts and the related
reference interest rates by year of maturity. Fair values included herein have
been determined based on (i) quoted market prices for mandatorily redeemable
preferred stock and senior discount notes; (ii) the carrying value for the bank
and vendor credit facilities at December 31, 1997 as interest rates are reset
periodically; and (iii) estimates obtained from dealers to settle interest rate
swap and interest rate protection agreements. Notes 6, 7 and 10 to the
consolidated financial statements contain descriptions of the Company's
mandatorily redeemable preferred
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<PAGE> 46
stock, senior discount notes, bank and vendor credit facilities, and interest
rate risk management agreements and should be read in conjunction with the table
below (U.S. dollar amounts in thousands).
<TABLE>
<CAPTION>
YEAR OF MATURITY
--------------
1998 1999 2000 2001 2002
-------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
I. INTEREST RATE SENSITIVITY
Redeemable Preferred Stock and
Long-Term Debt:
Fixed Rate......................... -- -- -- -- --
Average Interest Rate.............. -- -- -- -- --
Variable Rate...................... -- -- $10,050 $137,771 $180,775
Average Interest Rate.............. -- -- 11.0% 9.3% 9.3%
Interest Rate Swaps:
Variable to Fixed.................. -- $100,000 -- $200,000 --
Average Pay Rate................... -- 5.4% -- 5.5% --
Average Receive Rate............... -- 5.9% -- 5.8% --
Variable to Variable............... -- -- $50,000 $100,000 --
Average Pay Rate................... -- -- 5.7% 5.7% --
Average Receive Rate............... -- -- 5.9% 5.9% --
Anticipated Transaction Interest
Rate Protection Agreement:
Protection Agreement............... $570,000 -- -- -- --
Average Pay Rate................... 6.0% -- -- -- --
II. FOREIGN EXCHANGE RATE
SENSITIVITY
Long-Term Debt:
Fixed Rate......................... -- -- -- -- --
Average Interest Rate.............. -- -- -- -- --
Variable Rate...................... -- -- $10,050 $ 10,050 $ 15,075
Average Interest Rate.............. -- -- 11.0% 11.0% 11.0%
<CAPTION>
YEAR OF MATURITY
TOTAL
THERE- DUE AT FAIR
AFTER MATURITY VALUE
---------- ---------- ----------
<S> <C> <C> <C>
I. INTEREST RATE SENSITIVITY
Redeemable Preferred Stock and
Long-Term Debt:
Fixed Rate......................... $5,846,874 $5,846,874 $4,591,492
Average Interest Rate.............. 11.0%
Variable Rate...................... $ 894,675 $1,223,271 $1,223,271
Average Interest Rate.............. 8.9%
Interest Rate Swaps:
Variable to Fixed.................. -- $ 300,000 $ 151
Average Pay Rate................... -- 5.4%
Average Receive Rate............... -- 5.8%
Variable to Variable............... -- $ 150,000 $ (2,002)
Average Pay Rate................... -- 5.7%
Average Receive Rate............... -- 5.9%
Anticipated Transaction Interest
Rate Protection Agreement:
Protection Agreement............... -- $ 570,000 $ (6,068)
Average Pay Rate................... -- 6.0%
II. FOREIGN EXCHANGE RATE
SENSITIVITY
Long-Term Debt:
Fixed Rate......................... $ 951,463 $ 951,463 $ 575,635
Average Interest Rate.............. 13.0%
Variable Rate...................... $ 15,075 $ 50,250 $ 50,250
Average Interest Rate.............. 11.0%
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company are filed under this
Item, beginning on page F-1 of this Report. The financial statement schedules
required under Regulation S-X are filed pursuant to Item 14 of this Report,
beginning on page F-33 of this Report.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE
None.
46
<PAGE> 47
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required herein regarding directors is incorporated herein
by reference from the definitive Proxy Statement for Nextel's 1998 Annual
Meeting, which is scheduled to be filed on or before April 10, 1998, under the
caption "Election of Directors." The information required herein regarding
executive officers required is set forth in Part I hereof under the heading
"Executive Officers of the Registrant," which information is incorporated herein
by reference. The information required herein regarding compliance with Section
16(a) of the Exchange Act by the Company's directors and executive officers, and
persons who own more than ten percent of a registered class of the Company's
equity securities is incorporated herein by reference from the definitive Proxy
Statement for Nextel's 1998 Annual Meeting which is scheduled to be filed on or
before April 10, 1998, under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information required herein regarding compensation of executive
officers and directors is incorporated herein by reference from the definitive
Proxy Statement for Nextel's 1998 Annual Meeting, which is scheduled to be filed
on or before April 10, 1998, under the captions "Executive Compensation" and
"Election of Directors -- Compensation of Directors."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required herein is incorporated herein by reference from
the definitive Proxy Statement for Nextel's 1998 Annual Meeting, which is
scheduled to be filed on or before April 10, 1998, under the caption "Securities
Ownership of Management and Certain Beneficial Owners."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required herein is incorporated herein by reference from
the definitive Proxy Statement for Nextel's 1998 Annual Meeting, which is
scheduled to be filed on or before April 10, 1998, under the caption "Certain
Relationships and Related Transactions."
47
<PAGE> 48
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
(a) (1) The following Financial Statements are included in Part II Item 8:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets, December 31, 1997 and 1996..... F-3
Consolidated Statements of Operations, Years Ended December
31, 1997, 1996 and 1995................................... F-4
Consolidated Statements of Changes in Stockholders' Equity,
Years Ended December 31, 1997, 1996 and 1995.............. F-5
Consolidated Statements of Cash Flows, Years Ended December
31, 1997, 1996 and 1995................................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
(2) The following Financial Statement Schedules are submitted herewith
and are included herein in 14(d). Schedules other than those listed below are
omitted because they are either not required or not applicable.
<TABLE>
<S> <C>
Schedule I.................................................. F-33
Schedule II................................................. F-37
</TABLE>
------------------------
(3) List of Exhibits -- Refer to Exhibit Index on pages E1-E6, which is
incorporated herein by reference.
(b) Reports on Form 8-K:
(1) The Registrant filed a Current Report on Form 8-K dated October 23,
1997, reporting under Item 5 the issuance of the October Notes.
(c) Exhibits listed above in Item 14(a)(3) are included herein.
(d) Financial Statement Schedules listed above in Item 14(a)(2) are
incorporated herein by reference.
48
<PAGE> 49
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INDEPENDENT AUDITORS' REPORT................................ F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995....................... F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995....................... F-6
Notes to Consolidated Financial Statements................ F-7
FINANCIAL STATEMENT SCHEDULES
Schedule I -- Condensed Financial Information of
Registrant............................................. F-33
Schedule II -- Valuation and Qualifying Accounts.......... F-37
</TABLE>
F-1
<PAGE> 50
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Nextel Communications, Inc.
We have audited the accompanying consolidated balance sheets of Nextel
Communications, Inc. and subsidiaries (the "Company") as of December 31, 1997
and 1996, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. Our audits also included the financial statement
schedules listed in the Index at Item 14(a)(2). These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Nextel Communications, Inc. and
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. Also, 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.
DELOITTE & TOUCHE LLP
McLean, Virginia
March 13, 1998
F-2
<PAGE> 51
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (of which $159,790 is restricted
as of December 31, 1997)............................... $ 301,601 $ 139,681
Marketable securities (of which $128,560 is restricted as
of December 31, 1997).................................. 131,404 5,012
Accounts and notes receivable, net........................ 240,637 90,392
Subscriber equipment inventory............................ 101,338 45,168
Other..................................................... 64,617 28,844
----------- -----------
Total current assets................................... 839,597 309,097
PROPERTY, PLANT AND EQUIPMENT, net.......................... 3,225,603 1,803,739
INTANGIBLE ASSETS, net...................................... 4,699,746 4,076,300
OTHER ASSETS................................................ 462,855 283,303
----------- -----------
$ 9,227,801 $ 6,472,439
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 529,191 $ 225,309
Accrued expenses and other................................ 232,123 148,911
Current portion of long-term debt......................... 7,577 1,524
----------- -----------
Total current liabilities.............................. 768,891 375,744
LONG-TERM DEBT.............................................. 5,038,250 2,783,041
DEFERRED INCOME TAXES....................................... 951,192 505,516
OTHER....................................................... 27,929 --
----------- -----------
Total liabilities...................................... 6,786,262 3,664,301
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 6, 9, 12)
SERIES D EXCHANGEABLE PREFERRED STOCK MANDATORILY REDEEMABLE
2009
13% cumulative annual dividend; 515,166 shares issued
and outstanding, stated at liquidation value.............. 529,119 --
STOCKHOLDERS' EQUITY
Preferred stock, Class A convertible redeemable, 7,905,981
and 8,163,265 shares issued and outstanding............ 290,545 300,000
Preferred stock, Class B convertible, 82 shares issued and
outstanding............................................ -- --
Common stock, Class A, 253,246,237 and 211,374,665 shares
issued, 252,028,617 and 209,753,097 outstanding........ 253 211
Common stock, Class B, non-voting convertible, 17,830,000
shares issued and outstanding.......................... 18 18
Paid-in capital........................................... 4,379,810 3,672,908
Accumulated deficit....................................... (2,749,105) (1,135,251)
Treasury shares, at cost, 1,217,620 and 1,621,568
shares................................................. (23,435) (31,400)
Unrealized gain on investments, net of taxes.............. 22,798 14,993
Notes receivable from stockholders........................ -- (1,100)
Deferred compensation, net................................ (8,464) (12,241)
----------- -----------
Total stockholders' equity............................. 1,912,420 2,808,138
----------- -----------
$ 9,227,801 $ 6,472,439
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 52
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Service revenue..................................... $ 712,237 $ 297,512 $ 135,753
Analog equipment sales and maintenance.............. 26,660 35,426 35,950
----------- ----------- -----------
738,897 332,938 171,703
----------- ----------- -----------
OPERATING EXPENSES
Cost of service revenue............................. 269,685 221,382 123,496
Cost of analog equipment sales and maintenance...... 14,864 26,335 28,222
Selling, general and administrative................. 865,791 330,256 193,321
Expenses related to corporate reorganization........ -- -- 17,372
Depreciation and amortization....................... 526,377 400,831 236,178
----------- ----------- -----------
1,676,717 978,804 598,589
----------- ----------- -----------
OPERATING LOSS........................................ (937,820) (645,866) (426,886)
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest expense.................................... (407,805) (227,495) (115,034)
Interest income..................................... 29,773 21,015 25,525
Other............................................... 6,511 (10,866) (15,372)
----------- ----------- -----------
(371,521) (217,346) (104,881)
----------- ----------- -----------
LOSS BEFORE INCOME TAX PROVISION (BENEFIT) AND
EXTRAORDINARY ITEM.................................. (1,309,341) (863,212) (531,767)
INCOME TAX PROVISION (BENEFIT)........................ 258,726 (307,192) (200,602)
----------- ----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM........................ (1,568,067) (556,020) (331,165)
EXTRAORDINARY ITEM -- LOSS ON EARLY RETIREMENT OF
DEBT, NET OF INCOME TAX OF $0....................... (45,787) -- --
----------- ----------- -----------
NET LOSS.............................................. (1,613,854) (556,020) (331,165)
REDEEMABLE PREFERRED STOCK DIVIDENDS.................. (29,119) -- --
----------- ----------- -----------
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS.............. $(1,642,973) $ (556,020) $ (331,165)
=========== =========== ===========
BASIC AND DILUTED LOSS PER SHARE ATTRIBUTABLE TO
COMMON STOCKHOLDERS:
Loss before extraordinary item attributable to
common stockholders.............................. $ (6.41) $ (2.50) $ (2.31)
Extraordinary item.................................. (0.18) -- --
----------- ----------- -----------
$ (6.59) $ (2.50) $ (2.31)
=========== =========== ===========
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING......................................... 249,320,000 222,779,000 143,283,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 53
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS A CLASS B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK COMMON STOCK
-------------------- --------------- -------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- -------- ------ ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE December 31, 1994........ -- $ -- -- $-- 105,595,628 $106 -- $
Issuance of common stock:
Exercise of options and
warrants...................... 1,622,778 2
Digital Radio purchase.......... 8,163,265 300,000 82 1,220,000 1
Acquisitions.................... 67,310,953 67 17,830,000 18
Deferred compensation............
Collection of notes receivable,
net of accrued interest.........
Unrealized gain on investments...
Net loss.........................
--------- -------- -- -- ----------- ---- ----------- ---
BALANCE December 31, 1995........ 8,163,265 300,000 82 -- 175,749,359 176 17,830,000 18
Issuance of common stock:
Exercise of options and
warrants...................... 1,580,981 1
Employee stock purchase plan....
Acquisitions.................... 25,888,819 26
Comcast purchase................ 8,155,506 8
Exercise of anti-dilutive
rights..........................
Deferred compensation............
Interest on notes receivable.....
Unrealized loss on investments...
Net loss.........................
--------- -------- -- -- ----------- ---- ----------- ---
BALANCE December 31, 1996........ 8,163,265 300,000 82 -- 211,374,665 211 17,830,000 18
Issuance of common stock:
Exercise of options and
warrants...................... 2,598,649 3
Employee stock purchase plan....
Acquisitions.................... 19,556,399 19
Digital Radio option............ 15,000,000 15
Consent solicitation............ 3,944,672 4
Conversion of preferred stock... (257,284) (9,455) 771,852 1
Issuance of warrants of
subsidiary......................
Repurchase of Comcast option.....
Issuance of McCaw option to
purchase common stock...........
Deferred compensation............
Collection of notes receivable...
Unrealized gain on investments...
Preferred dividends..............
Net loss.........................
--------- -------- -- -- ----------- ---- ----------- ---
BALANCE December 31, 1997........ 7,905,981 $290,545 82 $-- 253,246,237 $253 17,830,000 $18
========= ======== == == =========== ==== =========== ===
<CAPTION>
UNREALIZED NOTES
GAIN RECEIVABLE
PAID-IN ACCUMULATED TREASURY (LOSS) ON FROM DEFERRED
CAPITAL DEFICIT SHARES INVESTMENTS STOCKHOLDERS COMPENSATION
---------- ----------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE December 31, 1994........ $1,520,322 $ (248,066) $ (786) $ (1,214) $(1,245) $ (542)
Issuance of common stock:
Exercise of options and
warrants...................... 5,722 18
Digital Radio purchase.......... 12,644
Acquisitions.................... 1,654,440
Deferred compensation............ 4,400 (3,076)
Collection of notes receivable,
net of accrued interest......... 227
Unrealized gain on investments... 33,268
Net loss......................... (331,165)
---------- ----------- -------- -------- ------- --------
BALANCE December 31, 1995........ 3,197,528 (579,231) (768) 32,054 (1,018) (3,618)
Issuance of common stock:
Exercise of options and
warrants...................... 16,836 (1,242)
Employee stock purchase plan.... (112) 227
Acquisitions.................... 341,984 (37,009)
Comcast purchase................ 99,897
Exercise of anti-dilutive
rights.......................... (842) 7,392
Deferred compensation............ 17,617 (8,623)
Interest on notes receivable..... (82)
Unrealized loss on investments... (17,061)
Net loss......................... (556,020)
---------- ----------- -------- -------- ------- --------
BALANCE December 31, 1996........ 3,672,908 (1,135,251) (31,400) 14,993 (1,100) (12,241)
Issuance of common stock:
Exercise of options and
warrants...................... 23,621 1,569
Employee stock purchase plan.... (1,848) 5,424
Acquisitions.................... 388,062 972
Digital Radio option............ 232,471
Consent solicitation............ 63,452
Conversion of preferred stock... 9,454
Issuance of warrants of
subsidiary...................... 14,800
Repurchase of Comcast option..... (25,000)
Issuance of McCaw option to
purchase common stock........... 24,743
Deferred compensation............ 6,266 3,777
Collection of notes receivable... 1,100
Unrealized gain on investments... 7,805
Preferred dividends.............. (29,119)
Net loss......................... (1,613,854)
---------- ----------- -------- -------- ------- --------
BALANCE December 31, 1997........ $4,379,810 $(2,749,105) $(23,435) $ 22,798 $ -- $ (8,464)
========== =========== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 54
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $(1,613,854) $(556,020) $(331,165)
Adjustments to reconcile net loss to net cash used in
operating activities--
Amortization of deferred financing costs and
accretion of senior redeemable discount notes..... 346,289 188,687 94,430
Depreciation and amortization....................... 526,377 400,831 236,178
Provision for losses on accounts receivable......... 55,623 6,968 1,936
Deferred income tax provision (benefit)............. 258,726 (308,262) (201,427)
Extraordinary loss on retirement of debt............ 45,787 -- --
Other, net.......................................... 28,520 5,393 18,339
Change in current assets and liabilities, net of
effects from acquisitions:
Accounts and notes receivable..................... (204,048) (28,954) (22,420)
Subscriber equipment inventory.................... (68,840) (19,939) (1,179)
Other assets...................................... (37,398) 11,985 (15,914)
Accounts payable, accrued expenses and other...... 300,294 94,602 86,483
----------- --------- ---------
Net cash used in operating activities.......... (362,524) (204,709) (134,739)
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions and purchase of licenses, net
of cash acquired.................................... (207,225) 37,705 (85,917)
Other investments and advances to affiliates........... (59,480) (38,380) (51,605)
Capital expenditures (Note 1).......................... (1,597,420) (434,641) (270,943)
Purchases of marketable securities..................... (234,071) (132,333) --
Proceeds from maturities and sales of marketable
securities.......................................... 107,667 196,771 112,095
Other.................................................. (57,860) 11,769 6,140
----------- --------- ---------
Net cash used in investing activities.......... (2,048,389) (359,109) (290,230)
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt securities............................ 1,700,279 -- --
Issuance of preferred stock............................ 500,000 -- 300,000
Long-term borrowings................................... 250,000 581,408 --
Revolving line of credit borrowings (repayments),
net................................................. 231,250 (296,704) 154,134
Retirement of debt securities.......................... (283,288) -- --
Other long-term (repayments) borrowings, net........... (8,023) 1,009 (6,357)
Consent solicitation proceeds.......................... 63,456 -- --
Deferred financing costs............................... (138,845) (37,676) --
Issuance of common stock and options................... 281,904 114,636 16,112
Option repurchase...................................... (25,000) -- --
Notes receivable from stockholders..................... 1,100 -- 227
----------- --------- ---------
Net cash provided by financing activities...... 2,572,833 362,673 464,116
----------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... 161,920 (201,145) 39,147
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........... 139,681 340,826 301,679
----------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD................. $ 301,601 $ 139,681 $ 340,826
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 55
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS -- Nextel Communications, Inc., and its subsidiaries ("Nextel"
or the "Company") provide a wide array of digital wireless communications
services throughout the United States, primarily to business users, utilizing
frequencies licensed by the Federal Communications Commission ("FCC"). In
addition to its digital operations, Nextel also operates analog wireless
networks which provide analog specialized mobile radio ("SMR") services.
Nextel's digital network has been developed to replace its remaining traditional
analog SMR systems with advanced mobile communication systems employing digital
technology with a multi-site configuration permitting frequency reuse ("Digital
Mobile network") utilizing digital technology developed by Motorola Inc.
("Motorola") (such technology is referred to as the "integrated Digital Enhanced
Network" or "iDEN(TM)"). Nextel's principal business objective is to offer
high-capacity, high quality, advanced communications services on its Digital
Mobile network to its customers in metropolitan markets throughout the United
States and to become a major participant in the global wireless communications
business. Through its subsidiary Nextel International, Inc. ("Nextel
International", formerly known as McCaw International, Ltd.), and other
subsidiaries that are involved in the international wireless investments and
business activities managed and/or coordinated through Nextel International,
Nextel has interests in wireless operations in Latin America, Asia and Canada.
CONCENTRATIONS OF RISK -- The Company believes that the geographic and
industry diversity of its customer base minimizes the risk of incurring material
losses due to concentrations of credit risk.
The Company is party to certain equipment purchase agreements with
Motorola, a significant stockholder (see Notes 6 and 12). For the foreseeable
future the Company expects that it will need to rely on Motorola for the
manufacture of a substantial portion of the equipment necessary to construct and
make operational its Digital Mobile network.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Nextel and its majority-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in
consolidation. To facilitate the timely reporting of consolidated results, the
accounts of Nextel International's foreign subsidiaries are consolidated on a
one-month lag based on a fiscal year ending November 30.
The equity method is used to account for unconsolidated investments in
companies in which the Company exercises significant influence over operating
and financial policies but does not have a controlling interest.
CASH AND CASH EQUIVALENTS; SUPPLEMENTAL CASH FLOW INFORMATION -- Cash
equivalents consist of time deposits and highly liquid investments with
remaining maturities of three months or less at the time of purchase. At
December 31, 1997, approximately $159.8 million in cash and cash equivalents
held by Nextel International and its subsidiaries were not available to fund any
of the cash needs of Nextel's domestic Digital Mobile network and SMR businesses
due to restrictions contained in the indenture related to the 10-year discount
notes issued by Nextel International in March 1997 (the "1997 NI Notes
Indenture") (see Note 6).
F-7
<PAGE> 56
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental disclosures of cash flow information are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH PAID:
Interest paid.................................. $105,464 $32,660 $8,454
======== ======= ======
Income taxes paid.............................. $ -- $ 1,290 $ 389
======== ======= ======
</TABLE>
Total cash and non-cash capital expenditures were $1,641.5 million, $570.0
million and $419.7 million, for the years ended December 31, 1997, 1996 and
1995, respectively. Total capital expenditures include interest capitalized in
connection with the construction and development of the Digital Mobile network
of approximately $43.0 million, $32.9 million and $31.0 million during the years
ended December 31, 1997, 1996 and 1995, respectively. Prior to September 30,
1996, the Company financed certain of its equipment purchases directly with
vendors. During the years ended December 31, 1996 and 1995, the total equipment
acquired under these vendor financing agreements was $102.5 million and $117.8
million, respectively.
INVESTMENTS -- Marketable debt securities and certificates of deposit with
original maturities greater than three months are classified as marketable
securities. Marketable equity securities intended to be held more than one year
are classified as other long-term assets. At December 31, 1997, approximately
$128.6 million of marketable securities held by Nextel International and its
subsidiaries were not available to fund any of the cash needs of Nextel's
domestic Digital Mobile network and SMR businesses due to restrictions contained
in the 1997 NI Notes Indenture (see Note 6).
The Company accounts for investments in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." All of the Company's marketable securities are
classified as available-for-sale as of the balance sheet date and are reported
at fair value, with unrealized gains and losses, net of tax, recorded as a
component of stockholders' equity. Realized gains or losses, as determined on a
specific identification basis, and declines in value, if any, judged to be other
than temporary on available-for-sale securities are reported in other income or
expense. Investments that are not considered marketable securities are recorded
at the lower of cost or market and included in other assets. Management of the
Company believes its investment policy limits exposure to concentrations of
credit risk.
SUBSCRIBER EQUIPMENT INVENTORY -- Subscriber equipment is valued at the
lower of cost or market. Cost is determined by the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment, including
improvements that extend useful lives, are recorded at cost, while maintenance
and repairs are charged to operations as incurred. Depreciation and amortization
are computed using the straight-line method based on estimated useful lives of
up to 31 years for buildings, 3 to 10 years for equipment, and 3 to 7 years for
furniture and fixtures. Leasehold improvements are amortized over the shorter of
the respective lives of the leases or the useful lives of the improvements.
Construction in progress includes labor, material, transmission and related
equipment, engineering, site development, interest and other costs relating to
the construction and development of the Digital Mobile network.
INTANGIBLE ASSETS -- Intangible assets are recorded at cost and are
amortized using the straight-line method based on estimated useful lives of 40
years for FCC licenses and the excess of purchase price over fair value of
domestic net assets acquired, 3 to 10 years for customer lists, and up to 20
years for other intangibles. Licenses for the Company's international operations
and the excess of purchase price over the fair value of net assets acquired
related to international acquisitions are amortized on a straight-line basis
over 20 years.
F-8
<PAGE> 57
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective October 1, 1997, the Company changed the estimated useful lives
of FCC licenses and the excess of purchase price over fair value of net assets
acquired related to domestic acquisitions from 20 to 40 years to better reflect
the period over which economic benefits of such assets are expected to be
realized. The change in the estimated useful lives of these intangible assets
had the effect of decreasing amortization expense by approximately $27.7 million
for the quarter and year ended December 31, 1997.
INTEREST RATE RISK MANAGEMENT -- The Company uses derivative financial
instruments consisting of interest rate swap and interest rate protection
agreements in the management of its interest rate exposures. These interest rate
swap agreements have the effect of converting certain of the Company's variable
rate obligations to fixed or other variable rate obligations. Amounts to be paid
or received under interest rate swap agreements are accrued as interest rates
change and are recognized over the life of the swap agreements as an adjustment
to interest expense. The fair value of the swap agreements is not recognized in
the consolidated financial statements, since the swap agreements meet the
criteria for matched swap accounting.
The Company enters into interest rate protection agreements to lock in
current interest rates on 10-year U.S. Treasury notes in anticipation of future
debt issuances that are probable of occurring and whose significant terms and
characteristics have been identified. Such agreements are designated to specific
debt issuances and any resulting net receivable or payable on the agreement is
capitalized as part of the deferred financing costs and amortized as an
adjustment to interest expense over the life of the related debt. In the event
that an agreement is no longer specifically designated to an anticipated
transaction, the agreement would be marked to market with any gain or loss
recognized within the Company's statement of operations.
The Company does not use financial instruments for trading or other
speculative purposes, nor is it a party to any leveraged derivative instrument.
The use of derivative financial instruments is monitored through regular
communication with senior management. The Company is exposed to credit loss in
the event of nonperformance by the counterparties. This credit risk is minimized
by dealing with a group of major financial institutions with which the Company
has other financial relationships. The Company does not anticipate
nonperformance by these counterparties.
REVENUE RECOGNITION -- Revenue is recognized for airtime and other services
over the period earned and for sales of equipment when delivered. Accruals for
customer discounts and rebates are recorded when revenues are recognized.
Certain of the Company's digital equipment sales are made through
independent distributors under agreements allowing rights of return on
merchandise unsold by the distributors. The Company defers recognition of such
sales until the merchandise is sold by the distributors.
DIGITAL MOBILE NETWORK EQUIPMENT SALES AND RELATED COSTS -- The loss
generated from the sale of subscriber units used in the Digital Mobile network
primarily results from the Company's subsidy of digital subscriber units and
represents marketing costs for the Digital Mobile network. Equipment sales
revenue and related cost of sales of digital subscriber units and related
digital accessories, including current period order fulfillment and installation
related expenses are classified within selling, general and administrative
expenses as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Equipment Sales.............................. $ 246,074 $129,252 $ 53,515
Cost of Equipment Sales...................... 396,948 154,678 67,274
--------- -------- --------
$(150,874) $(25,426) $(13,759)
========= ======== ========
</TABLE>
INCOME TAXES -- Deferred tax assets and liabilities are determined based on
the temporary difference between the financial reporting and tax bases of assets
and liabilities applying enacted statutory tax rates in effect for the year in
which the differences are expected to reverse. Future tax benefits, such as net
operating
F-9
<PAGE> 58
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
loss carryforwards, are recognized to the extent that realization of such
benefits is considered to be more likely than not.
FOREIGN CURRENCY TRANSLATION -- Results of operations for foreign
investments are translated from the designated functional currency to the U.S.
dollar using average exchange rates during the period, while assets and
liabilities are translated at the exchange rate in effect at the reporting date.
Resulting gains or losses from translating foreign currency financial statements
are accumulated in a separate component of stockholders' equity. There were no
translation gains or losses for the periods presented. All gains or losses
resulting from foreign currency transactions are included in other income
(expense) in the accompanying consolidated statements of operations. During the
year ended December 31, 1997, the Company recognized approximately $6.0 million
in transaction gains; no significant transaction gains or losses were recorded
during the years ended December 31, 1996 or 1995.
During 1997, Comunicaciones Nextel de Mexico S.A. de C.V. ("Nextel
Mexico"), formerly known as Corporacion Mobilcom S.A. de C.V., and McCaw
International (Brazil), Ltd. ("Nextel Brazil"), formerly known as Wireless
Ventures of Brazil, Inc., were considered to be operating in highly inflationary
economies as defined by Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation." Accordingly, Nextel Mexico and Nextel Brazil
used the U.S. dollar as their functional currency. Effective January 1, 1998,
Nextel Brazil will no longer be considered to be operating in a highly
inflationary economy and will begin using the Brazilian Real as its functional
currency.
BASIC AND DILUTED LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS -- In
March 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"),
which supersedes Accounting Principles Board Opinion No. 15. SFAS 128 is
effective for 1997 and simplifies the computation of earnings per share by
replacing the presentation of primary and fully diluted earnings per share with
a presentation of basic and diluted earnings per share. SFAS 128 requires dual
presentation of basic and diluted earnings per share by entities with complex
capital structures. Basic earnings per share includes no dilution and is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity, similar to fully diluted earnings per share.
As presented, the Company's basic and diluted net loss per share attributable to
common stockholders is based on the weighted-average number of common shares
outstanding during the period and does not include other potential common shares
(including shares issuable upon exercise of options, warrants or conversion
rights) since their effect would be antidilutive.
NEW ACCOUNTING PRONOUNCEMENTS -- In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS
130") that establishes standards for reporting and display of comprehensive
income and is effective for fiscal years beginning after December 15, 1997.
Components of comprehensive income include items such as net income, changes in
fair market value of available-for-sale securities and foreign currency
translation adjustments.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
("SFAS 131") that changes the standards for reporting information about
operating segments in annual financial statements and requires reporting of
selected information in interim financial reports. SFAS 131 is effective for
fiscal years beginning after December 15, 1997.
Both SFAS 130 and SFAS 131 require additional disclosure, but will not
result in a material effect on the Company's financial position or results of
operations.
RECLASSIFICATIONS -- Certain prior year amounts have been reclassified to
conform to the current year presentation.
F-10
<PAGE> 59
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT BUSINESS COMBINATIONS AND INVESTMENTS
DOMESTIC TRANSACTIONS -- On November 12, 1997, the merger with Pittencrieff
Communications, Inc. ("Pittencrieff"), an operator of analog SMR systems in
Texas, Oklahoma, New Mexico and Arizona, was consummated (the "Pittencrieff
Transaction"), whereby the stockholders of Pittencrieff received approximately
6.2 million shares of Nextel Class A Common Stock (or rights to receive such
stock), par value $0.001 per share ("Common Stock"), having an aggregate value
of approximately $169.6 million at closing. The Company does not believe that
the final purchase price allocation will differ significantly from the
preliminary purchase price allocation recorded at December 31, 1997.
In January 1996, the merger with Dial Page, Inc. ("Dial Page"), an operator
of analog SMR systems in the southeastern United States, was consummated (the
"Dial Page Transaction"), whereby the stockholders of Dial Page received
approximately 26.8 million shares of Common Stock (or rights to receive such
stock), having an aggregate value of approximately $277.9 million on the
contract date.
In July 1995, the Company acquired from Motorola substantially all of its
owned or managed 800 MHz SMR licenses and related assets located throughout the
continental United States in exchange for approximately 41.7 million shares of
Common Stock and 17.8 million shares of Nextel Class B Non-Voting Common Stock,
par value $0.001 per share (the "Non-Voting Common Stock") (the "Motorola
Transaction"), having an aggregate market value of approximately $1,160.0
million at closing.
In July 1995, the merger with OneComm Corporation ("OneComm"), an operator
of SMR systems in the Rocky Mountain, Pacific Northwest, Midwest, North Central
and Ohio Valley areas, was consummated (the "OneComm Transaction") whereby the
stockholders of OneComm received approximately 22.5 million shares of Common
Stock (or rights to receive such stock), having an aggregate market value of
approximately $402.0 million at closing.
In July 1995, the merger with American Mobile Systems Incorporated ("AMS"),
an operator of SMR systems in Florida, was consummated, whereby the stockholders
of AMS received approximately 4.2 million shares of Common Stock (or rights to
receive such stock), having an aggregate market value of approximately $81.3
million at closing.
In October 1995, the Company acquired certain SMR properties from Comcast
Corporation in exchange for approximately 463,000 shares of Common Stock, having
an aggregate market value of approximately $7.2 million at closing.
INTERNATIONAL TRANSACTIONS -- Through a series of investments in 1995 and
1996, Nextel International acquired approximately 30.1% of the outstanding
shares of Nextel Mexico, a Mexican SMR operator. Upon acquiring a 30.1%
ownership interest, Nextel International commenced accounting for Nextel Mexico
using the equity method of accounting.
Through a series of transactions during 1997, the Company acquired
substantially all of the remaining shares of Nextel Mexico in exchange for 1.3
million shares of Common Stock valued at $16.5 million at closing and $115.6
million in cash, thereby increasing Nextel International's equity interest to
approximately 100% (the "Mexico Transaction"). Nextel International commenced
consolidating the accounts of Nextel Mexico on September 1, 1997, as a result of
its having obtained greater than 50% of the outstanding common stock and control
of Nextel Mexico.
In August 1996, the Company, through a wholly-owned subsidiary, loaned
Grupo Comunicaciones San Luis S.A. de C.V ("Grupo") $12.0 million of which $3.4
million in principal and accrued interest was outstanding as of December 31,
1996. The note was subsequently transferred to Unrestricted Subsidiary Funding
Company, a wholly-owned subsidiary of Nextel ("USFC"). The principal and accrued
interest of $5.7 million outstanding as of December 12, 1997 was forgiven in
connection with the acquisition of the minority interest in Nextel Mexico held
by Grupo.
F-11
<PAGE> 60
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the year ended December 31, 1996, Nextel International recorded a
$10.8 million charge as a result of changing from the cost method to the equity
method of accounting. During the year ended December 31, 1995, Nextel
International recorded a $15.0 million charge to operations representing an
other than temporary decline in this cost method investment as a result of the
decline in the Mexican Peso during 1995.
On January 30, 1997, Nextel acquired 81% of the outstanding shares of
Nextel Brazil, an operator of SMR systems in Brazil, from Telcom Ventures,
Inc.("Telcom Ventures") for a purchase price of $186.3 million, which was paid
with approximately 12.0 million shares of Common Stock (the "Brazil
Transaction"). Nextel simultaneously contributed its interest in Nextel Brazil
to Nextel International. Telcom Ventures has the right between October 31, 2001
and November 1, 2003, to require Nextel International to redeem its 19% interest
in Nextel Brazil at fair market value as determined pursuant to an appraisal
procedure. Nextel International is currently required to fund 100% of Nextel
Brazil's capital requirements until April 30, 1999 when Telcom Ventures must
either (i) contribute its pro rata share plus accrued interest or (ii) dilute
its ownership interest. Dividends may be declared at the discretion of Nextel
Brazil's board of directors and are allocated based on the ownership percentages
in effect at the date of declaration. No dividends have been declared to date.
In September 1997, a subsidiary of Nextel Brazil acquired 49% of the capital
stock and certain assets of a Brazilian indirect wholly-owned subsidiary of
Motorola for total consideration of approximately $19.3 million. In connection
with this transaction Nextel International's ownership in its Brazilian
operations was effectively reduced to 77%.
In August 1996, Nextel International acquired all of the outstanding shares
of Com Control Comunicacion Controlada S.A., (renamed McCaw Argentina S.A.L.,
"Nextel Argentina") an Argentine SMR operator. On May 6, 1997, Nextel
International contributed its 100% ownership interest in Nextel Argentina into a
joint venture (the "Argentina Joint Venture") between the Company and Wireless
Ventures of Argentina, L.L.C. ("WVA"). As of December 31, 1997, Nextel
International had a 50% voting interest and shared equally in the profits and
losses of the joint venture. Capital contributions are to be made equally unless
otherwise agreed to by both Nextel International and WVA. Commencing on May 6,
1997, Nextel International accounted for its investment in the joint venture
under the equity method of accounting.
On January 30, 1998, Nextel International acquired the remaining 50%
interest in the Argentina Joint Venture from WVA for a purchase price of $46.0
million. As a result of the purchase, Nextel International commenced
consolidating the accounts of Nextel Argentina effective February 1, 1998.
PRO FORMA RESULTS -- The following presents the unaudited pro forma
consolidated results of operations for the year ended December 31, 1995, as if
the acquisitions consummated in 1995 and the Dial Page Transaction described
above had occurred on January 1, 1995. Results of operations for the years ended
December 31, 1997 and 1996 were not materially affected by the acquisitions
consummated in 1997 and 1996; accordingly, pro forma results are not presented.
The pro forma results are not necessarily indicative of the actual results of
operations that would have occurred had the transactions been consummated as
indicated nor are they intended to indicate results that may occur in the
future.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C>
Revenues.................................................. $ 261,393
=========
Net loss.................................................. $(526,699)
=========
Loss per share attributable to common stockholders........ $ (2.34)
=========
</TABLE>
F-12
<PAGE> 61
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
All of the acquisitions described above were accounted for by the purchase
method. Accordingly, assets and liabilities have been reflected at fair value at
the date of acquisition. The operating results of the acquired companies are
included in the consolidated statements of operations from their respective
acquisition dates.
The total purchase price and net assets acquired for domestic and
international acquisitions completed are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Direct cost of acquisitions:
Cash and accrued transaction costs.............. $ 154,462 $ 30,487 $ 89,626
Common stock, warrants and options.............. 382,910 296,881 1,654,525
Expenses related to corporate reorganization.... -- -- 9,915
--------- --------- ----------
$ 537,372 $ 327,368 $1,754,066
========= ========= ==========
Net assets acquired:
Working capital -- net.......................... $ (29,218) $ 53,641 $ (44,992)
Property, plant and equipment................... 51,661 202,420 207,070
Intangible assets............................... 700,582 556,250 2,278,310
Other assets.................................... 7,377 4,290 37,790
Long-term debt.................................. (15,280) (379,017) (215,835)
Deferred income taxes........................... (177,750) (110,216) (508,277)
--------- --------- ----------
$ 537,372 $ 327,368 $1,754,066
========= ========= ==========
</TABLE>
CORPORATE REORGANIZATION -- As a result of the business combinations
consummated in 1995, the Company began to implement a plan to consolidate,
resize and relocate the corporate headquarters and certain other functions of
the various combining entities (the "Corporate Reorganization"). Accordingly, in
1995 the Company recorded a charge to operations of approximately $17.4 million
for certain estimated expenses directly related to such Corporate Reorganization
activities, including employee severance and closure of duplicate facilities. As
of December 31, 1997, all such costs relating to the Corporate Reorganization
have been paid.
3. ACCOUNTS AND NOTES RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Trade................................................... $284,053 $ 80,644
Notes receivable........................................ 2,964 12,295
Other................................................... 10,210 8,227
Allowance for doubtful accounts......................... (56,590) (10,774)
-------- --------
$240,637 $ 90,392
======== ========
</TABLE>
F-13
<PAGE> 62
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land................................................. $ 3,047 $ 1,995
Buildings and improvements........................... 37,901 20,279
Equipment............................................ 3,054,607 1,427,159
Furniture and fixtures............................... 28,779 18,182
Less accumulated depreciation and amortization....... (594,473) (314,808)
---------- ----------
2,529,861 1,152,807
Construction in progress............................. 695,742 650,932
---------- ----------
$3,225,603 $1,803,739
========== ==========
</TABLE>
5. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
FCC licenses......................................... $3,945,838 $3,300,176
Excess of purchase price over fair value of net
assets acquired.................................... 1,258,400 1,083,963
Customer lists....................................... 173,673 134,320
Noncompetition covenants............................. 55,109 85,385
Other................................................ 31,280 38,783
---------- ----------
5,464,300 4,642,627
Less accumulated amortization........................ 764,554 566,327
---------- ----------
$4,699,746 $4,076,300
========== ==========
</TABLE>
F-14
<PAGE> 63
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
11.5% Senior Redeemable Discount Notes due 2003, net
of unamortized discount of $24,564 and $89,024..... $ 318,801 $ 436,831
9.75% Senior Redeemable Discount Notes due 2004, net
of unamortized discount of $113,926 and $205,773... 1,012,509 920,662
10.125% Senior Redeemable Discount Notes due 2004
(originally issued by OneComm), net of unamortized
discount of $111,870 and $151,810.................. 298,006 258,066
12.25% Senior Redeemable Discount Notes due 2004
(originally issued by Dial Call Communications,
Inc.), net of unamortized discount of $104,504 and
$186,584........................................... 326,966 355,246
10.25% Senior Redeemable Discount Notes due 2005
(originally issued by Dial Call Communications,
Inc.), net of unamortized discount of $34,320 and
$45,192............................................ 80,845 69,973
13.0% Senior Redeemable Discount Notes due 2007, net
of unamortized discount of $411,571................ 539,892 --
10.65% Senior Redeemable Discount Notes due 2007, net
of unamortized discount of $324,329................ 515,671 --
9.75% Senior Serial Redeemable Discount Notes due
2007, net of unamortized discount of $416,021...... 713,079 --
Bank credit facility, interest payable quarterly at
an adjusted rate calculated either on the prime
rate or LIBOR (8.25% to 9.0% -- 1997 and 8.0% to
9.75% -- 1996)..................................... 1,021,000 590,000
Vendor credit facility, interest payable quarterly at
2.0% over the prime rate (10.5% -- 1997 and
10.25% -- 1996).................................... 152,021 150,000
Nextel International vendor credit facility, interest
payable semiannually at 2.5% over the prime rate
(11.0% -- 1997).................................... 50,250 --
Other................................................ 16,787 3,787
---------- ----------
5,045,827 2,784,565
Less current portion................................. 7,577 1,524
---------- ----------
$5,038,250 $2,783,041
========== ==========
</TABLE>
SENIOR REDEEMABLE DISCOUNT NOTES
OLD SENIOR NOTES -- In 1993, the Company completed the issuance of $525.9
million principal amount at maturity of 11.5% Senior Redeemable Discount Notes
due 2003 (the "Nextel 2003 Notes"). The Nextel 2003 Notes, which are unsecured
obligations and noncallable until September 1, 1998, generated $300.0 million of
gross proceeds. Cash interest on the Nextel 2003 Notes accrues beginning on
September 1, 1998 and is payable semi-annually beginning March 1, 1999 at a rate
of 11.5% per annum.
In 1994, the Company completed the issuance of $1,126.4 million principal
amount at maturity of 9.75% Senior Redeemable Discount Notes due 2004 (the
"Nextel 2004 Notes"). The Nextel 2004 Notes, which are unsecured obligations and
noncallable until February 15, 1999, generated $700.0 million of gross proceeds.
Cash interest on the Nextel 2004 Notes accrues beginning on February 15, 1999
and is payable semi-annually beginning August 15, 1999 at a rate of 9.75% per
annum.
F-15
<PAGE> 64
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The $409.9 million principal amount at maturity of 10.125% Senior
Redeemable Discount Notes due 2004 originally issued by OneComm (the "OneComm
2004 Notes") are unsecured obligations, noncallable until January 15, 1999, and
were assumed in connection with the OneComm Transaction and adjusted to fair
value at the date of acquisition at an annual yield to stated maturity of
approximately 14.2%. Cash interest on the OneComm 2004 Notes accrues beginning
on January 15, 1999 and is payable semi-annually beginning July 15, 1999 at a
rate of 10.125% per annum.
The $541.8 million principal amount at maturity of 12.25% Senior Redeemable
Discount Notes due 2004 originally issued by Dial Call Communications, Inc. (the
"Dial Page 2004 Notes") are unsecured obligations, noncallable until April 15,
1999, and were assumed in connection with the Dial Page Transaction and adjusted
to fair value at the date of acquisition at an annual yield to stated maturity
of approximately 14.3%. Cash interest on the Dial Page 2004 Notes accrues
beginning on April 15, 1999 and is payable semi-annually beginning October 15,
1999 at a rate of interest of 12.25% per annum.
The $115.2 million principal amount at maturity of 10.25% Senior Redeemable
Discount Notes due 2005 originally issued by Dial Call Communication, Inc. (the
"Dial Page 2005 Notes") are unsecured obligations, noncallable until December
15, 1998, and were assumed in connection with the Dial Page Transaction and
adjusted to fair value at the date of acquisition at the annual yield to stated
maturity of approximately 14.3%. Cash interest on the Dial Page 2005 Notes
accrues beginning on December 15, 1998 and is payable semi-annually beginning
June 15, 1999 at a rate of 10.25% per annum.
EXTRAORDINARY ITEM -- During the fourth quarter of 1997, the Company
utilized $283.3 million of the proceeds from the issuance of $1,129.1 million in
principal amount at maturity of 9.75% Senior Serial Redeemable Discount Notes
due 2007 (the "October 2007 Notes") to repurchase $182.5 million in principal
amount at maturity of Nextel 2003 Notes and $110.4 million in principal amount
at maturity of Dial Page 2004 Notes (collectively, the "Targeted Notes") at a
cost in excess of related carrying amounts. Accordingly, the Company recognized
an extraordinary loss of approximately $45.8 million related to the early
retirement of debt representing the excess of the purchase price over carrying
value as well as unamortized deferred financing costs. In March 1998 the Company
commenced a cash tender offer and consent solicitation related to the remaining
outstanding Targeted Notes.
INDENTURE AMENDMENTS -- On June 13, 1997, Nextel obtained the consent of
the requisite number of holders of the Nextel 2003 Notes, Nextel 2004 Notes,
OneComm 2004 Notes, Dial Page 2004 Notes and Dial Page 2005 Notes (collectively
the "Old Senior Notes") to certain amendments and waivers to specific provisions
of the indentures governing the Old Senior Notes (as amended and modified, the
"Old Indentures"). The amendments included certain modifications to the debt
incurrence limitations to allow Nextel to incur additional indebtedness and
modifications to make the terms and covenants uniform among the Old Indentures.
The covenants of the Old Indentures restrict the ability of the Company and
certain of its subsidiaries to: incur additional indebtedness; pay dividends or
make distributions in respect of its capital stock or make certain other
restricted payments; enter into transactions with affiliates or related persons;
sell certain assets; engage in any business other than the telecommunications
business; or consolidate, merge or sell all or substantially all of its assets.
The maximum permitted indebtedness pursuant to the Old Indentures was limited to
approximately $3.0 billion as of December 31, 1997. At December 31, 1997, the
Company has incurred approximately $2.1 billion constituting permitted debt
which had the effect of limiting the amount available under the Old Facilities
(as defined below) as of that date by approximately $390.0 million.
NEXTEL INTERNATIONAL 2007 NOTES -- On March 3, 1997, Nextel International
completed the sale of 951,463 units generating approximately $500.0 million in
gross proceeds. Each unit is comprised of a 10-year senior discount note (the
"1997 NI Notes") (with a principal amount due at maturity of $1,000) and one
warrant to purchase 0.38748 shares of Nextel International's common stock at an
exercise price of $9.99 per share any time after March 6, 1998 and prior to
March 6, 2007. The warrants entitle the holders to purchase, in the aggregate,
approximately 1% of the current outstanding shares of Nextel International on a
fully diluted
F-16
<PAGE> 65
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
basis. The 1997 NI Notes have a 13% yield to maturity, are noncallable until
April 15, 2002, and require no interest payments for the first five years.
Interest on the 1997 NI Notes is payable in cash on each April 15 and October
15, commencing October 15, 2002. Nextel International is restricted from paying
dividends under the terms of the 1997 NI Notes Indenture, and such indenture
contains covenants restricting certain transactions. The 1997 NI Notes are
senior unsecured indebtedness of Nextel International and rank pari passu in
right of payment with all unsubordinated, unsecured indebtedness of Nextel
International.
SEPTEMBER 2007 NOTES -- On September 17, 1997, Nextel completed the sale of
$840.0 million in principal amount at maturity of 10.65% Senior Redeemable
Discount Notes due 2007 (the "September 2007 Notes"). The sale of the September
2007 Notes generated approximately $500.3 million in aggregate gross proceeds.
Nextel received approximately $486.0 million in net cash proceeds from the sale
of the September 2007 Notes. Cash interest will not accrue on the September 2007
Notes prior to September 15, 2002 and will be payable on March 15 and September
15 of each year, commencing March 15, 2003, at a rate of 10.65% per annum. The
September 2007 Notes are redeemable, at the option of Nextel at any time, in
whole or in part, on or after September 15, 2002, at specified redemption prices
plus accrued and unpaid interest. The September 2007 Notes are senior unsecured
indebtedness of Nextel and rank pari passu in right of payment with all
unsubordinated, unsecured indebtedness of Nextel.
OCTOBER 2007 NOTES -- On October 22, 1997, Nextel completed the sale of
$1,129.1 million in principal amount at maturity of 9.75% Senior Redeemable
Discount Notes due 2007 (the "October 2007 Notes"). The sale of the October 2007
generated approximately $700.0 million in aggregate gross proceeds. Nextel
received approximately $682.0 million in net cash proceeds from the sale of the
October 2007 Notes. Cash interest will not accrue on the October 2007 Notes
prior to October 31, 2002 and will be payable on April 30 and October 31 of each
year, commencing April 30, 2003, at a rate of 9.75% per annum. The October 2007
Notes are redeemable, at the option of Nextel at any time, in whole or in part,
on or after October 31, 2002, at specified redemption prices plus accrued and
unpaid interest. The October 2007 Notes are senior unsecured indebtedness of
Nextel and rank pari passu in right of payment with all unsubordinated,
unsecured indebtedness of Nextel.
FEBRUARY 2008 NOTES -- On February 11, 1998, Nextel completed the sale of
$1,627.0 million in principal amount at maturity of 9.95% Senior Serial
Redeemable Discount Notes due 2008 (the "February 2008 Notes"). The sale of the
February 2008 Notes generated approximately $1,000.1 million in gross proceeds.
Nextel received approximately $975.9 million in net cash proceeds from the sale
of the February 2008 Notes. Cash interest will not accrue on the February 2008
Notes prior to February 15, 2003, and will be payable on February 15 and August
15 commencing August 15, 2003 at a rate of 9.95%. The February 2008 Notes are
redeemable, at the option of Nextel at any time, in whole or in part, on or
after February 15, 2003, at specified redemption prices plus accrued and unpaid
interest. The February 2008 Notes are senior unsecured indebtedness of Nextel
and rank pari passu in right of payment with all unsubordinated, unsecured
indebtedness of Nextel.
NEXTEL INTERNATIONAL 2008 NOTES -- On March 12, 1998, Nextel International
completed the sale of $730.0 million in principal amount at maturity of 12.125%
Senior Discount Notes due 2008 (the "1998 NI Notes"). The sale of the 1998 NI
Notes generated approximately $400.9 million in gross proceeds and become
redeemable at Nextel International's option at any time, in whole or in part, on
or after April 15, 2003. Nextel International received approximately $387.0
million in net cash proceeds from the sale of the 1998 NI Notes to be used for
system and related capital expenditures and other general corporate purposes of
Nextel International and its subsidiaries and restricted affiliates. Cash
interest will not accrue on the 1998 NI Notes prior to April 15, 2003, and will
be payable on April 15 and October 15 commencing October 15, 2003 at a rate of
12.125%. The 1998 NI Notes are senior unsecured indebtedness of Nextel
International and rank pari passu in right of payment with all unsubordinated,
unsecured indebtedness of Nextel International.
F-17
<PAGE> 66
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BANK AND VENDOR CREDIT FACILITIES
DOMESTIC FACILITIES -- On September 30, 1996, Nextel, Nextel Finance
Company ("NFC"), a wholly-owned subsidiary of Nextel, and certain other domestic
subsidiaries of Nextel entered into definitive agreements with respect to a
secured credit facility arranged by a group of banks (the "Old Bank Credit
Facility"). The Old Bank Credit Facility provided for up to $1,905.0 million of
secured financing, consisting of $1,085.0 million in revolving loans and $820.0
million in term loans. The commitments to make revolving loans were to be
reduced beginning March 31, 2001 with final maturities of the revolving loans
occurring on March 31, 2003. Quarterly principal payments on the term loans were
to commence March 31, 2001 with final maturities on June 30, 2003. Concurrently
therewith, Nextel, NFC and certain other subsidiaries of Nextel entered into
definitive agreements, which also became effective on September 30, 1996, with
respect to the amendment, restatement and consolidation of the previously
existing financing arrangements with Motorola and NTFC Capital Corporation (the
"Vendor Credit Facility"). The Vendor Credit Facility superseded the previous
financing agreements and provided for up to $395.0 million of secured financing,
consisting of a $195.0 million revolving loan and $200.0 million in term loans,
with revolving credit commitment reductions and term loan payments parallel to
those of the Old Bank Credit Facility. In addition, in July 1997 the Company
entered into a credit facility providing for up to $200.0 million in additional
secured term loans that were to be second in ranking to the borrowings made
pursuant to the Old Bank Facility and Vendor Credit Facility, and were to be
made available to the Company by Motorola through March 31, 1999 (the "Second
Secured Facility").
Borrowings under the Old Bank Credit Facility, the Vendor Credit Facility
and the Second Secured Facility (collectively, the "Old Facilities") were
ratably secured by liens on certain assets and capital stock of Nextel's
subsidiaries that are "restricted" subsidiaries under the terms of Nextel's
public indentures (the "Nextel Indentures") relating to the Company's various
outstanding issues of senior discount notes (the "Nextel Notes"). At December
31, 1997, substantially all of the Company's assets were pledged in connection
with the Old Facilities. As of December 31, 1997, Nextel had drawn $1,021.0
million of its available financing under the Old Bank Credit Facility, leaving
an aggregate of $884.0 million available for borrowing under such facility.
Additionally, Nextel had drawn $150.0 million of its available financing under
the Vendor Credit Facility, leaving an aggregate of $245.0 million available for
borrowing under such facility. None of the amounts available under the Second
Secured Facility had been drawn at December 31, 1997. As a result of the debt
incurrence restrictions under the Old Indentures, at December 31, 1997 the
amount available for borrowing under the Old Facilities (in addition to the
outstanding borrowings on such date) was limited to approximately $940.0
million.
On March 13, 1998, the Old Facilities were repaid and terminated in
connection with the transactions relating to the new Bank Credit Facility
described below. The agreements relating to the Old Facilities contained
covenants similar to those in effect under the Bank Credit Facility.
NEW BANK FINANCING -- Nextel, NFC and certain other subsidiaries of Nextel
entered into definitive agreements, which became effective on March 13, 1998,
with respect to a secured credit facility arranged by a group of banks (the
"Bank Credit Facility"). The Bank Credit Facility replaces the Old Facilities.
The credit agreement relating to the Bank Credit Facility (the "Bank Credit
Agreement") provides for up to $3.0 billion of secured financing, consisting of
a $1.5 billion revolving loan and $1.5 billion in term loans. Concurrently with
the effectiveness of the Bank Credit Facility, the Company made and applied
borrowings pursuant to certain of the term loans thereunder to repay the
indebtedness outstanding under the Old Bank and Vendor Credit Facilities and
terminated the Old Facilities. Borrowings under the Bank Credit Facility are
secured by liens on assets of Nextel's subsidiaries that are "restricted"
subsidiaries under the terms of the Nextel Indentures and bear interest payable
quarterly at an adjustable rate calculated based either on the prime rate or
LIBOR. The Nextel Indentures contain provisions that may operate to limit the
amount of borrowings available under the Bank Credit Facility in certain
circumstances. With the limitations on permitted debt
F-18
<PAGE> 67
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
incurrence under the Nextel Indentures, the amount of borrowings available to be
drawn under the Bank Credit Facility on its March 13, 1998 effective date was
limited by approximately $250.0 million.
The agreements relating to the Bank Credit Facility contain covenants which
limit the ability of the Company and certain of its subsidiaries to incur
additional indebtedness; create liens; pay dividends or make distributions in
respect of its capital stock or make certain other restricted payments;
consolidate, merge or sell all or substantially all of its assets; guarantee
obligations of other entities; enter into hedging agreements; enter into
transactions with affiliates or related persons; or engage in any business other
than the telecommunications business. Except for distributions for certain
limited purposes, these covenants and the 1997 NI Notes Indenture impose
limitations which restrict the distribution of substantially all of the net
assets of the Company's subsidiaries to Nextel Communications, Inc.
Additionally, the agreement requires Nextel and its relevant subsidiaries at
specified times is required to maintain compliance with certain operating and
financial covenants or ratios including certain covenants and ratios
specifically related to leverage which may become more stringent over time.
INTERNATIONAL FACILITIES -- In October 1997, Nextel Brazil and Motorola
Credit Corp., a subsidiary of Motorola ("Motorola Credit"), entered into an
equipment financing agreement whereby Motorola Credit agreed to provide up to
$125.0 million in multi-draw term loans (the "Brazil Motorola Financing") to
Nextel Brazil to be used to acquire infrastructure equipment and related
services from Motorola. The Brazil Motorola Financing is repayable in U.S.
dollars in semi-annual installments over 42 months commencing June 30, 2000 and
bears interest at an adjustable rate calculated based either on the prime rate
or LIBOR. Pursuant to the Brazil Motorola Financing, the revolving loans are
secured by a first priority lien on substantially all of Nextel Brazil's assets
totaling approximately $420.2 million at December 31, 1997, a pledge of all of
the stock of Nextel Brazil and its subsidiaries, including Nextel S.A., and
guarantees by Nextel International and Motorola International Development
Corporation (which indirectly holds a 5% equity interest in Nextel S.A.) of
93.9% and 6.1%, respectively, of Nextel Brazil's obligations under such
financing. The Brazil Motorola Financing prohibits the payment of dividends by
Nextel S.A. until the existing loan balance is paid in full and contains
covenants restricting certain transactions and requiring the maintenance of
certain financial ratios.
As of February 27, 1998, Nextel Argentina entered into an $83.0 million
senior secured credit facility (the "Argentina Credit Facility"). In addition,
Nextel Argentina and The Chase Manhattan Bank entered into an agreement, dated
February 27, 1998, pursuant to which the parties agreed that the aggregate
commitments under the Argentina Credit Facility shall automatically be increased
by $17 million to the extent that additional lenders agree to provide such
commitments. Borrowings under the Argentina Credit Facility are subject to
finalizing certain security arrangements as well as the satisfaction or waiver
of certain other conditions. Loans under the Argentina Credit Facility will bear
interest at a rate equal to either (i) the ABR plus 2.75% (ABR is the highest of
the prime rate, the base CD rate plus 1% and the federal funds rate plus 0.5%)
or (ii) the Eurodollar rate plus 3.75% (the Eurodollar rate is the LIBOR rate
multiplied by the statutory reserve rate). The loans under the Argentina Credit
Facility will be repaid in U.S. dollars in quarterly installments beginning
September 30, 2000 and ending March 31, 2003.
DEFERRED FINANCING COSTS
During 1997, the Company paid $138.8 million in deferred financing costs
primarily related to the issuances of the 1997 NI Notes, the September 2007
Notes, the October 2007 Notes, the consent solicitation and the Series D
Preferred Stock (Note 10). Costs incurred in connection with the consent
solicitation of $67.2 million were partially reduced by approximately $63.7
million in proceeds that were received from the sale of approximately 3.9
million shares of Common Stock offered exclusively to validly consenting holders
of the Old Senior Notes at a price of $16.14 per share.
F-19
<PAGE> 68
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FUTURE MATURITIES OF LONG-TERM DEBT
For the years subsequent to December 31, 1997, scheduled annual maturities
of long-term debt outstanding as of December 31, 1997 under the then existing
long-term debt agreements are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 7,577
1999........................................................ 19,886
2000........................................................ 44,516
2001........................................................ 171,115
2002........................................................ 213,397
Thereafter.................................................. 6,130,441
----------
6,586,932
Less unamortized discount................................... 1,541,105
----------
$5,045,827
==========
</TABLE>
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments as of December 31, 1997 and 1996 is made in accordance with the
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company, using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1997 1996
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Marketable securities (including equity
securities classified within other long-term
assets)..................................... $ 226,656 $ 226,656 $ 97,356 $ 97,344
Other assets.................................. $ 68,623 $ 68,623 $ 10,082 $ 10,082
Long-term debt................................ $5,045,827 $5,243,627 $2,784,612 $2,660,572
Interest rate risk management agreements...... $ -- $ (7,919) $ -- $ (730)
Series D preferred stock...................... $ 529,119 $ 587,289 $ -- $ --
</TABLE>
CASH AND CASH EQUIVALENTS, ACCOUNTS AND NOTES RECEIVABLE, ACCOUNTS PAYABLE
AND ACCRUED EXPENSES -- The carrying amounts of these items are a reasonable
estimate of their fair value.
F-20
<PAGE> 69
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARKETABLE SECURITIES -- The fair value of these securities are estimated
based on quoted market prices. At December 31, 1997 and 1996, marketable
securities consist of the following:
<TABLE>
<CAPTION>
UNREALIZED
COST FAIR VALUE GAIN (LOSS)
-------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
1997
Available for sale:
Debt securities due in one year or less.... $129,978 $131,404 $ 1,426
Equity securities, included in other
long-term assets........................ $ 69,159 $ 95,252 $26,093
1996
Available for sale:
Debt securities due in one year or less.... $ 4,991 $ 5,000 $ 9
Equity securities, included in other
long-term assets........................ $ 69,159 $ 92,344 $23,185
</TABLE>
OTHER ASSETS -- The fair value of other assets, consisting primarily of
investments in promissory notes and escrow deposits, are estimated by
discounting future cash flows using current rates at which similar notes would
be issued to similar borrowers and quoted market prices, as applicable. At
December 31, 1997 and 1996, it was not practicable to value investments in
nonmarketable equity securities of foreign entities with a carrying value of
approximately $19.7 million. Accordingly, these investments are excluded from
the above table.
LONG-TERM DEBT -- The fair value of these securities are estimated based on
quoted market prices of the Nextel 2003 Notes, Nextel 2004 Notes, OneComm 2004
Notes, Dial Page 2004 Notes, Dial Page 2005 Notes, 1997 NI Notes, September 2007
Notes, and October 2007 Notes. Carrying value approximates fair value for the
Old Facilities and the Brazil Motorola Financing, as interest rates are reset
periodically.
INTEREST RATE RISK MANAGEMENT AGREEMENTS -- The Company uses derivative
financial instruments consisting of interest rate swap and interest rate
protection agreements to manage its exposure to adverse movements in interest
rates. While these instruments are subject to fluctuations in value, such
fluctuations are generally offset by fluctuations in the value of the underlying
instrument or anticipated transaction.
The Company attempts to achieve a desired proportion of fixed versus
floating rate debt by using interest rate swaps to change the interest rate
characteristics of certain of its debt obligations. In an interest rate swap,
the Company agrees to exchange, at specified intervals, the difference between a
variable interest rate and either a fixed or another variable interest rate
calculated by reference to an agreed-upon notional principal amount. The
resulting interest rate differential is reflected as an adjustment to interest
expense over the life of the swap. The incremental effect on interest expense
for the years ended December 31, 1997 and 1996 was not material. The notional
amounts of interest rate swaps were $450.0 million and $420.0 million at
December 31, 1997 and 1996, respectively. At December 31, 1997, based on
estimates obtained from dealers, the Company would be obligated to pay an
aggregate of $1.9 million to settle these contracts.
F-21
<PAGE> 70
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the Company's off-balance sheet interest
rate swap agreements at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
---------------------------
NOTIONAL FAIR PAY RECEIVE
AMOUNT VALUE MATURITY RATE RATE
-------- ------- --------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Pay fixed rate, receive floating rate......... $300,000 $ 151 2.8 years 5.434% 5.824%
Pay floating rate, receive floating rate...... 150,000 (2,002) 3.2 years 5.718% 5.915%
</TABLE>
At December 31, 1997, the Company had one interest rate protection
agreement with a notional amount of $570.0 million and a 10-year U.S. Treasury
note reference rate of 5.9545%, with an expiration date of November 2, 1998. The
agreement can be settled at expiration, or earlier, through a single payment by
either party determined by comparison of the actual 10-year U.S. Treasury note
rate to the contract reference rate. This agreement requires the Company to make
cash payments in the event that the actual interest rate on 10-year U.S.
Treasury notes during the term of the agreement is below the reference rate and
requires the counterparty to make payments to the Company if such actual rate
exceeds the reference rate. This agreement was entered into in order to protect
the Company against increases in the 10-year U.S. Treasury note rate which was
expected to serve as a reference in determining the interest rate that would be
applicable to the February 2008 Notes which have a comparable term (see Note 6).
At December 31, 1997, the Company would be obligated to pay approximately $6.1
million to settle the interest rate protection agreement.
SERIES D PREFERRED STOCK -- The fair value is estimated based on quoted
market prices.
8. INCOME TAXES
The components of the income tax provision (benefit) were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
State..................................... $ -- $ 1,070 $ 825
-------- --------- ---------
Deferred:
Federal................................... 266,753 (272,279) (161,700)
State..................................... -- (35,983) (39,727)
Foreign................................... (8,027) -- --
-------- --------- ---------
258,726 (308,262) (201,427)
-------- --------- ---------
Income tax provision (benefit).............. $258,726 $(307,192) $(200,602)
======== ========= =========
</TABLE>
F-22
<PAGE> 71
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of taxes computed at the statutory rate to the income
tax provision (benefit) is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax benefit at statutory rate....... $(458,269) $(302,124) $(186,118)
State tax benefit -- net................... (62,487) (22,701) (25,286)
Amortization of goodwill................... 17,483 14,104 8,400
Increase in valuation allowance............ 767,467 -- --
Other...................................... (5,468) 3,529 2,402
--------- --------- ---------
$ 258,726 $(307,192) $(200,602)
========= ========= =========
</TABLE>
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards....................... $1,213,250 $ 725,452
Deferred interest.................................. 85,537 61,773
Foreign affiliates................................. 11,958 6,143
Other.............................................. 46,629 22,316
---------- ----------
1,357,374 815,684
Valuation allowance -- net operating losses.......... (832,069) (41,065)
---------- ----------
525,305 774,619
---------- ----------
Deferred tax liabilities:
Property, plant and equipment...................... 138,763 112,012
Intangibles........................................ 1,269,759 1,103,047
Unrealized gain.................................... 23,276 22,724
Other.............................................. 44,699 42,352
---------- ----------
1,476,497 1,280,135
---------- ----------
Net deferred tax liability........................... $ 951,192 $ 505,516
========== ==========
</TABLE>
At December 31, 1997, the Company had approximately $2.7 billion of
consolidated net operating loss carryforwards for federal income tax purposes
which expire through 2012, and approximately $319.8 million of separate return
net operating loss carryforwards which expire through 2012. The utilization of
tax net operating losses may be subject to certain limitations.
At December 31, 1997, the Company's foreign subsidiaries had approximately
$67.8 million of net operating loss carryforwards for Mexican income tax
purposes which expire through 2007. Additionally, the Company's foreign
subsidiaries had approximately $13.7 million of net operating loss carryforwards
for Brazilian income tax purposes which have no expiration date and can only be
utilized up to the limit of 30% of taxable income for the year. The Company's
foreign subsidiaries may be limited in their ability to use foreign tax net
operating losses in any single year depending on their ability to generate
sufficient taxable income.
A significant portion of the Company's deferred tax liabilities will
reverse after current net operating losses expire. After considering this and
other factors, including the change in useful lives of certain intangible assets
and recent operating results, the Company has increased its valuation allowance
in 1997 by
F-23
<PAGE> 72
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$767.5 million. Of this amount, approximately $384.1 million was recorded as a
charge in the fourth quarter of 1997.
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASE COMMITMENTS -- The Company leases various equipment and
office facilities under capital and operating leases. Leases for antenna sites
are generally month-to-month or cancelable after a short notice period. Office
facilities and equipment other than antenna sites are leased under agreements
with terms ranging from 1 to 10 years. The leases normally provide for the
payment of minimum annual rentals and certain leases include provisions for
renewal options of up to ten years.
For years subsequent to December 31, 1997, future minimum payments for all
operating lease obligations that have initial noncancellable lease terms
exceeding one year are as follows (in thousands):
<TABLE>
<S> <C>
1998...................................................... $131,257
1999...................................................... 104,126
2000...................................................... 70,665
2001...................................................... 60,613
2002...................................................... 43,047
Thereafter................................................ 71,580
--------
$481,288
========
</TABLE>
Total rental expense was approximately $119.4 million, $84.5 million and
$58.9 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
LEGAL CONTINGENCIES -- In July 1995, a lawsuit titled In Re Nextel
Communications Securities Litigation was filed in the United States District
Court in the District of New Jersey. This litigation, which is being pursued as
a class action suit, amends and consolidates three previously filed class action
complaints and seeks damages allegedly incurred by certain stockholders and
claimed to result from defendants' alleged violations of Section 10(b) of the
Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated
thereunder. The litigation also makes claims of fraud and deceit. Specifically,
the plaintiffs claim that such damages resulted from certain alleged false and
misleading statements made by defendants regarding the digital communications
technology developed by Motorola and deployed by Nextel in its Digital Mobile
network. While Nextel cannot predict the outcome of this litigation, Nextel
believes that the claims against it are without merit and intends to vigorously
defend against them. On July 23, 1997, the United States District Court in the
District of New Jersey declined to grant Nextel's motions to dismiss, pursuant
to Federal Rule of Civil Procedure Rules 12(b)(6) and (9)(b), substantially all
of the causes of action alleged in the plaintiff's complaint filed in this
lawsuit. Most recently, Nextel filed a motion to deny class certification. A
ruling on the motion has not yet been made.
In September 1994, a lawsuit titled Charles Dascal v. Morgan O'Brien,
Becker, Gurman, Lukas, Meyers, O'Brien and McGowan, P.C. and Nextel
Communications, Inc., was filed in the Circuit Court of Dade County, Florida.
The lawsuit, which has been transferred to the United States District Court for
the Southern District of Florida, seeks compensatory damages, lost profits and
special damages based on the defendants' alleged breach of fiduciary duty,
misappropriation of trade secrets, negligent misrepresentation, fraud,
conversion, civil theft, breach of good faith and fair dealing and unjust
enrichment. The claims, which primarily concern alleged conduct by Nextel's
current Vice Chairman and former Chairman of the Board, Morgan O'Brien, in the
1970s and early 1980s prior to the formation of Nextel, assert that business
plans allegedly formulated by the plaintiff relating to the development of a
wireless communications system were disclosed to, and have been improperly used
by, the defendants. Directors determined that Morgan O'Brien in his capacities
as an officer, director, and authorized representative of Nextel, was entitled
to indemnification in respect of this matter.
F-24
<PAGE> 73
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Nextel has filed counterclaims against Mr. Dascal and has also filed third-party
claims against Tel Air Network, Inc. (Tel Air), and Knight-Ridder, Inc. (Knight
Ridder). The counterclaim against Mr. Dascal has been dismissed and the Company
is currently not aware of any other ruling with respect to the third-party
claims against Tel Air and Knight-Ridder. Nextel also has moved for summary
judgment for dismissal of Mr. Dascal's claims against Nextel and Mr. O'Brien. To
date there has been no ruling on that motion. While Nextel cannot predict the
outcome of this litigation, Nextel believes that the claim against it are
without merit and intends to vigorously defend against them. A trial date has
been set for mid-1998.
Unless otherwise indicated, the relevant plaintiffs have not specified
amounts of damages being sought. Given the Company's assessment of the claims
asserted against it in each such lawsuit, and in other pending or threatened
litigation (including litigation incidental to the conduct of its business), the
Company does not believe that such lawsuits, individually or in the aggregate,
will have a material adverse effect on the Company's financial condition,
results of operations or liquidity.
REGULATORY MATTERS -- The FCC issues SMR licenses on both a site-specific
and wide-area basis. Each license enables SMR carriers to provide service either
on a site-specific basis, in specific 800 MHz Economic Areas ("EA") or 900 MHz
Metropolitan Trading Areas ("MTA") in the U.S. Currently, SMR licenses are
issued for a period of ten years, and are subject to certain construction and
operational requirements. The FCC has routinely granted license renewals
providing the licensees have complied with applicable rules, policies, and the
Communications Act of 1934, as amended. The Company believes that it has met and
will continue to meet all requirements necessary to secure the retention and
renewal of its SMR licenses.
In December 1997, the FCC auctioned geographic-area based SMR licenses in
the upper 200 SMR channels on an EA basis in blocks of 120 channels, 60 channels
and 20 channels. Nextel submitted bids totaling approximately $88.8 million,
representing the highest bids, to obtain 475 of the 525 available EA licenses
covering all 50 states. As of December 31, 1997, a deposit of $17.8 million had
been paid and is included in other long-term assets in the accompanying balance
sheet.
10. CAPITAL STOCK AND STOCK RIGHTS
Pursuant to the Certificate of Incorporation, the Company has the authority
to issue 613,883,948 shares of capital stock, divided into six classes as
follows: (i) 515,000,000 shares of Common Stock, (ii) 35,000,000 shares of
Non-Voting Common Stock, (iii) 26,941,933 shares of Class A Convertible
Redeemable Preferred Stock, stated value $36.75 per share, ("Class A Preferred
Stock,") (iv) 82 shares of Class B Convertible Preferred Stock, stated value
$1.00 per share, ("Class B Preferred Stock,") (v) 26,941,933 shares of Class C
Convertible Redeemable Preferred Stock, stated value $36.75 per share, (vi)
1,600,000 shares of Series D Exchangeable Preferred Stock, liquidation
preference $1,000 per share, ("Series D Preferred Stock,") and (vii) 8,400,000
shares of undesignated preferred stock.
SERIES D PREFERRED STOCK -- On July 21, 1997, Nextel completed the sale of
500,000 shares of Series D Preferred Stock with a liquidation preference of
$1,000 per share. Nextel received approximately $482.0 million in net cash
proceeds from the sale of the Series D Preferred Stock. Dividends on the Series
D Preferred Stock accrue at an annual rate of 13% of the liquidation preference,
are cumulative from the date of issuance and are payable quarterly in cash or,
on or prior to July 15, 2002, at the sole option of Nextel, in additional shares
of Series D Preferred Stock. Nextel elected to pay the first quarterly dividend
on the Series D Preferred Stock in kind, resulting in the issuance of an
additional 15,166 shares of Series D Preferred Stock on October 15, 1997. At
December 31, 1997, accrued but unpaid dividends were approximately $14.0
million. The Series D Preferred Stock is mandatorily redeemable on July 15, 2009
at the liquidation preference plus accrued and unpaid dividends, and is
redeemable in whole or in part, at the option of Nextel, at any time after
December 15, 2005, at a price equal to the liquidation preference plus accrued
and unpaid dividends, and, in certain circumstances, after July 15, 2002 at
specified redemption prices. Up to 35% of the Series D Preferred Stock may be
redeemed on or prior to July 15, 2000, in whole or in part, at the option of
Nextel, in certain
F-25
<PAGE> 74
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
circumstances, at 113% of the liquidation preference plus accrued and unpaid
dividends from the proceeds of one or more sales of Common Stock. The Series D
Preferred Stock is also exchangeable, in whole but not in part, at the option of
Nextel, at any time after December 15, 2005 and in certain circumstances sooner,
into Nextel subordinated debentures.
SERIES E PREFERRED STOCK -- On February 11, 1998, Nextel completed the sale
of 750,000 shares of 11.125% Series E Exchangeable Preferred Stock ("Series E
Preferred Stock") with a liquidation preference of $1,000 per share. Nextel
received approximately $727.9 million in net cash proceeds from the sale of the
Series E Preferred Stock. Dividends on the Series E Preferred Stock accrue at an
annual rate of 11.125% of the liquidation preference, are cumulative from the
date of issuance and are payable quarterly in cash or, on or prior to February
15, 2003 at the sole option of Nextel, in additional shares of Series E
Preferred Stock. The Series E Preferred Stock is mandatorily redeemable on
February 15, 2010 at the liquidation preference plus accrued and unpaid
dividends, and is redeemable in whole or in part, at the option of Nextel, at
any time after December 15, 2005, at a price equal to the liquidation preference
plus accrued and unpaid dividends, and, in certain circumstances, after February
15, 2003 at specified redemption prices. Up to 35% of the Series E Preferred
Stock may be redeemed on or prior to February 15, 2001, in whole or in part, at
the option of Nextel in certain circumstances, at 111.125% of the liquidation
preference plus accrued and unpaid dividends from the proceeds of one or more
sales of Common Stock. The Series E Preferred Stock is also exchangeable, in
whole but not in part, at the option of Nextel at any time after December 15,
2005 and in certain circumstances sooner, into Nextel subordinated debentures.
COMMON STOCK RESERVED FOR ISSUANCE -- As of December 31, 1997, the Company
had reserved Common Stock for future issuance as detailed below.
<TABLE>
<S> <C>
Class A Preferred Stock conversion rights................... 23,718,000
Warrants and non-employee options outstanding............... 55,818,700
Employee options outstanding................................ 15,204,500
Employee options available for grant........................ 4,170,500
Deferred and restricted shares.............................. 1,077,300
Employee Stock Purchase Plan................................ 4,713,600
Acquisitions................................................ 9,943,100
-----------
Total....................................................... 114,645,700
===========
</TABLE>
ISSUANCES OF COMMON STOCK AND OPTIONS -- In July 1995, the Company
consummated a securities purchase agreement with Digital Radio LLC, an affiliate
of Craig O. McCaw ("the McCaw Investor") (the "McCaw Securities Purchase
Agreement" or the "McCaw Transaction") pursuant to which the McCaw Investor
purchased for an aggregate price of $300.0 million, units consisting of
approximately 8.2 million shares of Class A Preferred Stock and 82 shares of
Class B Preferred Stock. The shares of Class A Preferred Stock are convertible
into approximately 24.5 million shares of Common Stock and are redeemable under
certain circumstances solely at the Company's option. The Class A Preferred
Stock only pays dividends under certain limited circumstances. In addition,
pursuant to three separate option agreements, the McCaw Investor obtained the
right to purchase for cash up to 35.0 million shares of Common Stock at exercise
prices ranging from $15.50 to $21.50 per share for periods of two to six years.
In April 1995, the McCaw Investor purchased approximately 1.2 million shares of
Common Stock for an aggregate purchase price of approximately $14.9 million
($12.6 million net of applicable expenses attributable to both such initial
investment and the additional investments described above).
Pursuant to the McCaw Securities Purchase Agreement, the McCaw Investor was
granted antidilutive rights with respect to certain Nextel public or private
share issuances. Upon the issuance of shares in
F-26
<PAGE> 75
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
connection with an acquisition, in November 1996 the McCaw Investor exercised
its antidilutive rights, which resulted in the sale of 373,846 treasury shares
of Common Stock to the McCaw Investor for $6.5 million.
On July 28, 1997, the McCaw Investor exercised in full the outstanding
option that was scheduled to expire on that date (the "First Option") to
purchase 15.0 million shares of Common Stock for an aggregate purchase price of
$232.5 million (the "McCaw Option Proceeds"). In connection with the exercise of
the First Option, the McCaw Investor also agreed to provide up to $50.0 million
in debt financing (subject to certain conditions) to Nextel (the "McCaw Investor
Borrowings"). At the present time, however, Nextel is not taking steps to meet
the conditions to access the McCaw Investor Borrowings.
On November 4, 1997, the McCaw Investor exercised its right to convert
257,284 shares of Class A Preferred Stock into 771,852 shares of Common Stock.
In connection with the McCaw Transaction, the Company also entered into a
management support agreement with Eagle River, Inc. ("Eagle River"), an
affiliate of the McCaw Investor, to provide management and consulting services
from time to time as requested. In consideration for these services, the Company
entered into an incentive option agreement granting Eagle River an option to
purchase an aggregate of up to 1.0 million shares of Common Stock at an exercise
price of $12.25 per share, exercisable over five years. For the years ended
December 31, 1997, 1996 and 1995 approximately $4.6 million, $1.8 million and
$0.9 million of compensation expense was charged to operations in connection
with these agreements. During the years ended December 31, 1997, 1996, and 1995
the Company paid Eagle River approximately $504,000, $348,000 and $247,000 under
the terms of this agreement for reimbursement of expenses.
In connection with the agreements relating to the commitment to exercise
the First Option, Nextel reached an agreement with an affiliate of Mr. McCaw
(such affiliate, the "Purchaser"), pursuant to which the Purchaser acquired, for
an aggregate purchase price of $25.0 million, an option, in replacement of the
Comcast Option (as defined below), to purchase 25.0 million shares of Common
Stock (the "New Option"), 15.0 million of which are purchasable at an exercise
price of $16.00 per share and the remaining 10.0 million of which are
purchasable at an exercise price of $18.00 per share, at any time through July
28, 1998. The New Option, and any shares of Common Stock issued upon exercise
thereof, are transferable, subject to certain limitations.
In 1992, the Company entered into a Stock Purchase Agreement (the "Comcast
Agreement") and related Option Agreement as amended and restated as of September
11,1995, (the "Comcast Option"), with Comcast Corporation and/or its
wholly-owned subsidiary, Comcast FCI, Inc. ("CFCI") (collectively, "Comcast").
Under the terms of the Comcast Option, Comcast was granted a five-year option to
acquire 25.0 million shares of Common Stock at an exercise price of $16.00 per
share. The purchase price for the Comcast Option was paid in the form of a $20.0
million five-year promissory note which accrued interest at 5% per annum. On
July 18, 1995, Comcast repaid the $20.0 million note, plus accrued interest.
Pursuant to the Comcast Agreement, Comcast was granted certain rights to
purchase additional shares of Common Stock upon any public or private issuances
of such shares by the Company as specified in the Comcast Agreement (the
"Comcast Purchase Right"). On May 1, 1995, Comcast exercised its right to
purchase shares in connection with the Dial Page Transaction (see Note 2). On
February 9, 1996, Comcast purchased approximately 8.2 million shares of Common
Stock for approximately $99.9 million, pursuant to Comcast's exercise of its
antidilutive rights with respect to the Dial Page Transaction.
On March 20, 1997, USFC purchased from CFCI, CFCI's rights pursuant to the
Comcast Option for an aggregate purchase price of $25.0 million in cash.
F-27
<PAGE> 76
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WARRANTS AND NON-EMPLOYEE OPTIONS -- The following is a summary of issued
and outstanding warrants and non-employee options for the purchase of Common
Stock:
<TABLE>
<CAPTION>
SHARES PRICE
----------- ------------------------
<S> <C> <C>
Issued and outstanding, December 31, 1994.............. 32,614,485 $ 0.001 - $16.00
Issued................................................. 36,000,000 12.25 - 21.50
Acquired............................................... 497,139 17.64
Exercised.............................................. (580,000) 0.001 - 2.00
----------- ------- ------
Issued and outstanding, December 31, 1995.............. 68,531,624 2.00 - 21.50
Acquired............................................... 2,160,067 12.14 - 43.16
----------- ------- ------
Issued and outstanding, December 31, 1996.............. 70,691,691 2.00 - 43.16
Granted................................................ 25,068,276 15.13 - 18.00
Acquired............................................... 151,539 20.09 - 56.95
Repurchased............................................ (25,000,000) 16.00
Exercised.............................................. (15,092,816) 2.00 - 15.50
----------- ------- ------
Issued and outstanding, December 31, 1997.............. 55,818,690 $ 2.00 - $56.95
=========== ======= ======
Exercisable, December 31, 1997......................... 55,218,690 $ 2.00 - $56.95
=========== ======= ======
</TABLE>
11. STOCK AND EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OPTION PLANS -- The Company's Incentive Equity Plan (the
"Plan") provides for the issuance of up to 24.0 million shares of Common Stock
to officers and key employees. Generally, options outstanding under the
Company's stock option plan: (1) are granted at prices equal to or exceeding the
market value of the stock on the grant date; (2) vest ratably over either a four
or five year service period; and (3) expire ten years subsequent to award.
F-28
<PAGE> 77
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Plan activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED
OPTION AVERAGE
SHARES PRICE RANGE EXERCISE PRICE
---------- ------------------- --------------
<S> <C> <C> <C>
Outstanding, December 31, 1994.............. 5,457,621 $ 1.25 - $40.75 $17.47
Granted..................................... 3,246,050 13.50 - 36.75 23.52
Acquired.................................... 1,382,835 2.82 - 19.09 11.34
Canceled.................................... (141,417) 3.50 - 40.25 21.59
Exercised................................... (728,766) 1.25 - 15.00 2.79
---------- ------ ------ ------
Outstanding, December 31, 1995.............. 9,216,323 1.25 - 40.75 18.60
Granted..................................... 5,332,995 13.50 - 19.75 15.64
Acquired.................................... 2,198,192 10.28 - 42.97 12.77
Canceled.................................... (2,969,568) 1.75 - 40.25 17.11
Exercised................................... (1,522,873) 1.25 - 15.00 7.39
---------- ------ ------ ------
Outstanding, December 31, 1996.............. 12,255,069 1.75 - 42.97 16.50
Granted..................................... 6,087,340 13.88 - 26.94 15.78
Acquired.................................... 200,240 17.88 - 64.82 23.83
Canceled.................................... (787,617) 2.82 - 40.25 16.95
Exercised................................... (2,550,543) 1.75 - 20.12 9.51
---------- ------ ------ ------
Outstanding, December 31, 1997.............. 15,204,489 $ 1.75 - $64.82 $17.32
========== ====== ====== ======
Exercisable, December 31, 1997.............. 4,500,801 $ 1.75 - $64.82 $17.41
========== ====== ====== ======
</TABLE>
Following is a summary of the status of employee stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OUTSTANDING OUTSTANDING EXERCISABLE
EXERCISE OUTSTANDING WEIGHTED AVERAGE EXERCISABLE WEIGHTED AVERAGE
PRICE NUMBER OF LIFE EXERCISE NUMBER OF EXERCISE
RANGE SHARES REMAINING PRICE SHARES PRICE
- --------------- ----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$1.75 - $7.00 929,915 2.8 $ 5.17 895,379 $ 5.23
10.28 - 13.93 1,554,202 6.3 12.96 849,986 12.40
14.01 - 16.58 9,589,538 8.6 15.12 1,495,031 14.89
17.00 - 20.12 1,084,140 8.3 18.44 310,919 18.51
23.47 - 26.94 600,114 8.5 25.26 200,381 24.29
30.75 - 64.82 1,446,580 5.9 40.28 749,105 40.37
---------- ---------
15,204,489 7.7 $17.32 4,500,801 $17.41
========== =========
</TABLE>
The Plan also provides for the grant of deferred shares at no cost to the
participants in consideration of services performed. Generally, these deferred
shares vest over a three-year period. An accelerated vesting schedule may be
triggered in the event of a change in control of the Company. During the years
ended December 31, 1996 and 1995, the Company granted 1,100,000, and 77,000
deferred shares having a weighted-average fair value at grant date of $16.28 and
$13.37 per share, respectively. Compensation expense of $5.6 million, $4.2
million and $1.7 million has been recognized in relation to the deferred share
grants for the years ended December 31, 1997, 1996 and 1995, respectively.
EMPLOYEE STOCK PURCHASE PLAN -- Under the 1996 Employee Stock Purchase Plan
("ESPP"), eligible employees may subscribe to purchase shares of Common Stock
through payroll deductions of up to 10% of eligible compensation. The purchase
price is the lower of 85% of market value at the beginning or the end of each
quarter. The aggregate number of shares purchased by an employee may not exceed
$25,000 of fair market value annually (subject to limitations imposed by Section
423 of the Internal Revenue Code). A total
F-29
<PAGE> 78
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of 5.0 million shares are available for purchase under the plan. The ESPP will
terminate on the tenth anniversary of its adoption. During 1997 and 1996,
279,045 and 7,360 treasury shares were issued pursuant to the ESPP at a weighted
average price per share of $12.813 and $15.725, respectively.
FAIR VALUE OF EMPLOYEE OPTION AND ESPP GRANTS -- In October 1995, the FASB
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 encourages but does not require
companies to account for employee stock compensation awards based on their
estimated fair value at the grant date with the resulting cost charged to
operations. The Company has elected to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. If the Company had elected to recognize compensation
expense based on the fair value of the awards granted in 1997, 1996 and 1995,
consistent with the provisions of SFAS 123, the Company's loss and loss per
common share attributable to common stockholders would have been increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Loss attributable to common stockholders (in
thousands):
As reported.................................... $(1,642,973) $(556,020) $(331,165)
=========== ========= =========
Pro forma...................................... $(1,685,065) $(570,467) $(337,271)
=========== ========= =========
Basic and diluted loss per common share
attributable to common stockholders:
As reported.................................... $ (6.59) $ (2.50) $ (2.31)
=========== ========= =========
Pro forma...................................... $ (6.76) $ (2.56) $ (2.35)
=========== ========= =========
Weighted average fair value of options granted... $ 10.91 $ 10.56 $ 14.79
=========== ========= =========
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
necessarily indicative of the effect on future amounts. SFAS 123 does not apply
to awards granted prior to 1995.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Expected stock price volatility....... 53% 55% 55%
Risk-free interest rate............... 6.0% - 7.1% 5.7% - 7.1% 5.7% - 7.1%
Expected life of options.............. 8 years 8 years 8 years
Expected dividend yield............... 0.00% 0.00% 0.00%
</TABLE>
The Company's stock options are non-transferable, and the actual value of
the stock options that an employee may realize, if any, will depend on the
excess of the market price on the date of exercise over the exercise price. The
Company has based its assumption for stock price volatility on the variance of
weekly closing prices of the Company's stock from its initial offering date to
the present. The risk-free rate of return used equals the yield on 10-year
zero-coupon U.S. Treasury issues on the grant date. No discount was applied to
the value of the grants for non-transferability or risk of forfeiture.
NEXTEL INTERNATIONAL PLANS -- On June 23, 1997, Nextel International's
board of directors adopted the 1997 Nextel International Employee Stock Option
Plan (the "Nextel International Plan"), under which certain of Nextel
International's employees participate. Generally, options outstanding under the
Nextel
F-30
<PAGE> 79
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
International Plan (1) are granted at fair value, based on periodic valuations
of Nextel International using industry valuation techniques; (2) vest ratably
over a four-year service period; and (3) expire ten years subsequent to award.
On November 1, 1996, Nextel International adopted a Stock Appreciation
Rights Plan (the "SAR Plan"), which was effective as of November 1, 1995,
whereby selected employees and agents of Nextel International were granted
rights (not an equity interest) to share in the future appreciation in the value
of Nextel International. Nextel International retroactively granted 1,140,000
rights under the SAR plan, at an exercise price of $10.00 per right, on dates
ranging from October 1, 1995 to December 31, 1996, with vesting periods of four
years.
In connection with adoption of the Nextel International Plan, Nextel
International's board of directors approved a plan to terminate the SAR Plan.
Each holder of previously granted SARs has been given the option to exchange the
rights for stock options to be granted under the Nextel International Plan.
As of December 31, 1997 and 1996, there were 25,000 and 1,240,000 rights
outstanding, respectively, none of which were exercisable under the terms of the
SAR Plan. Nextel International had no commitment to make payments under the plan
at December 31, 1997 and no compensation expense had been recognized for the
years ended December 31, 1997, 1996, and 1995.
EMPLOYEE BENEFIT PLAN -- The Company has a defined contribution plan
pursuant to Section 401(k) of the Internal Revenue Code covering all eligible
officers and employees. The Company provides a matching contribution of $0.50
for every $1.00 contributed by the employee up to 4% of each employee's salary.
Such contributions were approximately $3.3 million, $2.0 million and $1.0
million for the years ended December 31, 1997, 1996 and 1995, respectively. At
December 31, 1997, the Company had no other pension or postemployment benefit
plans.
12. RELATED PARTY TRANSACTIONS
Pursuant to the equipment purchase agreements between Nextel and Motorola,
Motorola provides the iDEN infrastructure and subscriber handset equipment to
Nextel throughout its markets (such equipment purchase agreements, as amended,
being referred to herein as the "Equipment Purchase Agreements"). The Company
expects to rely on Motorola for the manufacture of a substantial portion of the
equipment necessary to construct its Digital Mobile network and handset
equipment for the foreseeable future. The Equipment Purchase Agreements govern
Nextel's rights and obligations regarding purchases of system infrastructure
equipment manufactured by Motorola. Nextel has, among other things, agreed
(subject to certain conditions) to purchase and install iDEN equipment during
the four-year and six-year periods beginning on August 4, 1994 sufficient to
cover 70% and 85%, respectively, of the United States population. In addition,
Nextel has agreed to deploy Reconfigured iDEN technology and, until August 4,
1999 and subject to certain conditions, to purchase from Motorola at least 50%
of the base radios Nextel purchases in any calendar year.
During the years ended December 31, 1997, 1996 and 1995, the Company
purchased approximately $1,086.1 million, $490.8 million and $217.2 million,
respectively, for infrastructure and other equipment, handsets, warranties, rent
and services from Motorola. At December 31, 1997 and 1996, amounts payable to
Motorola, classified within accounts payable, accrued expense and other,
approximated $104.9 million and $61.0 million, respectively.
In June 1996, the Company completed the acquisition of certain 800 MHz
trunked SMR systems located in Hawaii from Motorola for approximately $5.4
million in cash.
In January 1998, an affiliate of the McCaw Investor sold an aircraft to an
unrestricted subsidiary of the Company for approximately $8.2 million in cash
and 50,000 shares of Common Stock.
F-31
<PAGE> 80
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1997
- ----------------------------------------
Revenues................................ $ 110,676 $ 145,938 $ 207,224 $ 275,059
Operating loss.......................... (190,064) (215,035) (256,009) (276,712)
Income tax (benefit) provision.......... (39,436) (46,494) (39,472) 384,128
Loss before extraordinary item and
preferred stock dividends............. (220,850) (261,623) (306,134) (779,460)
Loss attributable to common
stockholders.......................... (220,850) (261,623) (318,956) (841,544)
Loss per share before extraordinary item
attributable to common stockholders... $ (0.93) $ (1.08) $ (1.26) $ (3.01)
Extraordinary item, net of income tax... -- -- -- (0.17)
--------- --------- --------- ---------
Basic and diluted loss per share
attributable to common stockholders... $ (0.93) $ (1.08) $ (1.26) $ (3.18)
========= ========= ========= =========
1996
- ----------------------------------------
Revenues................................ $ 68,318 $ 77,619 $ 91,040 $ 95,961
Operating loss.......................... (146,944) (160,420) (159,638) (178,864)
Income tax (benefit).................... (71,022) (81,128) (64,794) (90,248)
Loss attributable to common
stockholders.......................... (118,718) (130,028) (148,883) (158,391)
Basic and diluted loss per share
attributable to common stockholders... (0.56) (0.58) (0.66) (0.70)
</TABLE>
The sum of the per share amounts may not equal the annual amounts because
of the changes in the weighted-average number of shares outstanding during the
year.
Significant fourth quarter adjustments are described in Notes 1, 6 and 8.
F-32
<PAGE> 81
NEXTEL COMMUNICATIONS, INC.
(PARENT ONLY)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 3,678 $ 8,837
Other receivables......................................... 402 15
Prepaids and other current assets......................... 2,431 4,446
---------- ----------
Total current assets.............................. 6,511 13,298
PROPERTY, PLANT AND EQUIPMENT, net.......................... 42,189 6,028
INTANGIBLE ASSETS, net...................................... 536 4,541
DEFERRED INCOME TAXES....................................... 61,964 71,110
INVESTMENTS IN SUBSIDIARIES................................. 5,471,191 3,404,889
DUE FROM SUBSIDIARIES....................................... -- 1,309,583
OTHER ASSETS................................................ 204,424 123,270
---------- ----------
$5,786,815 $4,932,719
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, accrued expenses and other.............. $ 48,941 $ 81,090
Current portion of long-term debt......................... 883 951
---------- ----------
Total current liabilities......................... 49,824 82,041
DUE TO SUBSIDIARIES......................................... 28,694 --
LONG-TERM DEBT.............................................. 3,266,758 2,042,540
COMMITMENTS AND CONTINGENCIES
SERIES D EXCHANGEABLE PREFERRED STOCK MANDATORILY REDEEMABLE
2009...................................................... 529,119 --
STOCKHOLDERS' EQUITY........................................ 1,912,420 2,808,138
---------- ----------
$5,786,815 $4,932,719
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-33
<PAGE> 82
NEXTEL COMMUNICATIONS, INC.
(PARENT ONLY)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
OPERATING EXPENSES
Selling, general and administrative.................... $ 141,962 $ 80,559 $ 28,293
Expenses related to corporate reorganization........... -- -- 6,379
Depreciation and amortization.......................... 3,608 2,122 1,770
----------- --------- ---------
145,570 82,681 36,442
----------- --------- ---------
OTHER INCOME (EXPENSE)
Interest expense....................................... (276,012) (202,035) (116,034)
Interest income ($125,293, $131,997 and $96,485
intercompany)....................................... 127,651 144,057 113,501
Intercompany management fee............................ 141,962 80,559 23,413
Equity in net losses of subsidiaries................... (1,403,107) (532,483) (361,805)
Other.................................................. 501 49 (30)
----------- --------- ---------
(1,409,005) (509,853) (340,955)
----------- --------- ---------
LOSS BEFORE INCOME TAX PROVISION (BENEFIT) AND
EXTRAORDINARY ITEM..................................... (1,554,575) (592,534) (377,397)
INCOME TAX PROVISION (BENEFIT)........................... 13,492 (36,514) (46,232)
----------- --------- ---------
LOSS BEFORE EXTRAORDINARY ITEM........................... (1,568,067) (556,020) (331,165)
EXTRAORDINARY ITEM -- LOSS ON EARLY RETIREMENT OF DEBT,
NET OF INCOME TAX OF $0................................ (45,787) -- --
----------- --------- ---------
NET LOSS................................................. (1,613,854) (556,020) (331,165)
REDEEMABLE PREFERRED STOCK DIVIDENDS..................... (29,119) -- --
----------- --------- ---------
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS................. $(1,642,973) $(556,020) $(331,165)
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-34
<PAGE> 83
NEXTEL COMMUNICATIONS, INC.
(PARENT ONLY)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $(1,613,854) $(556,020) $(331,165)
Adjustment to reconcile net loss to net cash provided
by used in operating activities..................... 377,609 234,524 329,526
----------- --------- ---------
Net cash used in operating activities.......... (1,236,245) (321,496) (1,639)
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in and advances to affiliates.............. (346,338) (123,244) (335,399)
Payments for acquisitions, net of cash acquired........ (6,100) 73,183 (48,577)
Capital expenditures................................... (35,281) (5,951) (925)
Decrease in marketable securities...................... -- 65,692 102,616
----------- --------- ---------
Net cash (used in) provided by investing
activities................................... (387,719) 9,680 (282,285)
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt securities............................ 1,200,276 -- --
Issuance of preferred stock............................ 500,000 -- 300,000
Retirement of debt securities.......................... (283,288) -- --
Other long-term (repayments) borrowings, net........... (949) 1,969 (611)
Consent solicitation proceeds.......................... 63,456 -- --
Deferred financing costs............................... (118,694) -- --
Issuance of common stock and options................... 281,904 114,636 16,112
Option repurchase...................................... (25,000) -- --
Notes receivable from stockholders..................... 1,100 -- 227
----------- --------- ---------
Net cash provided by financing activities...... 1,618,805 116,605 315,728
----------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS..... (5,159) (195,211) 31,804
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........... 8,837 204,048 172,244
----------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD................. $ 3,678 $ 8,837 $ 204,048
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-35
<PAGE> 84
NEXTEL COMMUNICATIONS, INC.
(PARENT ONLY)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. For accounting policies and other information including the meaning of
capitalized terms, see the Notes to the Consolidated Financial Statements of
Nextel Communications Inc. and Subsidiaries, included elsewhere herein.
2. The parent company accounts for its investments in subsidiaries by the equity
method of accounting.
3. The parent company income tax provision (benefit) represents the difference
between taxes computed on a consolidated basis and taxes calculated by the
subsidiaries on a separate return basis.
4. Effective October 9, 1997, the parent company assigned and transferred to a
wholly-owned subsidiary all of the parent company's right, title and interest
in and to accounts receivable and intercompany accounts now owing, or in the
future owing, to the parent company from each of the subsidiaries designated
as restricted under the Nextel Indentures. All assignments and transfers of
such intercompany accounts were recorded as a contribution to capital to the
extent of the amount of the accounts receivable and intercompany accounts
assigned and transferred.
5. The parent company has an agreement with each of its wholly-owned
subsidiaries whereby the parent company provides administrative services for
each of its subsidiaries and charges the subsidiaries a fee equal to the
actual costs incurred in performing these administrative services. The fees
charged to the subsidiaries for the performance of administrative services
totaled approximately $142.0 million, $80.6 million and $23.4 million for the
years ended December 31, 1997, 1996 and 1995, respectively.
6. Subsequent to December 31, 1997, the parent company transferred its 15.7%
equity interest in Clearnet Communications Inc. to Nextel International as a
condition to the 1998 NI Notes offering. The investment is recorded at fair
market value with a balance of $77.1 million at December 31, 1997.
7. Certain prior year amounts have been reclassified to conform with the current
presentation.
F-36
<PAGE> 85
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED
BEGINNING COSTS AND TO OTHER BALANCE AT
OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS END OF PERIOD
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
Allowance for Doubtful Accounts...... $10,774 $55,623 $7,118 $(16,925) $56,590
======= ======= ====== ======== =======
Year Ended December 31, 1996
Allowance for Doubtful Accounts...... $ 5,232 $ 6,968 $2,477 $ (3,903) $10,774
======= ======= ====== ======== =======
Year Ended December 31, 1995
Allowance for Doubtful Accounts...... $ 1,823 $ 1,936 $2,538 $ (1,065) $ 5,232
======= ======= ====== ======== =======
</TABLE>
- ---------------
(1) Primarily allowances of acquired companies.
F-37
<PAGE> 86
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of McLean,
Commonwealth of Virginia.
NEXTEL COMMUNICATIONS, INC.
By: /s/ STEVEN M. SHINDLER
------------------------------------
March 30, 1998 Steven M. Shindler
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated
below.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ DANIEL F. AKERSON Chairman of the Board and Chief Executive Officer
- ----------------------------------- (Principal Executive Officer)
Daniel F. Akerson
/s/ TIMOTHY M. DONAHUE President, Chief Operating Officer and Director
- -----------------------------------
Timothy M. Donahue
/s/ STEVEN M. SHINDLER Vice President and Chief Financial Officer
- ----------------------------------- (Principal Financial Officer)
Steven M. Shindler
/s/ WILLIAM G. ARENDT Vice President and Controller
- ----------------------------------- (Principal Accounting Officer)
William G. Arendt
/s/ MORGAN E. O'BRIEN Vice Chairman of the Board
- -----------------------------------
Morgan E. O'Brien
/s/ KEITH BANE Director
- -----------------------------------
Keith Bane
/s/ CRAIG O. MCCAW Director
- -----------------------------------
Craig O. McCaw
/s/ KEISUKE NAKASAKI Director
- -----------------------------------
Keisuke Nakasaki
/s/ MASAAKI TORIMOTO Director
- -----------------------------------
Masaaki Torimoto
/s/ DENNIS M. WEIBLING Director
- -----------------------------------
Dennis M. Weibling
/s/ WILLIAM E. CONWAY, JR. Director
- -----------------------------------
William E. Conway, Jr.
/s/ FRANK M. DRENDEL Director
- -----------------------------------
Frank M. Drendel
</TABLE>
<PAGE> 87
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ---------- -------------------
<C> <S>
3.1.1 Restated Certificate of Incorporation of Nextel (filed on
July 31, 1995 as Exhibits No. 4.1.1 and 4.1.2 to Nextel's
Post-Effective Amendment No. 1 on Form S-8 to Registration
Statement No. 33-91716 on Form S-4 (the "Nextel S-8
Registration Statement") and incorporated herein by
reference).
3.1.2 Certificate of Designation of the Powers, Preferences and
Relative, Participating, Optional and Other Special Rights
of 13% Series D Exchangeable Preferred Stock and
Qualifications, Limitations and Restrictions Thereof (filed
on July 21, 1997 as Exhibit 4.1 to the Current Report on
Form 8-K dated on July 21, 1997 and incorporated herein by
reference).
3.1.3 Certificate of Designation of the Powers, Preferences and
Relative, Participating, Optional and Other Special Rights
of 11.125% Series E Exchangeable Preferred Stock and
Qualifications, Limitations and Restrictions Thereof (filed
on February 12, 1998 as Exhibit 4.1 to the Current Report on
Form 8-K dated on February 11, 1998 (the "February 11 Form
8-K") and incorporated herein by reference).
3.2 Amended and Restated By-Laws of Nextel (filed on July 31,
1995 as Exhibit No. 4.2 to the Nextel S-8 Registration
Statement and incorporated herein by reference).
4.1 Restated Certificate of Incorporation of Nextel (see
Exhibits No. 3.1.1 through 3.1.3 above).
4.2 Amended and Restated By-Laws of Nextel (see Exhibit No. 3.2
above).
4.3.1 Indenture between Old Nextel and The Bank of New York, as
Trustee, dated August 15, 1993 (the "August Indenture")
(filed on December 23, 1993 as Exhibit 4.13 to Old Nextel's
Registration Statement No. 33-73388 on Form S-4 and
incorporated herein by reference).
4.3.2 Form of Note issued pursuant to the August Indenture
(included in Exhibit No. 4.3.1).
4.3.3 Supplemental Indenture, dated as of June 30, 1995, to the
August Indenture between Nextel and The Bank of New York
(filed on November 14, 1995 as Exhibit 4.1 to Nextel's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 (the "November 14 Form 10-Q") and
incorporated herein by reference).
4.3.4 Second Supplemental Indenture, dated as of July 28, 1995, to
the August Indenture between ESMR, Inc. (now known as
Nextel), as Successor by Merger to Nextel and The Bank of
New York (relating to the August Indenture) (filed on
November 14, 1995 as Exhibit 4.3 to the November 14 Form
10-Q and incorporated herein by reference).
4.3.5 Third Supplemental Indenture, dated as of June 13, 1997, to
the August Indenture between Nextel Communications, Inc. and
The Bank of New York, as Trustee (filed on June 17, 1997 as
Exhibit 4.1 to the Current Report on Form 8-K dated June 13,
1997 (the "June 13 Form 8-K") and incorporated herein by
reference).
4.4.1 Indenture between Old Nextel and the Bank of New York, as
Trustee, dated as of February 15, 1994 (the "February
Indenture") (filed on March 1, 1994 as Exhibit 4.1 to Old
Nextel's Current Report on Form 8-K dated February 16, 1994
and incorporated herein by reference).
4.4.2 Form of Note issued pursuant to the February Indenture
(included in Exhibit 4.4.1).
4.4.3 Supplemental Indenture dated as of June 30, 1995 to the
February Indenture between Old Nextel and The Bank of New
York (filed on November 14, 1995 as Exhibit 4.2 to the
November 14 Form 10-Q and incorporated herein by reference).
4.4.4 Second Supplemental Indenture, dated as of July 28, 1995, to
the February Indenture between ESMR, Inc. (now known as
Nextel), as Successor by Merger to Old Nextel and The Bank
of New York (relating to the February Indenture) (filed on
November 14, 1995 as Exhibit 4.4 to the November 14 Form
10-Q and incorporated herein by reference).
</TABLE>
E-1
<PAGE> 88
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ---------- -------------------
<C> <S>
4.4.5 Third Supplemental Indenture, dated as of June 13, 1997, to
the February Indenture between Nextel Communications, Inc.,
and The Bank of New York, as Trustee (filed on June 17, 1997
as Exhibit 4.2 to the June 13 Form 8-K and incorporated
herein by reference).
4.5.1 Indenture for Senior Redeemable Discount Notes due 2004,
dated as of January 13, 1994, between OneComm Corporation
(formerly called CenCall Communications Corp.) and The Bank
of New York (the "OneComm Indenture") (filed on June 7, 1995
as Exhibit 99.2 to Nextel's Registration Statement No.
33-93182 on Form S-4 (the "OneComm S-4 Registration
Statement") and incorporated herein by reference).
4.5.2 Form of Note issued pursuant to the OneComm Indenture
(included in Exhibit 4.5.1).
4.5.3 Supplemental Indenture, dated as of June 30, 1995, to the
OneComm Indenture between OneComm Corporation (formerly
called CenCall Communications Corp.) and The Bank of New
York (filed on November 14, 1995 as Exhibit 10.12 to the
November 14 Form 10-Q and incorporated herein by reference).
4.5.4 Second Supplemental Indenture, dated as of July 28, 1995, to
the OneComm Indenture between Nextel (formerly known as
ESMR, Inc.), as successor to OneComm Corporation and The
Bank of New York (filed on November 14, 1995 as Exhibit
10.13 to the November 14 Form 10-Q and incorporated herein
by reference).
4.5.5 Third Supplemental Indenture, dated as of June 13, 1997, to
the OneComm Indenture between Nextel and The Bank of New
York (filed on June 17, 1997 as Exhibit 4.5 to the June 13
Form 8-K and incorporated herein by reference).
4.6.1 Indenture for Senior Redeemable Discount Notes due 2004,
dated as of April 25,1994, between Dial Call Communications,
Inc. and The Bank of New York (the "Dial Call 2004
Indenture") (filed on June 7, 1995 as Exhibit 99.4 to the
OneComm S-4 Registration Statement and incorporated herein
by reference).
4.6.2 Form of Note issued pursuant to the Dial Call 2004 Indenture
(included in Exhibit 4.6.1).
4.6.3 Supplemental Indenture, dated as of August 7, 1995, to the
Dial Call 2004 Indenture between Dial Call Communications,
Inc. and The Bank of New York (filed on December 5, 1995 as
Exhibit 99.3 to the Nextel's Registration Statement No.
33-80021 on Form S-4 (the "Dial Page S-4 Registration
Statement") and incorporated herein by reference).
4.6.4 Second Supplemental Indenture, dated as of January 30, 1996,
to the Dial Call 2004 Indenture between Dial Page, Inc. (as
successor to Dial Call Communications, Inc.) and The Bank of
New York (filed on April 1, 1996 as Exhibit 4.26 to Nextel's
Annual Report on Form 10-K for the year ended December 31,
1995 (the "1995 Form 10-K") and incorporated herein by
reference).
4.6.5 Third Supplemental Indenture, dated as of January 30, 1996,
to the Dial Call 2004 Indenture between Nextel (as successor
to Dial Page, Inc.) and The Bank of New York (filed on April
1, 1996 as Exhibit 4.27 to the 1995 Form 10-K and
incorporated herein by reference).
4.6.6 Fourth Supplemental Indenture, dated as of June 13, 1997, to
the Dial Call 2004 Indenture between Nextel and The Bank of
New York (filed on June 17, 1997 as Exhibit 4.3 to the June
13 Form 8-K and incorporated herein by reference).
4.7.1 Indenture for Senior Discount Notes due 2005, dated as of
December 22, 1993, between Dial Call Communications, Inc.
and The Bank of New York (the "Dial Call 2005 Indenture")
(filed as Exhibit 99.3 to the OneComm S-4 Registration
Statement and incorporated herein by reference).
4.7.2 Form of Note issued pursuant to the Dial Call 2005 Indenture
(included in Exhibit 4.7.1).
</TABLE>
E-2
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ---------- -------------------
<C> <S>
4.7.3 Supplemental Indenture, dated as of April 25, 1994, to the
Dial Call 2005 Indenture between Dial Call Communications,
Inc. and The Bank of New York (filed on April 1, 1996 as
Exhibit 4.29 to the 1995 Form 10-K and incorporated herein
by reference).
4.7.4 Supplemental Indenture, dated as of June 30, 1995, to the
Dial Call 2005 Indenture between Dial Call Communications,
Inc. and The Bank of New York (filed on December 5, 1995 as
Exhibit 99.4 to the Dial Page S-4 Registration Statement and
incorporated herein by reference).
4.7.5 Third Supplemental Indenture, dated as of January 30, 1996,
to the Dial Call 2005 Indenture between Dial Page Inc. (as
successor to Dial Call Communications, Inc.) and The Bank of
New York (filed on April 1, 1996 as Exhibit 4.31 to the 1995
Form 10-K and incorporated herein by reference).
4.7.6 Fourth Supplemental Indenture, dated as of January 30, 1996,
to the Dial Call 2005 Indenture between Nextel (as successor
to Dial Page, Inc.) and The Bank of New York (filed on April
1, 1996 as Exhibit 4.32 to the 1995 Form 10-K and
incorporated herein by reference).
4.7.7 Fifth Supplemental Indenture, dated as of June 13, 1997, to
the Dial Call 2005 Indenture between Nextel and The Bank of
New York (filed on June 17, 1997 as Exhibit 4.4 to the June
13 Form 8-K and incorporated herein by reference).
4.8.1 Indenture for Senior Discount Notes due 2007, dated as of
March 6, 1997, between McCaw International, Ltd. (now known
as Nextel International) and The Bank of New York, as
Trustee (the "NI 2007 Indenture") (filed on March 31, 1997
as Exhibit 4.24 to Nextel's Annual Report on Form 10-K for
the year ended December 31, 1996 (the "1996 Form 10-K") and
incorporated herein by reference).
4.8.2 Form of Note issued pursuant to the NI 2007 Indenture
(included in Exhibit 4.8.1).
4.8.3 Warrant Agreement, dated as of March 6, 1997, between McCaw
International, Ltd. and The Bank of New York (filed on March
31, 1997 as Exhibit 4.26 to the 1996 Form 10-K and
incorporated herein by reference).
4.9.1 Indenture dated September 17, 1997 between Nextel
Communications, Inc. and Harris Trust and Savings Bank, as
Trustee (the "September 1997 Indenture"), relating to
Nextel's 10.65% Senior Redeemable Discount Notes due 2007
(filed on September 22, 1997 as Exhibit 4.1 to Nextel's
Current Report on Form 8-K dated September 22, 1997 and
incorporated herein by reference).
4.9.2 Form of Note issued pursuant to the September 1997 Indenture
(included in Exhibit 4.9.1).
4.10.1 Indenture dated as of October 22, 1997 between Nextel
Communications, Inc. and Harris Trust and Savings Bank, as
Trustee (the "October 1997 Indenture"), relating to Nextel's
9.75% Senior Serial Redeemable Discount Notes due 2007
(filed on October 23, 1997 as Exhibit 4.1 to Nextel's
Current Report on Form 8-K dated October 23, 1997 and
incorporated herein by reference).
4.10.2 Form of Note issued pursuant to the October 1997 Indenture
(included in Exhibit 4.10.1).
4.11.1 Indenture dated as of February 11, 1998, between Nextel
Communications, Inc. and Harris Trust and Savings Bank, as
Trustee, (the "February 1998 Indenture") relating to
Nextel's Senior Serial Redeemable Discount Notes due 2008
(filed on February 12, 1998 as Exhibit 4.2 to the February
11 Form 8-K and incorporated herein by reference).
4.11.2 Form of Note issued pursuant to the February 1998 Indenture
(included in Exhibit 4.11.1).
4.12 Credit Agreement dated as of March 12, 1998 among Nextel,
NFC, the Restricted Companies party thereto, the Lenders
party thereto, Toronto Dominion (Texas) Inc., as
Administrative Agent, and The Chase Manhattan Bank as
Collateral Agent (filed as Exhibit 4.12 hereto).
</TABLE>
E-3
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ---------- -------------------
<C> <S>
10.1 Amended and Restated Current Stock Unit Purchase Warrant No.
CM-1 dated June 15, 1990 issued by Old Nextel to Chase
Manhattan Investment Holdings, Inc. (filed on October 17,
1991 as Exhibit 10.8 to the Registration Statement No.
33-43415 on Form S-1 (the "S-1 Registration Statement") and
incorporated herein by reference).
10.2 Current Stock Unit Purchase Warrant No. CM-3 dated June 15,
1990 issued by Old Nextel to Chase Manhattan Investment
Holdings, Inc. (filed on October 17, 1991 as Exhibit 10.10
to the S-1 Registration Statement and incorporated herein by
reference).
10.3 Current Stock Unit Purchase Warrant No. 2 dated January 29,
1988 issued by Old Nextel to Kansallis-Osake-Pankki (filed
on October 17, 1991 as Exhibit 10.12 to the S-1 Registration
Statement and incorporated herein by reference).
10.4 Registration Rights Agreement dated as of June 15, 1990
between Old Nextel and Chase Manhattan Investment Holdings,
Inc. (filed on October 17, 1991 as Exhibit 10.21 to the S-1
Registration Statement and incorporated herein by
reference.)
10.5* Letter Agreement between Motorola, Inc. and Old Nextel,
dated as of November 4, 1991 (filed on November 15, 1991 as
Exhibit 10.47 to the S-1 Registration Statement and
incorporated herein by reference).
10.6.1* Enhanced Specialized Mobile Radio System Purchase Agreement
between Motorola, Inc and Old Nextel, dated as of November
4, 1991 (filed on November 15, 1991 as Exhibit 10.48 to the
S-1 Registration Statement and incorporated herein by
reference).
10.6.2* Amendment, dated August 4, 1994, to the Enhanced Specialized
Mobile Radio System Equipment Purchase Agreement, between
Old Nextel and Motorola, Inc., dated November 1, 1991, as
amended and to the Letter Agreement, between Old Nextel and
Motorola, dated November 4, 1991, as amended (collectively
the "Equipment Purchase Agreements") (filed as Exhibit 10.02
to ESMR's Registration Statement No. 33-91716 on Form S-4
(the "ESMR Form S-4 Registration Statement") and
incorporated herein by reference).
10.6.3* Second Amendment to Equipment Purchase Agreements, dated
April 4, 1995, between Old Nextel and Motorola, Inc. (filed
as Exhibit 10.03 to the ESMR Form S-4 Registration Statement
and incorporated herein by reference).
10.6.4* Amendment 004 to Enhanced Specialized Mobile Radio System
Purchase Agreement, dated as of April 28, 1996, between
Nextel and Motorola, Inc. (filed on July 5, 1996 as Exhibit
99.1 to Nextel's Current Report on Form 8-K dated July 5,
1996 and incorporated herein by reference).
10.6.5* Nextel/Motorola Agreement (relating to equipment purchase):
dated March 27, 1997, between Nextel and Motorola, Inc.
(filed on May 14, 1997 as Exhibit 10.1 to Nextel's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997
(the "March 31, 1997 Form 10-Q") and incorporated herein by
reference.
10.6.6 Term Sheet For Debt Financing, dated as of March 26, 1997,
between Nextel and Motorola, Inc. filed on March 31, 1997 as
Exhibit 10.39 to the 1996 Form 10-K and incorporated by
reference herein).
10.7.1 Agreement and Plan of Contribution and Merger, dated August
4, 1994, as amended, by and among Old Nextel, Motorola,
Inc., ESMR, Inc. (now known as Nextel), ESMR Sub, Inc. and
Others (filed on April 28, 1995 as Exhibit 2.01 to the ESMR
S-4 Registration Statement and incorporated herein by
reference).
10.7.2 Registration Rights Agreement, dated July 28, 1995, by and
between Nextel and Motorola (filed on November 14, 1995 as
Exhibit 10.8 to the November 14 Form 10-Q and incorporated
herein by reference).
</TABLE>
E-4
<PAGE> 91
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ---------- -------------------
<C> <S>
10.8.1 Warrant Agreement between Motorola, Inc. and Old Nextel,
dated November 1, 1991 (filed on November 15, 1991 as
Exhibit 10.53 to the S-1 Registration Statement and
incorporated herein by reference).
10.8.2 Amendment, dated as of April 26, 1996, to Warrant Agreement
between Motorola, Inc. and Nextel (f/k/a Fleet Call, Inc.)
(filed on August 14, 1996 as Exhibit 10.2 to Nextel's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1996 and incorporated herein by reference).
10.9 Technical Services Agreement, dated as of January 20, 1994,
between Old Nextel and NTT America, Inc. (filed as Exhibit
10.49 on June 8, 1994 to Old Nextel's Annual Report on Form
10-K for the year ended March 31, 1994 and incorporated
herein by reference).
10.10.1 Warrant Acquisition Agreement, dated as of July 14, 1993, by
and between OneComm Corporation and The Chase Manhattan Bank
(National Association), and Form of Stock Purchase Warrant
(filed as Exhibit 10.42 to the OneComm S-1 Registration
Statement and incorporated herein by reference).
10.10.2 Registration Rights Agreement, dated July 28, 1995, by and
among Nextel, The Chase Manhattan Bank (National
Association), Canadian Imperial Bank of Commerce and Fleet
National Bank (filed on April 1, 1996 as Exhibit 10.57 to
the 1995 Form 10-K and incorporated herein by reference).
10.11.1 Securities Purchase Agreement between Old Nextel, Digital
Radio, L.L.C. and Craig O. McCaw, dated April 4, 1995 (filed
on April 11, 1995 as Exhibit 2.1 to Old Nextel's Current
Report on Form 8-K dated April 10, 1995 and incorporated
herein by reference).
10.11.2 Incentive Option Agreement, dated April 4, 1995, between Old
Nextel and Eagle River, Inc. (filed on April 11, 1995 as
Exhibit 99.3 to Old Nextel's Current Report on Form 8-K
dated April 10, 1995 and incorporated herein by reference).
10.11.3 Forms of Option Agreements dated April 6, 1995 between Old
Nextel, Digital Radio, L.L.C. and Craig O. McCaw (filed on
March 31, 1997 as Exhibit 10.26 to the 1996 Form 10-K and
incorporated herein by reference).
10.11.4 Form of Registration Rights Agreement, dated July 28, 1995,
by and among the Company and Digital Radio, L.L.C. (filed on
March 31, 1997 as Exhibit 10.38 to the 1996 Form 10-K and
incorporated by reference herein).
10.11.5 First Amendment to Registration Rights Amendment (amending
that certain Registration Rights Agreement dated July 28,
1995) by and among Nextel, Digital Radio, L.L.C., and Option
Acquisition, L.L.C., dated as of June 18, 1997 (filed on
July 9, 1997 as Exhibit 10.7 to Current Report on Form 8-K
(the "July 9 Form 8-K") and incorporated herein by
reference).
10.12 Option Exercise and Lending Commitment Agreement by and
among Nextel and Digital Radio, L.L.C., dated as of June 16,
1997 (filed on July 9, 1997 as Exhibit 10.1 to the July 9
Form 8-K and incorporated herein by reference).
10.13.1 Option Purchase Agreement by and among Nextel, Unrestricted
Subsidiary Funding Company and Option Acquisition, L.L.C.,
dated as of June 16, 1997 (filed on July 9, 1997 as Exhibit
10.3 to the July 9 Form 8-K and incorporated herein by
reference).
10.13.2 Option Agreement (First New Option) by and between Option
Acquisition, L.L.C., and Nextel, dated as of June 18, 1997
(filed on July 9, 1997 as Exhibit 10.4 to the July 9 Form
8-K and incorporated herein by reference).
10.13.3 Option Agreement (Second New Option) by and between Option
Acquisition, L.L.C., and Nextel, dated as of June 18, 1997
(filed on July 9, 1997 as Exhibit 10.5 to the July 9 Form
8-K and incorporated herein by reference).
</TABLE>
E-5
<PAGE> 92
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ---------- -------------------
<C> <S>
10.13.4 Registration Rights Agreement (Option Acquisition) by and
among Nextel and Option Acquisition, L.L.C., dated as of
June 18, 1997 (filed on July 9, 1997 as Exhibit 10.6 to the
July 9 Form 8-K and incorporated herein by reference).
10.14*** Form of Indemnification Agreement, and Exhibits thereto
between Old Nextel and each of its directors (filed on June
24, 1992 as Exhibit 10.56 to Old Nextel's Annual Report on
Form 10-K for the year ended March 31, 1992 and incorporated
herein by reference).
10.15*** Employment Agreement, dated as of March 26, 1992, between
Old Nextel and Robert Foosaner (filed on May 27, 1993 as
Exhibit 10.41 to Old Nextel's Annual Report on Form 10-K for
the year ended March 31, 1993 and incorporated herein by
reference).
10.16*** The Nextel Stock Option Plan (filed on December 21, 1992 as
Exhibit 4(c) to Old Nextel's Registration Statement No.
33-56080 on Form S-8 and incorporated herein by reference).
10.17.1*** Nextel Amended and Restated Incentive Equity Plan ("Nextel
Plan") (filed on June 21, 1996 as Exhibit 4.3 to Nextel's
Registration Statement No. 333-06521 on Form S-8 and
incorporated herein by reference).
10.17.2*** Amendment No. 1, adopted March 28, 1997, to Nextel Plan
(filed on March 31, 1997 as Exhibit 10.40 to the 1996 Form
10-K and incorporated by reference herein).
10.18*** Nextel Associate Stock Purchase Plan (filed on June 21, 1996
as Exhibit 4.3 to Nextel's Registration Statement No.
333-06523 on Form S-8 and incorporated herein by reference).
10.19*** Nextel Communications, Inc. Cash Compensation Deferral Plan
(filed on December 17, 1997 as Exhibit 4.1 to Nextel's
Registration Statement No. 333-42537 on Form S-8 and
incorporated herein by reference).
10.20.1*** Employment Agreement dated as of March 5, 1996 between
Daniel Akerson and Nextel (filed on March 31, 1997 as
Exhibit 10.35 to the 1996 Form 10-K and incorporated by
reference herein).
10.20.2*** Letter Amendment to Employment Agreement dated as of March
24, 1998 between Daniel Akerson and Nextel (filed as Exhibit
10.20.2 hereto).
10.21.1*** Employment Agreement dated February 1, 1996 between Timothy
Donahue and Nextel (filed on March 31, 1997 as Exhibit 10.36
to the 1996 Form 10-K and incorporated by reference herein).
10.21.2*** Addendum to Employment Agreement between Timothy Donahue and
Nextel dated March 24, 1997 (filed on March 31, 1997 as
Exhibit 10.37 to the 1996 Form 10-K and incorporated by
reference herein).
10.22*** Employment Agreement, dated as of June 15, 1987, between Old
Nextel and Morgan E. O'Brien, and Amendment dated January
29, 1990 (filed on October 17, 1991 as Exhibit 10.34 to the
S-1 Registration Statement and incorporated herein by
reference).
10.23*** Employment Agreement dated as of October 17, 1994 between
Thomas J. Sidman and Nextel (filed as Exhibit 10.23 hereto).
21 Subsidiaries of the Company.
23 Consent of Deloitte & Touche LLP.
27** Financial Data Schedule.
99.1 Memorandum Opinion and Order of the Federal Communications
Commission, dated as of February 13, 1991 (filed on December
5, 1992 as Exhibit 28.1 to the S-1 Registration Statement
and incorporated herein by reference).
99.2 Letter from Motorola, Inc. to Old Nextel, dated as of
January 13, 1992 (filed on January 16, 1992 as Exhibit 28.2
to the S-1 Registration Statement and incorporated by
reference).
</TABLE>
E-6
<PAGE> 93
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ---------- -------------------
<C> <S>
99.3 Order entered by the United States District Court for the
District of Columbia on July 25, 1995 approving the proposed
consent decree between the Antitrust Division of the United
States Justice Department, Motorola, Inc. and Nextel (filed
on April 1, 1996 as Exhibit 99.3 to the 1995 Form 10-K and
incorporated herein by reference).
</TABLE>
- ---------------
* Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
** Submitted only with the electronic filing of this document with the
Commission pursuant to Regulation S-T under the Securities Act.
*** Management contract or compensatory plan or arrangement.
E-7
<PAGE> 1
[Execution copy]
File No. 28692-00400
================================================================================
CREDIT AGREEMENT
dated as of
March 12, 1998
among
NEXTEL COMMUNICATIONS, INC.,
NEXTEL FINANCE COMPANY
and
THE OTHER "RESTRICTED COMPANIES" PARTY HERETO,
THE LENDERS PARTY HERETO,
and
THE ADMINISTRATIVE AGENT and COLLATERAL AGENT PARTY HERETO
--------------
BARCLAYS BANK PLC
THE CHASE MANHATTAN BANK
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
NATIONSBANK OF TEXAS, N.A.
THE TORONTO-DOMINION BANK
as Arrangers
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
Definitions
SECTION 1.01. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Classification of Loans and Borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 1.03. Terms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 1.04. Accounting Terms; GAAP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 1.05. Tax Sharing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE II
The Credits
SECTION 2.01. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.02. Loans and Borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 2.03. Requests for Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 2.04. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 2.05. Funding of Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 2.06. Interest Elections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 2.07. Termination and Reduction of Commitments. . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 2.08. Repayment of Loans; Evidence of Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 2.09. Prepayment of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 2.10. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 2.11. Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 2.12. Alternate Rate of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 2.13. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 2.14. Break Funding Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 2.15. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of Set-Offs . . . . . . . . . . . . . . . 59
SECTION 2.17. Mitigation Obligations; Replacement of Lenders. . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE III
Guarantee by NCI
SECTION 3.01. The Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 3.02. Obligations Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 3.03. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 3.04. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 3.05. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 3.06. Instrument for the Payment of Money . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 3.07. Continuing Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
ARTICLE IV
Representations and Warranties
SECTION 4.01. Organization; Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 4.02. Authorization; Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 4.03. Governmental Approvals; No Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 4.04. Financial Condition; No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . 66
SECTION 4.05. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 4.06. Litigation and Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 4.07. Compliance with Laws and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 4.08. Investment and Holding Company Status . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 4.09. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 4.10. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 4.11. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 4.12. Material Agreements and Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 4.13. Regulatory Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 4.14. Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 4.15. Capitalization of Credit Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 4.16. Vendor Equipment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 4.17. Public Note Indentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
ARTICLE V
Conditions
SECTION 5.01. Effective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 5.02. Each Extension of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
ARTICLE VI
Affirmative Covenants
SECTION 6.01. Financial Statements and Other Information. . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 6.02. Notices of Material Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 6.03. Existence; Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 6.04. Payment of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 6.05. Maintenance of Properties; Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 82
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6.06. Books and Records; Inspection Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 6.07. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 6.08. Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 6.09. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 6.10. Hedging Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 6.11. Certain Obligations Respecting Subsidiaries and Collateral Security . . . . . . . . . . . 84
SECTION 6.12. Planned Option Issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 6.13. Non-Core Assets; Designation of Non-Core and Off-Balance Sheet Companies. . . . . . . . . 86
ARTICLE VII
Negative Covenants
SECTION 7.01. Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
SECTION 7.02. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 7.03. Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
SECTION 7.04. Investments, Loans, Advances, Guarantees and Acquisitions;
Hedging Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
SECTION 7.05. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
SECTION 7.06. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
SECTION 7.07. Restrictive Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
SECTION 7.08. Certain Financial and Other Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . 104
SECTION 7.09. Lines of Business, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
SECTION 7.10. Modifications to Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
SECTION 7.11. Disposition of Non-Core Assets, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 108
ARTICLE VIII
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
ARTICLE IX
The Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE X
Miscellaneous
SECTION 10.01. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
SECTION 10.02. Waivers; Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
SECTION 10.03. Expenses; Indemnity; Damage Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
SECTION 10.04. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
SECTION 10.05. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
SECTION 10.06. Counterparts; Integration; Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . 124
SECTION 10.07. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
SECTION 10.08. Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
SECTION 10.09. Governing Law; Jurisdiction; Consent to Service of Process . . . . . . . . . . . . . . . 125
SECTION 10.10. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
SECTION 10.11. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
SECTION 10.12. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
SECTION 10.13. Designation as Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
SECTION 10.14. Obligations Senior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
</TABLE>
SCHEDULES:
Schedule 1.01 -- List of Key Markets
Schedule 2.01 -- Commitments
Schedule 4.06 -- Disclosed Matters
Schedule 4.12 -- Material Agreements and Liens
Schedule 4.13 -- License Compliance
Schedule 4.14 -- Subsidiaries
Schedule 4.15 -- Equity Rights
Schedule 7.01 -- Existing Indebtedness
Schedule 7.07 -- Existing Restrictions
(iv)
<PAGE> 6
EXHIBITS:
Exhibit A -- Form of Assignment and Acceptance
Exhibit B -- Form of Opinion of Special Counsel
Exhibit C -- Form of Restricted Company Guarantee and Security Agreement
Exhibit D -- Form of Joinder Agreement
(v)
<PAGE> 7
CREDIT AGREEMENT dated as of March 12, 1998 among NEXTEL
COMMUNICATIONS, INC., NEXTEL FINANCE COMPANY and the other RESTRICTED COMPANIES
party hereto, the LENDERS party hereto, TORONTO DOMINION (TEXAS) INC., as
Administrative Agent, and THE CHASE MANHATTAN BANK, as Collateral Agent.
Nextel Finance Company has requested that the Lenders party
hereto extend credit to it (by means of loans and letters of credit) in an
aggregate principal or face amount equal to $3,000,000,000 (which, in the
circumstances contemplated by Section 7.01(e), may be increased to
$3,500,000,000), under the guarantee of Nextel Communications, Inc. (as
provided in Article III) and the other Restricted Companies party hereto (as
provided in the Restricted Company Guarantee and Security Agreement hereinafter
referred to), which credit shall be used for, among other purposes, the
refinancing of amounts outstanding under the Existing Credit Agreement and
Existing Vendor Financing Agreements hereinafter referred to. The Lenders are
willing to extend such credit upon the terms and conditions hereof and,
accordingly, the parties hereto hereby agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms have the meanings specified below:
"Additional Equity Capital" means, on any date, (a) the
aggregate amount of equity capital, other than Permanent Equity Capital,
contributed to the Borrower in cash after October 9, 1997, minus (b) the
aggregate amount of Restricted Payments made by the Borrower to NCI in cash
after October 9, 1997 utilizing the basket provided in Section 7.05(d). The
aggregate amount of Additional Equity Capital on the date hereof is
$1,126,600,000.
"Adjusted Base Rate" means, for any day, a rate per annum
equal to the greater of (a) the Prime Rate in effect on such day and (b) the
Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change
in the Adjusted Base Rate due to a change in the Prime Rate or the Federal
Funds Effective Rate shall be effective from and including the effective date
of such change in the Prime Rate or the Federal Funds Effective Rate,
respectively.
"Adjusted LIBO Rate" means, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such
Interest Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means Toronto Dominion (Texas) Inc., in
its capacity as administrative agent for the Lenders hereunder.
Credit Agreement
<PAGE> 8
-2-
"Administrative Questionnaire" means an Administrative
Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the Person
specified.
"Agents" means the Administrative Agent and the Collateral
Agent.
"Annualized Operating Cash Flow" means, as at any day,
Operating Cash Flow for the fiscal quarter ending on or most recently ended
prior to such day multiplied by 4.
"Annualized Revenue" means, as at any day, gross revenues of
the Restricted Companies (determined on a combined basis without duplication in
accordance with GAAP) for the period of three complete calendar months ending
on, or most recently ended prior to, such day multiplied by 4.
"Applicable Percentage" means (a) with respect to any
Revolving Credit Lender for purposes of Section 2.04, the percentage of the
total Revolving Credit Commitments represented by such Lender's Revolving
Credit Commitment and (b) with respect to any Lender in respect of any
indemnity claim under Section 10.03(c) arising out of an action or omission of
an Agent under this Agreement or any other Loan Document, the percentage of the
total Commitments of all Classes hereunder represented by the aggregate amount
of such Lender's Commitment of all Classes hereunder. If the Commitments
hereunder have terminated or expired, the Applicable Percentages shall be
determined based upon the Commitments most recently in effect, giving effect to
any assignments.
"Applicable Rate" means (a) in the case of Tranche B Term
Loans, for any day, 1.75% with respect to any Base Rate Loan and 2.75% with
respect to any Eurodollar Loan and (b) in the case of Revolving Credit Loans,
Tranche A Term Loans or commitment fees, for any day, the applicable rate per
annum set forth below under the caption "Base Rate Spread", "Eurodollar Spread"
or "Commitment Fee Rate", as applicable, based upon the Total Indebtedness to
Cash Flow Ratio as at the last day of the fiscal quarter most recently ended as
to which NCI has delivered financial statements pursuant to Section 6.01:
Credit Agreement
<PAGE> 9
-3-
<TABLE>
<CAPTION>
================================================================================================================
Total Indebtedness to Base Rate Spread Eurodollar Spread Commitment Fee Rate
Cash Flow Ratio
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Greater than 1.000% 2.000% 0.500%
10.00 to 1
- ----------------------------------------------------------------------------------------------------------------
Greater than
9.00 to 1 and
less than or 0.875% 1.875% 0.500%
equal to
10.00 to 1
- ----------------------------------------------------------------------------------------------------------------
Greater than
8.00 to 1 and
less than or 0.750% 1.750% 0.500%
equal to
9.00 to 1
- ----------------------------------------------------------------------------------------------------------------
Greater than
7.00 to 1 and
less than or 0.500% 1.500% 0.500%
equal to
8.00 to 1
- ----------------------------------------------------------------------------------------------------------------
Greater than
6.00 to 1 and
less than or 0.375% 1.375% 0.375%
equal to
7.00 to 1
- ----------------------------------------------------------------------------------------------------------------
Greater than
5.00 to 1 and
less than or 0.125% 1.125% 0.375%
equal to
6.00 to 1
- ----------------------------------------------------------------------------------------------------------------
Greater than
4.00 to 1 and
less than or 0.000% 0.875% 0.375%
equal to
5.00 to 1
- ----------------------------------------------------------------------------------------------------------------
Less than or
equal to 0.000% 0.750% 0.375%
4.00 to 1
================================================================================================================
</TABLE>
provided that if, for any fiscal quarter, Cash Flow as used in determining the
Total Indebtedness to Cash Flow Ratio shall be negative, then if (x) the
combined gross revenue of the Restricted
Credit Agreement
<PAGE> 10
-4-
Companies for the fiscal quarter most recently ended as to which the Borrower
has delivered financial statements pursuant to Section 6.01(c) multiplied by 4
exceeds $475,000,000, the Applicable Rate for Revolving Credit Loans and
Tranche A Term Loans shall be 1.250% with respect to any Base Rate Loan and
2.250% with respect to any Eurodollar Loan, (y) the combined gross revenue of
the Restricted Companies for the fiscal quarter most recently ended as to which
the Borrower has delivered financial statements pursuant to Section 6.01(c)
multiplied by 4 is less than or equal to $475,000,000, the Applicable Rate for
Revolving Credit Loans and Tranche A Term Loans shall be 1.500% with respect to
any Base Rate Loan and 2.500% with respect to any Eurodollar Loan and (z) the
Applicable Rate for commitment fees shall be .500%. Notwithstanding the
foregoing, until the delivery of the financial statements of NCI and its
subsidiaries (and of the Restricted Companies) for the fiscal quarter ending
December 31, 1997, the Applicable Rate for Revolving Credit Loans and Tranche A
Term Loans shall be the rates referred to in the foregoing clause (x).
Each change in the "Applicable Rate" based upon any change in
the Total Indebtedness to Cash Flow Ratio (or, if applicable, upon any change
in the combined gross revenue of the Restricted Companies), shall become
effective for purposes of the accrual of interest and commitment fees hereunder
on the date three Business Days after the delivery to the Administrative Agent
and each Lender of the financial statements of NCI and its subsidiaries (and of
the Restricted Companies) for the most recently ended fiscal quarter pursuant
to Section 6.01(c), and shall remain effective for such purpose until three
Business Days after the next delivery of such financial statements to the
Administrative Agent and each Lender hereunder, provided that, notwithstanding
the foregoing, the Applicable Rate for Revolving Credit Loans, Tranche A Term
Loans and commitment fees shall be the highest rates provided for in the above
schedule for any period during which either (i) an Event of Default under
paragraph (a) or (b) of Article VIII in respect of principal of or interest on
any Loans, or any other amounts, payable hereunder shall have occurred and be
continuing or (ii) either NCI or the Borrower shall be in default of its
obligation to deliver financial statements for any fiscal quarter by the times
specified in Section 6.01(c).
"Approved Fund" means, with respect to any Lender that is a
fund that invests in commercial loans, any other fund that invests in
commercial loans and is managed or advised by the same investment advisor as
such Lender or by an Affiliate of such investment advisor.
"Arrangers" means Barclays Bank PLC, The Chase Manhattan Bank,
Morgan Guaranty Trust Company of New York, NationsBank of Texas, N.A. and The
Toronto-Dominion Bank.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an assignee (with the consent of any party whose
consent is required by Section
Credit Agreement
<PAGE> 11
-5-
10.04), and accepted by the Administrative Agent, in the form of Exhibit A or
any other form approved by the Administrative Agent.
"August 1993 Indenture Termination Date" means the earlier of
(a) the date upon which all of the Public Notes outstanding under the Indenture
referred to in clause (a) of the term "Public Note Indentures" in this Section
1.01 shall have been repurchased and retired, or shall have been redeemed and
repaid in full, or (b) the date said Indenture shall have been amended to
eliminate Section 1015 thereof, which date shall be set forth in a certificate
of a Financial Officer delivered to each of the Agents and Special Counsel.
"Authorizations" means all validations, exemptions,
franchises, waivers, approvals, orders or authorizations, consents, licenses,
certificates and permits from, the FCC, any 1PUC and any other Federal, state
or local regulatory or governmental bodies and authorities, including any
subdivision thereof.
"Average Life to Maturity" means, as at any day with respect
to any Indebtedness, the quotient obtained by dividing (a) the sum of the
products of (i) the number of years from such day to the date or dates of each
successive principal payment of such Indebtedness multiplied by (ii) the amount
of each such principal payment by (b) the sum of all such principal payments.
"Base Rate", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are
bearing interest at a rate determined by reference to the Adjusted Base Rate.
"Basic Documents" means the Loan Documents and the Vendor
Equipment Agreements.
"Board" means the Board of Governors of the Federal Reserve
System of the United States of America.
"Borrower" means Nextel Finance Company, a Delaware
corporation.
"Borrowing" means Loans of a particular Class of the same
Type, made, converted or continued on the same date and, in the case of
Eurodollar Loans, as to which a single Interest Period is in effect.
"Borrowing Request" means a request by the Borrower for a
Borrowing in accordance with Section 2.03.
"Business Day" "means any day that is not a Saturday, Sunday
or other day on which commercial banks in New York City are authorized or
required by law to remain closed;
Credit Agreement
<PAGE> 12
-6-
provided that, when used in connection with a Eurodollar Loan, the term
"Business Day" shall also exclude any day on which banks are not open for
dealings in U.S. dollar deposits in the London interbank market.
"Capital Expenditures" "means, for any period, the sum for the
Restricted Companies (or, as the case may be, for NCI and the Restricted
Companies) of the aggregate amount of expenditures (including the aggregate
amount of Capital Lease Obligations incurred during such period) made to
acquire or construct fixed assets, plant and equipment (including renewals,
improvements and replacements, but excluding repairs) during such period
computed in accordance with GAAP. "Capital Expenditures" for the Restricted
Companies shall be determined on a combined basis, and for NCI and the
Restricted Companies shall be determined on a consolidated basis (excluding the
Unrestricted Companies), in each case without duplication in accordance with
GAAP.
"Capital Lease Obligations" of any Person means the
obligations of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Cash-Pay Interest" means interest accruing in respect of any
Indebtedness that is payable in cash on a current basis, i.e. excluding
interest that accretes on Indebtedness issued at a discount or interest that is
to be capitalized by being added to the principal of Indebtedness.
"Change in Control" "means any of the following: (a) any of
the Restricted Companies ceasing to be a subsidiary of NCI, (b) the occurrence
of a "Change of Control" under and as defined in the Public Note Indentures, or
any other similar event (howsoever defined) requiring the prepayment,
redemption or offer to repurchase of the respective Indebtedness under any
agreement providing for the issuance of Indebtedness of NCI after the date
hereof pursuant to Section 7.01(b)(i) or 7.01(c), or (c) the termination or
material modification of the authority of the Operations Committee of NCI
(including through the occurrence of a "Trigger Event" as defined in NCI's
Certificate of Incorporation as in effect on the date hereof) or the inability
of Craig O. McCaw (whether acting directly or through any Person controlled by
him) for any reason (other than by reason of his death, disability or
incompetence) to designate a majority of the members of said Operations
Committee.
"Change in Law" means (a) the adoption of any law, rule or
regulation after the date of this Agreement, (b) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or (c) compliance by any Lender or
Issuing Bank (or, for purposes of Section 2.13(b), by any lending
Credit Agreement
<PAGE> 13
-7-
office of such Lender or by such Lender's or Issuing Bank's holding company, if
any) with any request, guideline or directive (whether or not having the force
of law) of any Governmental Authority made or issued after the date of this
Agreement.
"Class", when used in reference to any Loan, Borrowing or
Commitment, refers to whether such Loan, the Loans comprising such Borrowing or
the Loans that a Lender holding such Commitment is obligated to make, are
Revolving Credit Loans, Tranche A Term Loans or Tranche B Term Loans.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Collateral" "means all cash and other property in which the
Collateral Agent has a Lien (whether or not perfected under applicable law and
whether or not such cash or other property is in the possession, or under the
control, of the Collateral Agent) under any of the Security Documents,
including all "Collateral" under and as defined in the Restricted Company
Guarantee and Security Agreement.
"Collateral Agent" means The Chase Manhattan Bank, in its
capacity as collateral agent for the Lenders under the Security Documents.
"Commitments" means the Revolving Credit Commitments, the
Tranche A Term Loan Commitments and the Tranche B Term Loan Commitments.
"Control" "means the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
"Credit Parties" means NCI and the Restricted Companies.
"Current-Pay Indebtedness" means, on any date, any
Indebtedness that by its terms requires payment of Cash-Pay Interest at any
time during the twelve-month period commencing on such date.
"Debt Service" "means, for any period, the sum for the
Restricted Companies (or, as the case may be, for NCI and the Restricted
Companies) of the following: (a) the amount, if any, by which the aggregate
principal amount of Revolving Credit Loans (and, if applicable, Incremental
Facility Loans that are in the form of revolving credit loans) outstanding
hereunder at the beginning of such period shall exceed the aggregate amount of
the Revolving Credit Commitments (and commitments to make Incremental Facility
Loans that are to be revolving credit loans) scheduled pursuant to Section 2.07
(or pursuant to the provisions of this Agreement
Credit Agreement
<PAGE> 14
-8-
applicable to reductions of commitments for Incremental Facility Loans that are
to be revolving credit loans) to be in effect at the end of such period plus
(b) all regularly scheduled payments or regularly scheduled mandatory
prepayments of principal of any other Indebtedness (including the Tranche A
Term Loans, Tranche B Term Loans and, if applicable, Incremental Facility Loans
that are in the form of term loans, and the principal component of any payments
in respect of Capital Lease Obligations, but excluding any prepayments made
pursuant to Section 2.09) made during such period plus (c) all Interest Expense
for such period. "Debt Service" for the Restricted Companies shall be
determined on a combined basis, and for NCI and the Restricted Companies shall
be determined on a consolidated basis (excluding the Unrestricted Companies),
in each case without duplication in accordance with GAAP.
"Default" means any event or condition which constitutes an
Event of Default or which upon notice, lapse of time or both would, unless
cured or waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings
and the environmental matters disclosed in Schedule 4.06.
"Disposition" means any sale, assignment, transfer or other
disposition of any property (whether now owned or hereafter acquired) by any
Restricted Company to any other Person excluding (a) any sale, assignment,
transfer or other disposition of any property sold or disposed of in the
ordinary course of business and on ordinary business terms, (b) any sale of
Off-Balance Sheet Equipment pursuant to a transaction permitted under Section
7.03(i) and (c) any sale, assignment, transfer or other disposition of
Off-Balance Sheet Assets pursuant to an Off-Balance Sheet Transaction or of
Non-Core Assets.
"Disposition Investment" means, with respect to any
Disposition, any promissory notes or other evidences of indebtedness or
Investments received by the Restricted Companies in connection with such
Disposition.
"Effective Date" means the date on which the conditions
specified in Section 5.01 are satisfied (or waived in accordance with Section
10.02).
"Enhanced SMR System" means a wide-area network of specialized
mobile radio base stations that employs digital and other advanced, spectrally
efficient communications technologies to provide a full range of communications
services including voice, dispatch, interconnected telephone and data services.
"Environmental Laws" means all laws, rules, regulations,
policies, codes, ordinances, orders, decrees, judgments, injunctions, notices
or binding agreements issued, promulgated or entered into by any Governmental
Authority, relating in any way to the
Credit Agreement
<PAGE> 15
-9-
environment, preservation or reclamation of natural resources, the management,
release or threatened release of any Hazardous Material or to health and safety
matters, including FCC rules and policies concerning RF Emissions.
"Environmental Liability" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of any Restricted Company
directly or indirectly resulting from or based upon (a) violation of any
Environmental Law, (b) the generation, use, handling, transportation, storage,
treatment or disposal of any Hazardous Materials or RF Emissions, (c) exposure
to any Hazardous Materials or RF Emissions, (d) the release or threatened
release of any Hazardous Materials into the environment or (e) any contract,
agreement or other consensual arrangement pursuant to which liability is
assumed or imposed with respect to any of the foregoing.
"Equity Rights" means, with respect to any Person, any
subscriptions, options, warrants, commitments, preemptive rights or agreements
of any kind (including any stockholders' or voting trust agreements) for the
issuance or sale of, or securities convertible into, any additional shares of
capital stock of any class, or partnership or other ownership interests of any
type in, such Person.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" "means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived), (b)
the existence with respect to any Plan of an "accumulated funding deficiency"
(as defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived, (c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan, (d) the incurrence by the Borrower or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the
termination of any Plan, (e) the receipt by the Borrower or any ERISA Affiliate
from the PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan, (f)
the incurrence by the Borrower or any of its ERISA Affiliates of any liability
with respect to the withdrawal or partial withdrawal from any Plan or
Multiemployer Plan, or (g) the receipt by the Borrower or any ERISA Affiliate
of any notice, or the receipt by any Multiemployer Plan from the Borrower or
any ERISA Affiliate of any notice, concerning the imposition of Withdrawal
Liability or a
Credit Agreement
<PAGE> 16
-10-
determination that a Multiemployer Plan is, or is expected to be, insolvent or
in reorganization, within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are
bearing interest at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in
Article VIII.
"Excess Cash Flow" means, for any fiscal year of the
Restricted Companies, the excess of (a) Operating Cash Flow for such fiscal
year over (b) the sum of (i) Debt Service for the Restricted Companies for such
fiscal year plus (ii) the aggregate amount of all Capital Expenditures for the
Restricted Companies made during such fiscal year, except for any such Capital
Expenditures to the extent financed with the proceeds of Indebtedness incurred
pursuant to Section 7.01(g) during such fiscal year and that is secured by
Liens permitted under Section 7.02(f) plus (iii) the aggregate amount paid, or
required to be paid, in cash in respect of income taxes during such fiscal year
plus (iv) $10,000,000.
"Excluded Subsidiary" means any subsidiary of a Restricted
Company as to which no holder or holders of any Indebtedness of any of the
Credit Parties (other than Indebtedness hereunder) shall have the right (upon
notice, lapse of time or both), which right shall not have been waived, to
declare a default in respect of such Indebtedness, or to cause the payment
thereof to be accelerated or payable prior to its final scheduled maturity, by
reason of the occurrence of a default with respect to any Indebtedness of such
subsidiary.
"Excluded Taxes" means, with respect to either Agent, any
Lender, any Issuing Bank or any other recipient of any payment to be made by or
on account of any obligation of the Borrower hereunder, (a) income, net worth
or franchise taxes imposed on (or measured by) its net income or net worth by
the United States of America, or by the jurisdiction under the laws of which
such recipient is organized or in which its principal office is located or, in
the case of any Lender, in which its applicable lending office is located, (b)
any branch profits taxes imposed by the United States of America or any similar
tax imposed by any other jurisdiction in which the Borrower is located and (c)
in the case of a Foreign Lender (other than an assignee pursuant to a request
by the Borrower under Section 2.17(b)), any withholding tax that is imposed on
amounts payable to such Foreign Lender at the time such Foreign Lender becomes
a party to this Agreement or is attributable to such Foreign Lender's failure
or inability to comply with Section 2.15(e), except to the extent that such
Foreign Lender's assignor (if any) was entitled, at the time of assignment, to
receive additional amounts from the Borrower with respect to such withholding
tax pursuant to Section 2.15(a).
Credit Agreement
<PAGE> 17
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"Existing Credit Agreement" means the Credit Agreement dated
as of September 27, 1996 between NCI, the Restricted Companies, certain
lenders, Toronto Dominion (Texas) Inc., as Administrative Agent, and The Chase
Manhattan Bank, as Collateral Agent.
"Existing Public Notes" "means the Public Notes outstanding on
the date hereof, i.e. the Public Notes issued pursuant to the indentures
identified in clauses (a) through (h) of the definition of "Public Note
Indentures" in this Section 1.01.
"Existing Vendor Financing Agreements" means, collectively,
(a) the Amended, Restated and Consolidated Credit Agreement dated as of
September 27, 1996 among NCI, the Borrower and the other Restricted Companies
party thereto and the Vendors party thereto and (b) the Second Secured Vendor
Financing Agreement dated as of August 29, 1997 among NCI, the Borrower and the
other Restricted Companies party thereto and the Vendor Lenders party thereto.
"FCC" means the Federal Communications Commission or any
United States Governmental Authority substituted therefor.
"FCC License" means any paging, mobile telephone, specialized
mobile radio, microwave or other license, permit, consent, certificate of
compliance, franchise, approval, waiver or authorization granted or issued by
the FCC, including any of the foregoing authorizing or permitting the
acquisition, construction or operation of an SMR System, radio paging system,
mobile telephone system or other radio communications system.
"February 1994 Indenture" "means the Indenture referred to in
clause (d) of the definition of the term "Public Note Indentures" in this
Section 1.01.
"Federal Funds Effective Rate" means, for any day, the
weighted average (rounded upwards, if necessary, to the next 1/100 of l%) of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for
such day for such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it.
"Final Order" means an action by any Governmental Authority
that has not been reversed, stayed, enjoined, set aside, annulled, or
suspended, and with respect to which no requests are pending for administrative
or judicial review, reconsideration, appeal, or stay, and the time for filing
any such requests and the time for such Governmental Authority to set aside the
action on its own motion have expired.
Credit Agreement
<PAGE> 18
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"Financial Officer" means, with respect to NCI or the
Borrower, the chief financial officer, principal accounting officer, treasurer
or controller of NCI or the Borrower, as the case may be.
"First Tier Restricted Company" means any Restricted Company
that is not a Wholly Owned Subsidiary of one or more other Restricted
Companies.
"Fixed Charges Ratio" means, as at the last day of any fiscal
quarter, the ratio of (a) the sum of (i) Annualized Operating Cash Flow as at
such day plus (ii) the aggregate unutilized amount of the Commitments hereunder
as at such day plus (iii) the amount of cash and cash equivalents held by NCI
and the Restricted Companies on such day to (b) the sum of (i) Debt Service for
NCI and the Restricted Companies for the period of four fiscal quarters ending
on such day plus (ii) the aggregate amount of Capital Expenditures for NCI and
the Restricted Companies made during such period, except for any such Capital
Expenditures to the extent financed with the proceeds of Indebtedness incurred
pursuant to Section 7.01(g) during such fiscal year and that is secured by
Liens permitted under Section 7.02(f) plus (iii) the aggregate amount of
Federal, state and local income taxes paid by NCI and its subsidiaries in
respect of such period.
"Foreign Lender" means any Lender that is organized under the
laws of a jurisdiction other than that in which the Borrower is located. For
purposes of this definition, the United States of America, each State thereof
and the District of Columbia shall be deemed to constitute a single
jurisdiction.
"GAAP" means generally accepted accounting principles in the
United States of America.
"Governmental Authority" means the government of the United
States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
"Guarantee" "of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having
the economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or
Credit Agreement
<PAGE> 19
-13-
services for the purpose of assuring the owner of such Indebtedness or other
obligation of the payment thereof, (c) to maintain working capital, equity
capital or any other financial statement condition or liquidity of the primary
obligor so as to enable the primary obligor to pay such Indebtedness or other
obligation or (d) as an account party in respect of any letter of credit or
letter of guaranty issued to support such Indebtedness or obligation; provided,
that the term Guarantee shall not include endorsements for collection or
deposit in the ordinary course of business.
"Hazardous Materials" means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon gas, infectious or
medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.
"Hedging Agreement" means any interest rate protection
agreement, foreign currency exchange agreement, commodity price protection
agreement or other interest or currency exchange rate or commodity price
hedging arrangement.
"Incremental Facility Loan" has the meaning assigned to such
term in Section 7.01(e).
"Indebtedness" of any Person means, without duplication, (a)
all obligations of such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of property to another Person
subject to an understanding or agreement, contingent or otherwise, to
repurchase such property from such Person), (b) all obligations of such Person
evidenced by bonds, debentures, notes or similar instruments, (c) all
obligations of such Person under conditional sale or other title retention
agreements relating to property acquired by such Person, (d) all obligations of
such Person in respect of the deferred purchase price of property or services
(excluding current accounts payable incurred in the ordinary course of
business), (e) all Indebtedness of others secured by (or for which the holder
of such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien on property owned or acquired by such Person, whether or
not the Indebtedness secured thereby has been assumed, (f) all Guarantees by
such Person of Indebtedness of others, (g) all Capital Lease Obligations of
such Person, (h) all obligations, contingent or otherwise, of such Person as an
account party in respect of letters of credit and letters of guaranty, (i) all
obligations, contingent or otherwise, of such Person in respect of bankers'
acceptances and (j) in the case of the Restricted Companies, the recourse
portion, if any, of the Indebtedness of Off-Balance Sheet Companies. The
Indebtedness of any Person shall include the Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such Person's ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor.
Credit Agreement
<PAGE> 20
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"Indemnified Taxes" means all Taxes other than (a) Excluded
Taxes and Other Taxes and (b) amounts constituting penalties or interest
imposed with respect to Excluded Taxes or Other Taxes.
"Information Memorandum" means the Information Memorandum
dated January 1998 prepared by NCI in connection with the syndication of the
Commitments hereunder.
"Interest Coverage Ratio" means, as at any day, the ratio of
(a) Annualized Operating Cash Flow as at such day to (b) Interest Expense for
NCI and the Restricted Companies for the period of four fiscal quarters ending
on or most recently ended prior to such day.
"Interest Expense" "means, for any period, the following:
(a) in the case of the Restricted Companies, the sum of (i)
all interest and fees in respect of Indebtedness accrued or
capitalized during such period, including the interest component of
any payments in respect of Capital Lease Obligations, but excluding
any interest not required to be paid in cash during such period, plus
(ii) all Restricted Payments made by any Restricted Company to NCI
during such period to enable NCI to pay interest in respect of
Indebtedness of NCI, as permitted by Section 7.05(b), plus (iii) the
net amount payable (or minus the net amount receivable) under Hedging
Agreements during such period (whether or not actually paid or
received during such period); and
(b) in the case of NCI and the Restricted Companies, the sum
of (i) all interest and fees in respect of Indebtedness accrued or
capitalized during such period, including the interest component of
any payments in respect of Capital Lease Obligations, but excluding
any interest not required to be paid in cash during such period, plus
(ii) the net amount payable (or minus the net amount receivable) under
Hedging Agreements during such period (whether or not actually paid or
received during such period).
"Interest Expense" for the Restricted Companies shall be determined on a
combined basis, and for NCI and the Restricted Companies shall be determined on
a consolidated basis (excluding the Unrestricted Companies), in each case
without duplication in accordance with GAAP.
"Interest Election Request" means a request by the Borrower to
convert or continue a Borrowing in accordance with Section 2.06.
"Interest Payment Date" means (a) with respect to any Base
Rate Loan, each Quarterly Date and (b) with respect to any Eurodollar Loan, the
last Business Day of the Interest
Credit Agreement
<PAGE> 21
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Period applicable to the Borrowing of which such Loan is a part and, in the
case of a Eurodollar Borrowing with an Interest Period of more than three
months' duration, each Business Day prior to the last day of such Interest
Period that occurs at intervals of three months' duration after the first day
of such Interest Period.
"Interest Period" means with respect to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing and ending on
the numerically corresponding day in the calendar month that is one, two, three
or six months (or, with the consent of each Lender of the relevant Class,
twelve months) thereafter, as the Borrower may elect; provided, that (i) if any
Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day and (ii) any
Interest Period that commences on the last Business Day of a calendar month (or
on a day for which there is no numerically corresponding day in the last
calendar month of such Interest Period) shall end on the last Business Day of
the last calendar month of such Interest Period. For purposes hereof, the date
of a Borrowing initially shall be the date on which such Borrowing is made and
thereafter shall be the effective date of the most recent conversion or
continuation of such Borrowing. Notwithstanding the foregoing,
(v) if any Interest Period for any Revolving Credit Borrowing
would otherwise end after the Revolving Credit Maturity Date, such
Interest Period shall end on the Revolving Credit Maturity Date,
(w) no Interest Period for any Revolving Credit Borrowing may
commence before and end after any Revolving Credit Commitment
Reduction Date unless, after giving effect thereto, the aggregate
principal amount of Revolving Credit Loans having Interest Periods
that end after such Revolving Credit Commitment Reduction Date shall
be equal to or less than the aggregate principal amount of Revolving
Credit Loans scheduled to be outstanding after giving effect to the
payments of principal required to be made on such Revolving Credit
Commitment Reduction Date,
(x) no Interest Period for any Tranche A Term Loan Borrowing
may commence before and end after any Principal Payment Date unless,
after giving effect thereto, the aggregate principal amount of the
Tranche A Term Loans having Interest Periods that end after such
Principal Payment Date shall be equal to or less than the aggregate
principal amount of the Tranche A Term Loans scheduled to be
outstanding after giving effect to the payments of principal required
to be made on such Principal Payment Date,
(y) no Interest Period for any Tranche B Term Loan Borrowing
may commence before and end after any Principal Payment Date unless,
after giving effect thereto, the aggregate principal amount of the
Tranche B Term Loans having Interest Periods that end
Credit Agreement
<PAGE> 22
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after such Principal Payment Date shall be equal to or less than the
aggregate principal amount of the Tranche B Term Loans scheduled to be
outstanding after giving effect to the payments of principal required
to be made on such Principal Payment Date, and
(z) notwithstanding the foregoing clauses (v), (w), (x) and
(y), no Interest Period shall have a duration of less than one month
and, if the Interest Period for any Eurodollar Loan would otherwise be
a shorter period, such Loan shall not be available hereunder as a
Eurodollar Loan for such period.
"Issuing Banks" mean Barclays Bank PLC, The Chase Manhattan
Bank, Morgan Guaranty Trust Company of New York, NationsBank of Texas, N.A. and
The Toronto-Dominion Bank, in their capacity as the issuers of Letters of
Credit hereunder.
"January 1994 Indenture" means the Indenture referred to in
clause (c) of the definition of the term "Public Note Indentures" in this
Section 1.01.
"Joinder Agreement" means a Joinder Agreement substantially in
the form of Exhibit D.
"LC Disbursement" means a payment made by an Issuing Bank
pursuant to a Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate
undrawn amount of all outstanding Letters of Credit at such time plus (b) the
aggregate amount of all LC Disbursements that have not yet been reimbursed by
or on behalf of the Borrower at such time. The LC Exposure of any Revolving
Credit Lender at any time shall be its Applicable Percentage of the total LC
Exposure at such time.
"Lenders" "means (a) the Persons listed on Schedule 2.01, (b)
any Person that shall agree to become a party hereto as a "Lender" hereunder
with a commitment to make Incremental Facility Loans hereunder pursuant to an
amendment to this Agreement as contemplated by Section 7.01(e) and (c) any
other Person that shall have become a party hereto pursuant to an Assignment
and Acceptance, other than any such Person that ceases to be a party hereto
pursuant to an Assignment and Acceptance.
"Letter of Credit" means any letter of credit issued pursuant
to this Agreement.
"Letter of Credit Account" has the meaning assigned to such
term in the Restricted Company Guarantee and Security Agreement.
Credit Agreement
<PAGE> 23
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"LIBO Rate" means, with respect to any Eurodollar Borrowing
for any Interest Period, the rate appearing on Page 3750 of the Telerate
Service (or on any successor or substitute page of such Service, or any
successor to or substitute for such Service, providing rate quotations
comparable to those currently provided on such page of such Service, as
determined by the Administrative Agent from time to time for purposes of
providing quotations of interest rates applicable to U.S. dollar deposits in
the London interbank market) at approximately 11:00 a.m., London time, two
Business Days prior to the commencement of such Interest Period, as the rate
for U.S. dollar deposits with a maturity comparable to such Interest Period.
In the event that such rate is not available at such time for any reason, then
the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest
Period shall be the rate at which U.S. dollar deposits of $5,000,000, and for a
maturity comparable to such Interest Period, are offered by the principal
London office of the Administrative Agent in immediately available funds in the
London interbank market at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period.
"License Company" means any Restricted Company that holds any
FCC Licenses or PUC Authorizations.
"Lien" means, with respect to any asset, (a) any mortgage,
deed of trust, lien, pledge, hypothecation, encumbrance, charge or security
interest in, on or of such asset, (b) the interest of a vendor or a lessor
under any conditional sale agreement, capital lease or title retention
agreement (or any financing lease having substantially the same economic effect
as any of the foregoing) relating to such asset and (c) in the case of
securities, any purchase option, call or similar right of a third party (other
than a Restricted Company) with respect to such securities.
"loaded" means, with respect to any SMR License, that the
number of units (described as mobile stations within the meaning of Part 90)
receiving communications services pursuant to such SMR License is sufficient to
satisfy, with respect to each channel authorized by such SMR License, any
applicable loading requirements contained in Part 90 after giving effect to any
valid repeal, waiver, exemption, extension or similar action or relief taken or
granted by the FCC and applicable to such SMR License but only to the extent
such repeal, waiver, exemption, extension or similar action or relief is and
remains in full force and effect. The term "loading" used as an adjective
shall have a correlative meaning.
"Loan Documents" means this Agreement, any promissory notes
evidencing Loans hereunder and the Security Documents.
"Loans" means the loans made by the Lenders to the Borrower
pursuant to this Agreement.
Credit Agreement
<PAGE> 24
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"Material Adverse Effect" means a material adverse effect on
(a) the business, assets, operations, prospects or condition, financial or
otherwise, of NCI and its subsidiaries, or of the Restricted Companies, in each
case taken as a whole, (b) the ability of any of NCI and the Restricted
Companies to perform any of their respective obligations under this Agreement
or the other Loan Documents or (c) the rights of or benefits available to the
Lenders under this Agreement and the other Loan Documents.
"Material Indebtedness" "means Indebtedness (other than the
Loans or Letters of Credit), or obligations in respect of one or more Hedging
Agreements, of any one or more of the Credit Parties (or of any subsidiary of
any Restricted Company, other than an Excluded Subsidiary) in an aggregate
principal amount exceeding $10,000,000. For purposes of determining Material
Indebtedness, the "principal amount" of the obligations of any Person in
respect of any Hedging Agreement at any time shall be the maximum aggregate
amount (giving effect to any netting agreements) that such Person would be
required to pay if such Hedging Agreement were terminated at such time.
"Mobile Communications Business" means the business consisting
of (a) owning, operating or managing one or more SMR Systems and (b) to the
extent ancillary thereto and not constituting a material part of the operations
as a whole, other communications businesses related thereto which utilize the
training or resources appurtenant to the operation of an SMR System, including
radio paging services or sales or servicing of radio equipment or mechanical
parts and mobile telephone services, provided that such term shall not include
the ownership, operation or management of licenses for 1.8 GHz "personal
communications services" pursuant to Part 24.
"Mortgages" means, collectively, one or more assignments of
lease, mortgages, deeds of trust, deeds to secure debt and similar instruments
executed by a Restricted Company in favor of the Collateral Agent (or a trustee
for the benefit of the Collateral Agent), and covering interests in real
property held by such Restricted Company as collateral security for the
"Secured Obligations" under and as defined in the Restricted Company Guarantee
and Security Agreement, in each case in such form as shall be satisfactory to
the Collateral Agent.
"Motorola" means Motorola, Inc., a Delaware corporation.
"Multiemployer Plan" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"NCI" means Nextel Communications, Inc., a Delaware
corporation.
"Net Cash Payments" means, with respect to any Disposition,
the aggregate amount of all cash payments received by the Restricted Companies
directly or indirectly in connection with such Disposition, whether at the time
of such Disposition or after such
Credit Agreement
<PAGE> 25
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Disposition under deferred payment arrangements or Investments entered into or
received in connection with such Disposition (including Disposition
Investments); provided that
(a) Net Cash Payments shall be net of (i) the amount of any
legal, title and recording tax expenses, commissions and other fees
and expenses payable by the Restricted Companies in connection with
such Disposition and (ii) any Federal, state and local income or other
taxes estimated to be payable by the Restricted Companies as a result
of such Disposition, but only to the extent that on the date of such
Disposition the Borrower delivers a certificate of a Financial Officer
setting forth a calculation of the amount of such estimated taxes and
delivers an amount of such Net Cash Payments equal to such estimated
taxes to the Collateral Agent to be held in the Tax Proceeds Account
until such payment of taxes is in fact made, it being understood that
to the extent the amount so deposited is not applied to such payment
of taxes by the March 15 of the year immediately following the fiscal
year in which such Disposition shall have occurred, the remaining
balance shall be treated as "Net Cash Payments" for purposes of this
Agreement and shall be applied in accordance with the provisions of
Section 2.09(b)(ii) (and, in the event the Borrower shall elect,
pursuant to Section 2.09(b)(ii)(y) to reinvest such remaining balance
into replacement assets, the twelve-month period provided for in
Section 2.09(b)(ii)(z) shall be measured from such March 15), and
(b) Net Cash Payments shall be net of any repayments by the
Restricted Companies of Indebtedness or other obligations to the
extent that (i) such Indebtedness or other obligations is secured by a
Lien on the property that is the subject of such Disposition and the
transferee of (or holder of a Lien on) such property requires that
such Indebtedness or other obligations be repaid as a condition to the
purchase of such property or (ii) such Indebtedness or other
obligations requires that it be repaid as a condition to such
Disposition.
"Net Income" means, for any period, the net income of the
Restricted Companies (determined on a combined basis without duplication in
accordance with GAAP) and treating as operating expenses all amounts paid by
the Restricted Companies to NCI pursuant to the Overhead Services Agreement.
"Network Subscriber Units" means, as at any date, the
aggregate number of digital subscriber units in service of the Restricted
Companies, determined as at such date in a manner consistent with the
methodology used in reporting the number of such units on the reports filed by
NCI with the Securities and Exchange Commission, multiplied by a fraction, the
numerator of which is the aggregate amount of accounts receivable of the
Restricted Companies arising from such subscribers net of the aggregate amount
of such accounts receivable that are more than 90 days past due, and the
denominator of which is such aggregate amount of accounts receivable.
Credit Agreement
<PAGE> 26
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"Non-Core Assets" means, collectively, (a) any 900 MHz SMR
Licenses held by the Restricted Companies in any U.S. market, together with
any related assets utilized in conjunction with such 900 MHz SMR Licenses to
provide analog two-way dispatch or interconnect services, and (b) any 800 MHz
SMR Licenses held by the Restricted Companies, together with any related assets
utilized in conjunction with such 800 MHz SMR Licenses to provide analog
two-way dispatch or interconnect services and up to $20,000,000 (calculated
based on original purchase price or other acquisition cost) of miscellaneous
digital Enhanced SMR System-based network equipment, in each case in any U.S.
market outside of the key markets set forth in Schedule 1.01.
"Non-Core Company" "means (a) any Restricted Company, or
newly-formed or acquired subsidiary of a Restricted Company, designated as a
"Non-Core Company" in accordance with the provisions of Section 6.13(b) and (b)
any subsidiary of a Non-Core Company. As of the date hereof, no Non-Core
Companies have been designated.
"Off-Balance Sheet Assets" means, collectively, Off-Balance
Sheet Receivables and Off-Balance Sheet Equipment.
"Off-Balance Sheet Company" means (a) any newly-formed
subsidiary of a Restricted Company, designated as an "Off-Balance Sheet
Company" in accordance with the provisions of Section 6.13(b) and (b) any
subsidiary of an Off-Balance Sheet Company. As of the date hereof, no
Off-Balance Sheet Companies have been designated.
"Off-Balance Sheet Equipment" means subscriber equipment sold
or leased to customers of the Restricted Companies.
"Off-Balance Sheet Receivables" means customer lease contracts
(and related rental payments), or the portion of the accounts receivable and
related payments due under the terms of customer service contracts, or as set
forth in customer account statements, that are attributable to the rental or
leasing of subscriber equipment leased to customers of the Restricted
Companies.
"Off-Balance Sheet Transaction" "means any sale, transfer or
other assignment of Off-Balance Sheet Assets to facilitate "off-balance sheet"
or other secured financings of such Off-Balance Sheet Assets, excluding,
however, any sale of Off-Balance Sheet Equipment pursuant to a transaction
permitted under Section 7.03(i).
"Operating Cash Flow" means, for any period, the sum, for the
Restricted Companies (determined on a combined basis without duplication in
accordance with GAAP), of the following (in each case adjusted to exclude all
extraordinary and unusual items, income or loss attributable to equity in
affiliates and non-cash minority interest payments and receipts): (a)
Credit Agreement
<PAGE> 27
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Net Income for such period plus (b) income tax expense and Interest Expense (to
the extent deducted in determining Net Income) for such period plus (c)
depreciation, amortization and other non-cash charges (to the extent deducted
in determining Net Income) for such period.
"Other Taxes" means any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or from the execution, delivery
or enforcement of, or otherwise with respect to, this Agreement and the other
Loan Documents, provided that there shall be excluded from "Other Taxes" all
Excluded Taxes.
"Overhead Services Agreement" means the Overhead Services
Agreement dated as of September 27, 1996 between the Restricted Companies and
NCI.
"Part 24" means 47 CFR Part 24 of the Rules and Regulations of
the FCC in effect from time to time or such other parts or subparts that may be
substituted for or combined with said Part 24.
"Part 90" means 47 CFR Part 90 of the Rules and Regulations of
the FCC in effect from time to time or such other parts or subparts that may be
substituted for or combined with said Part 90.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA and any successor entity performing similar functions.
"Permanent Equity Capital" means equity capital contributed to
any of the Restricted Companies in cash that is either (a) designated as such
pursuant to Section 4.15(b) or (b) in the case of any such capital contributed
after the date hereof, is designated, at the time of such contribution or at
any time thereafter, as "Permanent Equity Capital" for purposes of this
Agreement in a certificate of a Financial Officer of NCI delivered to each of
the Agents.
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not yet due or
are being contested in compliance with Section 6.04;
(b) carriers', warehousemen's, mechanics', landlord's,
lessor's, materialmen's, repairmen's and other like Liens imposed by
law, arising in the ordinary course of business and securing
obligations that are not overdue by more than 30 days or are being
contested in compliance with Section 6.04;
Credit Agreement
<PAGE> 28
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(c) pledges and deposits made in the ordinary course of
business in compliance with workers compensation, unemployment
insurance and other social security laws or regulations;
(d) deposits to secure the performance of bids, trade
contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case
in the ordinary course of business;
(e) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the
ordinary course of business that do not secure any monetary
obligations and do not materially detract from the value of the
affected property or interfere with the ordinary conduct of business
of any Restricted Company;
(f) subleases of property with respect to which a Restricted
Company is the primary lessee, to the extent such subleases arise in
the ordinary course of business and do not interfere in any material
respect with the business of any Restricted Company;
(g) precautionary Uniform Commercial Code filings made with
respect to office and similar equipment (but excluding equipment used
in the operation of the Mobile Communications Business of the
Restricted Companies), or vehicles, leased to the Restricted Companies
in the ordinary course of business under operating leases (i.e. leases
not giving rise to Capital Lease Obligations); and
(h) Uniform Commercial Code filings made with respect to the
sale or assignment of Off-Balance Sheet Receivables in connection with
Off-Balance Sheet Transactions permitted hereunder;
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of
and interest on which are unconditionally guaranteed by, the United
States of America (or by any agency thereof to the extent such
obligations are backed by the full faith and credit of the United
States of America), in each case maturing within one year from the
date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days
from the date of acquisition thereof and having, at such date of
acquisition, the highest credit rating
Credit Agreement
<PAGE> 29
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obtainable from Standard and Poor's Ratings Service or from Moody's
Investors Service, Inc.;
(c) investments in certificates of deposit, banker's
acceptances and time deposits maturing within 180 days from the date
of acquisition thereof issued or guaranteed by or placed with, and
money market deposit accounts issued or offered by, (i) any domestic
office of any commercial bank organized under the laws of the United
States of America or any State thereof, which has a combined capital
and surplus and undivided profits of not less than $250,000,000 or
(ii) any office of any of the Arrangers (or NationsBank, N.A.) located
in the United Kingdom or the Bahamas; and
(d) fully collateralized repurchase agreements with a term of
not more than 30 days for securities described in clause (a) above and
entered into with a financial institution satisfying the criteria
described in clause (c) above.
"Person" means any natural person, corporation, limited
liability company, trust, joint venture, association, company, partnership,
Governmental Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower
or any ERISA Affiliate is (or, if such plan were terminated, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5)
of ERISA.
"Planned Option Issuances" means the warrants, options and
other rights to acquire shares of stock of NCI set forth in Part A of Schedule
4.15.
"Population" means, as at any date and for any area, the
population of such area as reflected in the 1997 Demographics Projections
prepared by National Decision Systems based on the 1990 census data of the
United States Census Bureau.
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by The Toronto-Dominion Bank, as its prime rate in
effect at its principal office in New York City; each change in the Prime Rate
shall be effective from and including the date such change is publicly
announced as being effective.
"Principal Payment Dates" means the Quarterly Dates falling on
or nearest to March 31, June 30, September 30 and December 31 of each year,
commencing with September 30, 2001 through and including September 30, 2006.
Credit Agreement
<PAGE> 30
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"Pro-Forma Debt Service" means, as at the last day of any
fiscal quarter, the sum, for NCI and the Restricted Companies (determined on a
consolidated basis without duplication in accordance with GAAP), of the
following: (a) the amount, if any, by which the aggregate principal amount of
Revolving Credit Loans (and, if applicable, Incremental Facility Loans that are
in the form of revolving credit loans) outstanding hereunder on such day
exceeds the aggregate amount of the Revolving Credit Commitments (and
commitments to make Incremental Facility Loans that are to be revolving credit
loans) scheduled pursuant to Section 2.07 (or pursuant to the provisions of
this Agreement applicable to reductions of commitments for Incremental Facility
Loans that are to be revolving credit loans) to be in effect at the last day of
the immediately succeeding four fiscal quarters plus (b) all regularly
scheduled payments or regularly scheduled mandatory prepayments of principal of
any other Indebtedness (including the Tranche A Term Loans, Tranche B Term
Loans and, if applicable, Incremental Facility Loans that are in the form of
term loans, and the principal component of any payments in respect of Capital
Lease Obligations, but excluding any prepayments made pursuant to Section 2.09)
required to be made during the immediately succeeding four fiscal quarters plus
(d) all Interest Expense for NCI and the Restricted Companies projected to be
incurred during the immediately succeeding four fiscal quarters. In
determining Interest Expense for purposes of this definition, interest on a
floating rate basis for any current or future period shall be deemed to accrue
at a rate per annum equal to the higher of (i) the weighted average rate of
interest with respect to all Indebtedness of NCI and the Restricted Companies
in effect on the last day of the fiscal quarter as of which "Pro-Forma Debt
Service" is being determined and (ii) the weighted average rate of interest
with respect to such Indebtedness in effect during such fiscal quarter.
"Pro-Forma Debt Service Ratio" means, as at the last day of
any fiscal quarter, the ratio of (a) Annualized Operating Cash Flow as at such
day to (b) Pro-Forma Debt Service as at such day.
"Public Note Indentures" means, collectively, (a) the
Indenture dated as of August 15, 1993 between NCI and The Bank of New York, as
Trustee, (b) the Indenture dated as of December 22, 1993 between NCI (as
successor to Dial Call Communications, Inc.) and The Bank of New York, as
Trustee, (c) the Indenture dated as of January 13, 1994 between NCI (as
successor to CenCall Communications Corp.) and The Bank of New York, as
Trustee, (d) the Indenture dated as of February 15, 1994 between NCI and The
Bank of New York, as Trustee, (e) the Indenture dated as of April 24, 1994
between NCI (as successor to Dial Call Communications, Inc.) and The Bank of
New York, as Trustee, (f) the Indenture dated as of September 17, 1997 between
NCI and Harris Trust and Savings Bank, as Trustee, (g) the Indenture dated as
of October 22, 1997 between NCI and Harris Trust and Savings Bank, as Trustee,
(h) the Indenture dated as of February 11, 1998 between NCI and Harris Trust
and Savings Bank, as Trustee and (i) any other indenture or similar instrument
pursuant to which any Indebtedness of NCI is issued after the date hereof in a
registered public offering under the
Credit Agreement
<PAGE> 31
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Securities Act of 1933, or pursuant to Rule 144A under said Act, pursuant to
Section 7.01(b)(i) or 7.01(c).
"Public Notes" means, collectively, the respective Notes
issued pursuant to the Public Note Indentures.
"PUC" means any state regulatory agency or body that exercises
jurisdiction over the rates or services or the ownership, construction or
operation of any SMR System, cellular radio telecommunications system or
conventional mobile telephone system or over Persons who own, construct or
operate SMR Systems, cellular radio telecommunications systems or conventional
mobile telephone systems, in each case by reason of the nature or type of the
business subject to regulation and not pursuant to laws and regulations of
general applicability to Persons conducting business in said state.
"PUC Authorization" means any Authorization issued by a PUC.
"Purchase Price" means with respect to any acquisition under
Section 7.04(a)(viii), an amount equal to the sum of (i) the aggregate
consideration, whether cash, property or securities (including any Indebtedness
incurred pursuant to Section 7.01(g) hereof), paid or delivered by the
Restricted Companies in connection with such acquisition plus (ii) the
aggregate amount of liabilities of the acquired business (net of current assets
of the acquired business) that would be reflected on a balance sheet (if such
were to be prepared) of the Restricted Companies after giving effect to such
acquisition.
"Qualifying Debt or Equity Issuance" means (a) the issuance or
incurrence by NCI after September 26, 1996 of Indebtedness permitted under
Section 7.01(b) or 7.01(c) (or, in the case of Indebtedness incurred prior to
the date hereof, under Section 7.01(c) or 7.01(d) of the Existing Credit
Agreement) and (b) the issuance or sale by NCI of (i) any shares of capital
stock (including any such shares issued upon the exercise or conversion of any
existing warrants, options or other rights to acquire shares of capital stock),
(ii) any warrants or options exercisable in respect of capital stock or (iii)
any other security or instrument representing an equity interest (or the right
to obtain any equity interest) in NCI.
"Quarterly Dates" means the last Business Day of March, June,
September and December in each year, the first of which shall be the first such
day after the date of this Agreement.
"Register" has the meaning assigned to such term in Section
10.04.
Credit Agreement
<PAGE> 32
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"Related Parties" means, with respect to any specified Person,
such Person's Affiliates and the respective directors, trustees, officers,
employees, agents and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having Loans,
LC Exposure and unused Commitments representing at least 51% of the sum of the
total Loans, LC Exposure and unused Commitments at such time.
"Required Revolving Credit Lenders" means, at any time,
Lenders having Revolving Credit Loans, LC Exposure and unused Revolving Credit
Commitments representing at least 51% of the sum of the total Revolving Credit
Loans, LC Exposure and unused Revolving Credit Commitments at such time.
"Required Tranche A Term Loan Lenders" means, at any time,
Lenders having Tranche A Term Loans and unused Tranche A Term Loan Commitments
representing at least 51% of the sum of the total Tranche A Term Loans and
unused Tranche A Term Loan Commitments at such time.
"Required Tranche B Term Loan Lenders" means, at any time,
Lenders having Tranche B Term Loans and unused Tranche B Term Loan Commitments
representing at least 51% of the sum of the total Tranche B Term Loans and
unused Tranche B Term Loan Commitments at such time.
"Reserved Commitment Amount" has the meaning assigned to such
term in Section 2.01(a).
"Restricted Company" "means the Borrower, the other Persons
listed on the signature pages hereto under the caption "RESTRICTED COMPANIES"
and each Person that becomes a Restricted Company after the date hereof
pursuant to Section 6.11. As provided in Section 6.11, none of the Non-Core
Companies or the Off-Balance Sheet Companies shall be "Restricted Companies".
"Restricted Company Guarantee and Security Agreement" means a
Guarantee and Security Agreement substantially in the form of Exhibit C between
the Restricted Companies and the Collateral Agent.
"Restricted Payment" means any dividend or other distribution
(whether in cash, securities or other property) with respect to any shares of
any class of capital stock of any Restricted Company, or any payment (whether
in cash, securities or other property), including any sinking fund or similar
deposit, on account of the purchase, redemption, retirement, acquisition,
cancellation or termination of any such shares of capital stock of any
Restricted
Credit Agreement
<PAGE> 33
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Company or any option, warrant or other right to acquire any such shares of
capital stock of any Restricted Company, but excluding any such dividend,
distribution or payment either (i) made solely in shares of its common stock or
(ii) made to any other Restricted Company.
"Revolving Credit Availability Period" means the period from
and including the Effective Date to but excluding the earlier of (a) the
Revolving Credit Maturity Date and (b) the date of termination of the Revolving
Credit Commitments.
"Revolving Credit Commitment" means, with respect to each
Lender, the commitment of such Lender to make Revolving Credit Loans and to
acquire participations in Letters of Credit hereunder, as such commitment may
be (a) reduced from time to time pursuant to Sections 2.07 and 2.09 and (b)
reduced or increased from time to time pursuant to assignments by or to such
Lender pursuant to Section 10.04. The initial amount of each Lender's
Revolving Credit Commitment is set forth on Schedule 2.01, or in the Assignment
and Acceptance pursuant to which such Lender shall have assumed its Revolving
Credit Commitment, as applicable. The aggregate original amount of the
Revolving Credit Commitments is $1,500,000,000.
"Revolving Credit Commitment Reduction Dates" means the
Quarterly Dates falling on or nearest to March 31, June 30, September 30 and
December 31 of each year, commencing with September 30, 2001, through and
including March 31, 2006.
"Revolving Credit Exposure" means, with respect to any
Revolving Credit Lender at any time, the sum of the outstanding principal
amount of such Lender's Revolving Credit Loans and its LC Exposure at such
time.
"Revolving Credit Lender" means (a) a Lender that has a
Revolving Credit Commitment set forth opposite its name on Schedule 2.01 and
(b) thereafter, the Lenders from time to time holding Revolving Credit Loans
and Revolving Credit Commitments, after giving effect to any assignments
thereof permitted by Section 10.04.
"Revolving Credit Loan" means a Loan made pursuant to Section
2.01(a) that utilizes the Revolving Credit Commitment.
"Revolving Credit Maturity Date" means the last Business Day
in March, 2006.
"RF Emissions" means radio frequency emissions governed by FCC
rules and policies.
"Sale Proceeds Reinvestment Account" has the meaning assigned
to such term in the Restricted Company Guarantee and Security Agreement.
Credit Agreement
<PAGE> 34
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"Secured Indebtedness" means, as at any day, all Indebtedness
of the Restricted Companies hereunder, and all other Indebtedness that is
secured by any Lien upon property of any of the Restricted Companies, including
all Capital Lease Obligations.
"Secured Indebtedness to Cash Flow Ratio" means, as at the
last day of any fiscal quarter, the ratio of (a) Secured Indebtedness as at
such day to (b) Annualized Operating Cash Flow as at such day.
"Secured Indebtedness to Revenue Ratio" means, as at any day,
the ratio of (a) Secured Indebtedness as at such day to (b) Annualized Revenue
as at such day.
"Security Documents" means the Restricted Company Guarantee
and Security Agreement, the Mortgages and all Uniform Commercial Code financing
statements required by any of such instruments to be filed with respect to the
security interests in personal property and fixtures created pursuant thereto.
"SMR License" means an FCC License authorizing the
construction, ownership and operation of an SMR System in the 800 or 900 MHz
band.
"SMR System" "means a specialized mobile radio system licensed
under Part 90, together with such other facilities from time to time licensed
or otherwise authorized by the FCC as shall be necessary to provide the
communications services to be offered by the Restricted Companies. The term
"SMR System" shall include an Enhanced SMR System using FCC Licenses in the 800
MHz or 900 MHz band.
"Special Counsel" means Milbank, Tweed, Hadley & McCloy, in
its capacity as special counsel to the Arrangers.
"Specified Default" means any Event of Default under paragraph
(a), (b), (d), (f), (g), (h) or (i) of Article VIII.
"Statutory Reserve Rate" "means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board to which the Administrative Agent is
subject for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of the Board). Such reserve percentages shall
include those imposed pursuant to such Regulation D. Eurodollar Loans shall be
deemed to constitute eurocurrency funding and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or offsets
that may be available from time to time to any Lender under such
Credit Agreement
<PAGE> 35
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Regulation D or any comparable regulation. The Statutory Reserve Rate shall be
adjusted automatically on and as of the effective date of any change in any
reserve percentage.
"subsidiary" means, with respect to any Person (the "parent")
at any date, any corporation, limited liability company, partnership,
association or other entity the accounts of which would be consolidated with
those of the parent in the parent's consolidated financial statements if such
financial statements were prepared in accordance with GAAP as of such date, as
well as any other corporation, limited liability company, partnership,
association or other entity (a) of which securities or other ownership
interests representing more than 50% of the ordinary voting power or, in the
case of a partnership, more than 50% of the general partnership interests are,
as of such date, owned, controlled or held, or (b) that is, as of such date,
otherwise Controlled, by the parent or one or more subsidiaries of the parent
or by the parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of the Borrower.
"Tax Proceeds Account" has the meaning assigned to such term
in the Restricted Company Guarantee and Security Agreement.
"Tax Sharing Agreement" "means the Tax Sharing Agreement dated
as of September 27, 1996 by and among NCI and the "Affiliated Corporations"
(including the Restricted Companies) therein referred to.
"Taxes" means any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any
Governmental Authority.
"Total Indebtedness" means, as at any day, all Indebtedness of
NCI and the Restricted Companies, determined on a consolidated basis (excluding
the Unrestricted Companies) without duplication in accordance with GAAP.
"Total Indebtedness to Cash Flow Ratio" means, as at the last
day of any fiscal quarter, the ratio of (a) Total Indebtedness as at such day
to (b) Annualized Operating Cash Flow as at such day.
"Tranche A Term Loan" means a Loan made pursuant to Section
2.01(b).
"Tranche A Term Loan Availability Period" means the period
from and including the Effective Date to and including the earlier of the date
180 days after the Effective Date (or, if such date is not a Business Day, the
next preceding Business Day) and the date of termination of the Tranche A Term
Loan Commitments.
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"Tranche A Term Loan Commitment" means, with respect to each
Lender, the commitment of such Lender to make Tranche A Term Loans hereunder,
as such commitment may be (a) reduced from time to time pursuant to Section
2.07 or Section 2.09 and (b) reduced or increased from time to time pursuant to
assignments by or to such Lender pursuant to Section 10.04. The initial amount
of each Lender's Tranche A Term Loan Commitment is set forth on Schedule 2.01,
or in the Assignment and Acceptance pursuant to which such Lender shall have
assumed its Tranche A Term Loan Commitment, as applicable. The aggregate
original amount of the Tranche A Term Loan Commitments is $500,000,000.
"Tranche A Term Loan Lender" means (a) a Lender that has a
Tranche A Term Loan Commitment set forth opposite its name on Schedule 2.01 and
(b) thereafter, the Lenders from time to time holding Tranche A Term Loans and
Tranche A Term Loan Commitments after giving effect to any assignments thereof
permitted by Section 10.04.
"Tranche B Term Loan" means a Loan made pursuant to Section
2.01(c).
"Tranche B Term Loan Commitment" means, with respect to each
Lender, the commitment of such Lender to make a Tranche B Term Loan hereunder.
The amount of each Lender's Tranche B Term Loan Commitment is set forth on
Schedule 2.01. The aggregate original amount of the Tranche B Term Loan
Commitments is $1,000,000,000.
"Tranche B Term Loan Lender" means (a) a Lender that has a
Tranche B Term Loan Commitment set forth opposite its name on Schedule 2.01 and
(b) thereafter, the Lenders from time to time holding Tranche B Term Loans
after giving effect to any assignments thereof permitted by Section 10.04.
"Transactions" means (a) with respect to the Borrower, the
execution, delivery and performance by the Borrower of the Loan Documents to
which it is a party, the borrowing of Loans and the use of the proceeds
thereof, and the issuance of Letters of Credit hereunder and (b) with respect
to any Credit Party (other than the Borrower), the execution, delivery and
performance by such Credit Party of the Loan Documents to which it is a party.
"Type", when used in reference to any Loan or Borrowing,
refers to whether the rate of interest on such Loan, or on the Loans comprising
such Borrowing, is determined by reference to the Adjusted LIBO Rate or the
Adjusted Base Rate.
"Unrestricted Companies" means each subsidiary of NCI other
than the Restricted Companies.
"U.S. dollars" or "$" refers to lawful money of the United
States of America.
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"Vendor Equipment Agreements" means the following agreements
(i) the Enhanced Specialized Mobile Radio System Equipment Purchase Agreement
dated as of November 1, 1991 between Motorola and NCI; (ii) the letter
agreement dated as of November 4, 1991 between Motorola and NCI; (iii)
Amendment to Purchase Agreements dated as of August 4, 1994 between Motorola
and NCI; (iv) Second Amendment to Purchase Agreements dated as of April 5, 1995
between Motorola and NCI; (v) Amendment 003 to Enhanced Specialized Mobile
Radio System Purchase Agreement dated as of March 25, 1995 between Motorola and
NCI; and (vi) Amendment 004 to Enhanced Specialized Mobile Radio System
Purchase Agreement dated as of April 28, 1996 between Motorola and NCI.
"Vendor Indebtedness" has the meaning assigned to such term in
Section 7.01(f).
"Wholly Owned Subsidiary" means, with respect to any Person at
any date, any corporation, limited liability company, partnership, association
or other entity of which securities or other ownership interests representing
100% of the equity or ordinary voting power (other than directors' qualifying
shares) or, in the case of a partnership, 100% of the general partnership
interests are, as of such date, directly or indirectly owned, controlled or
held by such Person or one or more Wholly Owned Subsidiaries of such Person or
by such Person and one or more Wholly Owned Subsidiaries of such Person.
"Withdrawal Liability" "means liability to a Multiemployer
Plan as a result of a complete or partial withdrawal from such Multiemployer
Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For
purposes of this Agreement, Loans may be classified and referred to by Class
(e.g., a "Revolving Credit Loan", "Tranche A Term Loan" or "Tranche B Term
Loan") or by Type (e.g., a "Base Rate Loan" or a "Eurodollar Loan") or by Class
and Type (e.g., a "Eurodollar Revolving Credit Loan" or a "Base Rate Revolving
Credit Loan"). In similar fashion, (i) Borrowings may be classified and
referred to by Class, by Type and by Class and Type, and (ii) Commitments may
be classified and referred to by Class.
SECTION 1.03. Terms Generally. The definitions of terms
herein shall apply equally to the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase
"without limitation". The word "will" shall be construed to have the same
meaning and effect as the word "shall". Unless the context requires otherwise
(a) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument
or other document as from time to time amended, supplemented or otherwise
modified (subject to any restrictions on such amendments, supplements or
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modifications set forth herein), (b) any reference herein to any Person shall
be construed to include such Person's successors and assigns, (c) the words
"herein", "hereof" and "hereunder", and words of similar import, shall be
construed to refer to this Agreement in its entirety and not to any particular
provision hereof, (d) all references herein to Articles, Sections, Exhibits and
Schedules shall be construed to refer to Articles and Sections of, and Exhibits
and Schedules to, this Agreement and (e) the words "asset" and "property" shall
be construed to have the same meaning and effect and to refer to any and all
tangible and intangible assets and properties, including cash, securities,
accounts and contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided
that, if the Borrower and NCI notify the Administrative Agent that the Borrower
and NCI request an amendment to any provision hereof to eliminate the effect of
any change occurring after the date hereof in GAAP or in the application
thereof on the operation of such provision (or if the Administrative Agent
notifies the Borrower and NCI that the Required Lenders request an amendment to
any provision hereof for such purpose), regardless of whether any such notice
is given before or after such change in GAAP or in the application thereof,
then such provision shall be interpreted on the basis of GAAP as in effect and
applied immediately before such change shall have become effective until such
notice shall have been withdrawn or such provision amended in accordance
herewith.
SECTION 1.05. Tax Sharing Agreement. Pursuant to the Tax
Sharing Agreement, the Restricted Companies have agreed to join the affiliated
group headed by NCI as "common parent" (within the meaning of Section 1504 of
the Code) in filing consolidated Federal, and (in certain circumstances) state
and local, income tax returns and have also agreed as to the amounts, if any,
that the Restricted Companies shall be obligated to pay to NCI in respect of
Federal, state and local income taxes (or the amounts that the Restricted
Companies shall be entitled to receive as refunds in respect of such taxes).
So long as the Restricted Companies shall be included in consolidated Federal,
state and local income tax returns filed by NCI pursuant to the Tax Sharing
Agreement, whenever making determinations under this Agreement of the amount of
such taxes payable during any period (or the amount of refunds in respect of
such taxes receivable during any period) by the Restricted Companies, the
amount of such taxes payable or receivable shall be deemed to be equal to the
amounts payable or receivable, as the case may be, in respect of such taxes
under the Tax Sharing Agreement without reference to whether NCI and its
subsidiaries as an affiliated group shall in fact pay any amounts in respect of
Federal, state and local income taxes (or receive any amounts in respect of
refunds of such taxes) during the relevant period.
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ARTICLE II
The Credits
SECTION 2.01. Commitments.
(a) Revolving Credit Loans. Subject to the terms and
conditions set forth herein, each Revolving Credit Lender agrees to make
Revolving Credit Loans to the Borrower from time to time during the Revolving
Credit Availability Period in an aggregate principal amount that will not
result in such Lender's Revolving Credit Loans exceeding such Lender's
Revolving Credit Commitment, provided that (i) the total Revolving Credit
Exposure shall not at any time exceed the total Revolving Credit Commitments
and (ii) no Revolving Credit Loans shall be made hereunder unless the Tranche B
Term Loan Commitments are borrowed in full on the Effective Date. Within the
foregoing limits and subject to the terms and conditions set forth herein, the
Borrower may borrow, prepay and reborrow Revolving Credit Loans.
Proceeds of Revolving Credit Loans shall be available for any
use permitted under the applicable provisions of Section 6.09, provided that,
in the event that as contemplated by Section 2.09(b)(ii), the Borrower shall
prepay Revolving Credit Loans from the proceeds of a Disposition hereunder,
then an amount of Revolving Credit Commitments, as specified by the Borrower
pursuant to the next sentence, equal to the amount of such prepayment (herein
the "Reserved Commitment Amount") shall be reserved and shall not be available
for borrowings hereunder except and to the extent that the proceeds of such
borrowings are to be applied to make acquisitions permitted under Section
7.04(a)(viii) or to make prepayments of Loans under Section 2.09(b)(ii)(z)(B).
The Borrower agrees, upon the occasion of any Borrowing of Revolving Credit
Loans hereunder that is to constitute a utilization of any Reserved Commitment
Amount, to advise the Administrative Agent in writing of such fact at the time
of such borrowing, identifying the amount of such Borrowing that is to
constitute such utilization, the acquisition in respect of which the proceeds
of such Borrowing are to be applied and the reduced Reserved Commitment Amount
to be in effect for each Class of Revolving Credit Commitment after giving
effect to such Borrowing.
(b) Tranche A Term Loans. Subject to the terms and
conditions set forth herein, each Tranche A Term Loan Lender agrees to make
Tranche A Term Loans to the Borrower from time to time during the Tranche A
Term Loan Availability Period in an aggregate principal amount that will not
result in such Lender's Tranche A Term Loans exceeding such Lender's Tranche A
Term Loan Commitment, provided that no Tranche A Term Loans shall be made
hereunder unless the Tranche B Term Loan Commitments are borrowed in full on
the Effective Date. Proceeds of Tranche A Term Loans shall be available for
any use permitted under Section 6.09.
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(c) Tranche B Term Loans. Subject to the terms and
conditions set forth herein, each Tranche B Term Loan Lender agrees to make a
single Tranche B Term Loan to the Borrower on the Effective Date in a principal
amount equal to such Lender's Tranche B Term Loan Commitment. Proceeds of
Tranche B Term Loans shall be available for any use permitted under Section
6.09.
SECTION 2.02. Loans and Borrowings.
(a) Obligation of Lenders. Each Loan of a particular Class
shall be made as part of a Borrowing consisting of Loans of such Class made by
the Lenders ratably in accordance with their respective Commitments of such
Class. The failure of any Lender to make any Loan required to be made by it
shall not relieve any other Lender of its obligations hereunder; provided that
the Commitments of the Lenders are several and no Lender shall be responsible
for any other Lender's failure to make Loans as required.
(b) Type of Loans. Subject to Section 2.12, each Borrowing
shall be comprised entirely of Base Rate Loans or Eurodollar Loans as the
Borrower may request in accordance herewith. Each Lender at its option may
make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate
of such Lender to make such Loan; provided that any exercise of such option
shall not affect the obligation of the Borrower to repay such Loan in
accordance with the terms of this Agreement.
(c) Minimum Amounts. At the commencement of each Interest
Period for a Eurodollar Borrowing, such Borrowing shall be in an aggregate
amount that is an integral multiple of $1,000,000 and not less than $5,000,000.
At the time that each Base Rate Borrowing is made, such Borrowing shall be in
an aggregate amount that is an integral multiple of $500,000 and not less than
$1,000,000; provided that (i) a Base Rate Borrowing of Loans of any Class may
be in an aggregate amount that is equal to the entire unused balance of the
total Commitments of such Class and (ii) a Revolving Credit Base Rate Borrowing
may be in an amount that is required to finance the reimbursement of an LC
Disbursement as contemplated by Section 2.04(e). Borrowings of more than one
Type and Class may be outstanding at the same time; provided that there shall
not at any time be more than a total of 20 Eurodollar Borrowings outstanding.
SECTION 2.03. Requests for Borrowings. To request a
Borrowing, the Borrower shall notify the Administrative Agent of such request
by telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00
a.m., New York City time, three Business Days before the date of the proposed
Borrowing or (b) in the case of a Base Rate Borrowing, not later than 11:00
a.m., New York City time, one Business Day before the date of the proposed
Borrowing; provided that any such notice of a Revolving Credit Base Rate
Borrowing to finance the reimbursement of an LC Disbursement as contemplated by
Section 2.04(e) may be given not
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later than 10:00 a.m., New York City time, on the date of the proposed
Borrowing. Each such telephonic Borrowing Request shall be irrevocable and
shall be confirmed promptly by hand delivery or telecopy to the Administrative
Agent of a written Borrowing Request in a form approved by the Administrative
Agent and signed by the Borrower. Each such telephonic and written Borrowing
Request shall specify the following information in compliance with Section
2.02:
(i) whether the requested Borrowing is to be a Revolving
Credit Borrowing, Tranche A Term Loan Borrowing or Tranche B Term Loan
Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) the date of such Borrowing, which shall be a Business
Day;
(iv) whether such Borrowing is to be a Base Rate Borrowing or
a Eurodollar Borrowing;
(v) in the case of a Eurodollar Borrowing, the initial
Interest Period to be applicable thereto, which shall be a period
contemplated by the definition of the term "Interest Period"; and
(vi) the location and number of the Borrower's account to
which funds are to be disbursed, which shall comply with the
requirements of Section 2.05.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall (x) in the case of a Revolving Credit Borrowing, be a Base Rate
Borrowing and (y) in the case of a Tranche A Term Loan Borrowing or Tranche B
Term Loan Borrowing, be a Eurodollar Borrowing having an Interest Period of one
month's duration. If no Interest Period is specified with respect to any
requested Eurodollar Borrowing, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration. Promptly following
receipt of a Borrowing Request in accordance with this Section 2.03, the
Administrative Agent shall advise each Lender of the details thereof and of the
amount of such Lender's Loan to be made as part of the requested Borrowing.
Anything herein to the contrary notwithstanding, the initial
Borrowing hereunder shall be a Base Rate Borrowing.
SECTION 2.04. Letters of Credit.
(a) General. Subject to the terms and conditions set forth
herein, in addition to the Revolving Credit Loans provided for in Section
2.01(a), the Borrower may request the
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issuance of Letters of Credit for its own account by any Issuing Bank, in a
form reasonably acceptable to such Issuing Bank, at any time and from time to
time during the Revolving Credit Availability Period. Letters of Credit Issued
hereunder shall constitute utilization of the Revolving Credit Commitments. In
the event of any inconsistency between the terms and conditions of this
Agreement and the terms and conditions of any form of letter of credit
application or other agreement submitted by the Borrower to, or entered into by
the Borrower with, an Issuing Bank relating to any Letter of Credit, the terms
and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension;
Certain Conditions. To request the issuance of a Letter of Credit (or the
amendment, renewal or extension of an outstanding Letter of Credit), the
Borrower shall hand deliver or telecopy (or transmit by electronic
communication, if arrangements for doing so have been approved by the
respective Issuing Bank) to an Issuing Bank selected by it and the
Administrative Agent (reasonably in advance of the requested date of issuance,
amendment, renewal or extension) a notice requesting the issuance of a Letter
of Credit, or identifying the Letter of Credit to be amended, renewed or
extended, the date of issuance, amendment, renewal or extension, the date on
which such Letter of Credit is to expire (which shall comply with paragraph (c)
of this Section 2.04), the amount of such Letter of Credit, the name and
address of the beneficiary thereof and such other information as shall be
necessary to prepare, amend, renew or extend such Letter of Credit. If
requested by the respective Issuing Bank, the Borrower also shall submit a
letter of credit application on such Issuing Bank's standard form in connection
with any request for a Letter of Credit. A Letter of Credit shall be issued,
amended, renewed or extended only if (and upon issuance, amendment, renewal or
extension of each Letter of Credit the Borrower shall be deemed to represent
and warrant that), after giving effect to such issuance, amendment, renewal or
extension (i) the aggregate LC Exposure of any Issuing Bank (determined for
these purposes without giving effect to the participations therein of the
Revolving Credit Lenders pursuant to paragraph (d) of this Section 2.04) shall
not exceed $50,000,000, (ii) the aggregate LC Exposure of all of the Issuing
Banks (so determined) shall not exceed $75,000,000 and (iii) the total
Revolving Credit Exposure shall not exceed the total Revolving Credit
Commitments.
(c) Expiration Date. Each Letter of Credit shall expire at
or prior to the close of business on the earlier of (i) the date 18 months
after the date of the issuance of such Letter of Credit (or, in the case of any
renewal or extension thereof, 18 months after such renewal or extension) and
(ii) the date that is five Business Days prior to the Revolving Credit Maturity
Date.
(d) Participations. By the issuance of a Letter of Credit
(or an amendment to a Letter of Credit increasing the amount thereof) by any
Issuing Bank, and without any further action on the part of such Issuing Bank
or the Lenders, such Issuing Bank hereby grants to each Revolving Credit
Lender, and each Revolving Lender hereby acquires from such Issuing Bank, a
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participation in such Letter of Credit equal to such Revolving Credit Lender's
Applicable Percentage of the aggregate amount available to be drawn under such
Letter of Credit. In consideration and in furtherance of the foregoing, each
Revolving Credit Lender hereby absolutely and unconditionally agrees to pay to
the Administrative Agent, for the account of such Issuing Bank, such Revolving
Credit Lender's Applicable Percentage of each LC Disbursement made by such
Issuing Bank and not reimbursed by the Borrower on the date due as provided in
paragraph (e) of this Section 2.04, or of any reimbursement payment required to
be refunded to the Borrower for any reason. Each Revolving Credit Lender
acknowledges and agrees that its obligation to acquire participations pursuant
to this paragraph in respect of Letters of Credit is absolute and unconditional
and shall not be affected by any circumstance whatsoever, including any
amendment, renewal or extension of any Letter of Credit or the occurrence and
continuance of a Default or reduction or termination of the Commitments, and
that each such payment shall be made without any offset, abatement, withholding
or reduction whatsoever.
(e) Reimbursement. If an Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit, the Borrower shall reimburse
such Issuing Bank in respect of such LC Disbursement by paying to the
Administrative Agent an amount equal to such LC Disbursement not later than
12:00 noon, New York City time, on (i) the Business Day that the Borrower
receives notice of such LC Disbursement, if such notice is received prior to
10:00 a.m., New York City time, or (ii) the Business Day immediately following
the day that the Borrower receives such notice, if such notice is not received
prior to such time, provided that, if such LC Disbursement is not less than
$1,000,000, the Borrower may, subject to the conditions to borrowing set forth
herein, request in accordance with Section 2.03 that such payment be financed
with a Revolving Credit Base Rate Borrowing in an equivalent amount and, to the
extent so financed, the Borrower's obligation to make such payment shall be
discharged and replaced by the resulting Revolving Credit Base Rate Borrowing.
If the Borrower fails to make such payment when due, the
Administrative Agent shall notify each Revolving Credit Lender of the
applicable LC Disbursement, the payment then due from the Borrower in respect
thereof and such Revolving Credit Lender's Applicable Percentage thereof.
Promptly following receipt of such notice, each Revolving Credit Lender shall
pay to the Administrative Agent its Applicable Percentage of the payment then
due from the Borrower, in the same manner as provided in Section 2.05 with
respect to Revolving Credit Loans made by such Lender (and Section 2.05 shall
apply, mutatis mutandis, to the payment obligations of the Revolving Credit
Lenders), and the Administrative Agent shall promptly pay to the respective
Issuing Bank the amounts so received by it from the Revolving Credit Lenders.
Promptly following receipt by the Administrative Agent of any payment from the
Borrower pursuant to this paragraph, the Administrative Agent shall distribute
such payment to the respective Issuing Bank or, to the extent that the
Revolving Credit Lenders have made payments pursuant to this paragraph to
reimburse such Issuing Bank, then to such Lenders and such Issuing Bank as
their interests may appear. Any payment made by a Revolving Credit Lender
pursuant
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to this paragraph to reimburse the Issuing Bank for any LC Disbursement shall
not constitute a Loan and shall not relieve the Borrower of its obligation to
reimburse such LC Disbursement.
(f) Obligations Absolute. The Borrower's obligation to
reimburse LC Disbursements as provided in paragraph (e) of this Section 2.04
shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of this Agreement under any and all
circumstances whatsoever and irrespective of (i) any lack of validity or
enforceability of any Letter of Credit, or any term or provision therein, (ii)
any draft or other document presented under a Letter of Credit proving to be
forged, fraudulent or invalid in any respect or any statement therein being
untrue or inaccurate in any respect, (iii) payment by the respective Issuing
Bank under a Letter of Credit against presentation of a draft or other document
that does not comply strictly with the terms of such Letter of Credit and (iv)
any other event or circumstance whatsoever, whether or not similar to any of
the foregoing, that might, but for the provisions of this Section 2.04,
constitute a legal or equitable discharge of the Borrower's obligations
hereunder.
Neither the Administrative Agent, the Lenders nor any Issuing
Bank, nor any of their Related Parties, shall have any liability or
responsibility by reason of or in connection with the issuance or transfer of
any Letter of Credit by such Issuing Bank or any payment or failure to make any
payment thereunder (irrespective of any of the circumstances referred to in the
preceding sentence), or any error, omission, interruption, loss or delay in
transmission or delivery of any draft, notice or other communication under or
relating to any Letter of Credit (including any document required to make a
drawing thereunder), any error in interpretation of technical terms or any
consequence arising from causes beyond the control of the respective Issuing
Bank; provided that the foregoing shall not be construed to excuse an Issuing
Bank from liability to the Borrower to the extent of any direct damages (as
opposed to consequential damages, claims in respect of which are hereby waived
by the Borrower to the extent permitted by applicable law) suffered by the
Borrower that are caused by such Issuing Bank's gross negligence or wilful
misconduct when determining whether drafts and other documents presented under
a Letter of Credit comply with the terms thereof. The parties hereto expressly
agree that:
(i) such Issuing Bank may accept documents that appear on
their face to be in substantial compliance with the terms of a Letter
of Credit without responsibility for further investigation, regardless
of any notice or information to the contrary, and may make payment upon
presentation of documents that appear on their face to be in
substantial compliance with the terms of such Letter of Credit;
(ii) such Issuing Bank shall have the right, in its sole
discretion, to decline to accept such documents and decline to make
such payment if such documents are not in strict compliance with the
terms of such Letter of Credit; and
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(iii) this sentence shall establish the standard of care to be
exercised by an Issuing Bank when determining whether drafts and other
documents presented under a Letter of Credit comply with the terms
thereof (and the parties hereto hereby waive, to the extent permitted
by applicable law, any standard of care inconsistent with the
foregoing).
(g) Disbursement Procedures. The Issuing Bank for any Letter
of Credit shall, promptly following its receipt thereof, examine all documents
purporting to represent a demand for payment under such Letter of Credit. Such
Issuing Bank shall promptly notify the Administrative Agent and the Borrower by
telephone (confirmed by telecopy) of such demand for payment and whether such
Issuing Bank has made or will make an LC Disbursement thereunder; provided that
any failure to give or delay in giving such notice shall not relieve the
Borrower of its obligation to reimburse such Issuing Bank and the Revolving
Credit Lenders with respect to any such LC Disbursement.
(h) Interim Interest. If the Issuing Bank for any Letter of
Credit shall make any LC Disbursement, then, unless the Borrower shall
reimburse such LC Disbursement in full on the date such LC Disbursement is
made, the unpaid amount thereof shall bear interest, for each day from and
including the date such LC Disbursement is made to but excluding the date that
the Borrower reimburses such LC Disbursement, at the rate per annum then
applicable to Revolving Credit Base Rate Loans; provided that, if the Borrower
fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of
this Section 2.04, then Section 2.11(c) shall apply. Interest accrued pursuant
to this paragraph shall be for the account of such Issuing Bank, except that
interest accrued on and after the date of payment by any Revolving Credit
Lender pursuant to paragraph (e) of this Section 2.04 to reimburse such Issuing
Bank shall be for the account of such Lender to the extent of such payment.
(i) Cash Collateralization. If either (i) an Event of
Default shall occur and be continuing and the Borrower receives notice from the
Administrative Agent or the Required Revolving Credit Lenders demanding the
deposit of cash collateral pursuant to this paragraph, or (ii) the Borrower
shall be required to provide cover for LC Exposure pursuant to Section 2.09(b),
the Borrower shall immediately deposit into the Letter of Credit Account an
amount in cash equal to, in the case of an Event of Default, the LC Exposure as
of such date plus any accrued and unpaid interest thereon and, in the case of
cover pursuant to Section 2.09(b), the amount required under Section 2.09(b);
provided that the obligation to deposit such cash collateral shall become
effective immediately, and such deposit shall become immediately due and
payable, without demand or other notice of any kind, upon the occurrence of any
Event of Default with respect to any Credit Party described in clause (h) or
(i) of Article VIII. Such deposit shall be held by the Collateral Agent as
collateral in the first instance for the LC Exposure under this Agreement and
thereafter for the payment of the "Secured Obligations" under and as defined in
the Restricted Company Guarantee and Security Agreement.
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(j) Existing Letters of Credit. Pursuant to Section 2.04 of
the Existing Credit Agreement, the Issuing Banks have issued various "Letters
of Credit" under and as defined in the Existing Credit Agreement. On the
Effective Date, subject to the satisfaction of the conditions precedent set
forth in Article V, each of such "Letters of Credit" under the Existing Credit
Agreement shall automatically, and without any action on the part of any
Person, become a Letter of Credit hereunder.
SECTION 2.05. Funding of Borrowings.
(a) Funding by Lenders. Each Lender shall make each Loan to
be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds by 12:00 noon, New York City time, to the account
of the Administrative Agent most recently designated by it for such purpose by
notice to the Lenders. The Administrative Agent will make such Loans available
to the Borrower by promptly crediting the amounts so received, in like funds,
to an account of the Borrower maintained with the Administrative Agent in New
York City and designated by the Borrower in the applicable Borrowing Request;
provided that Revolving Credit Base Rate Loans made to finance the
reimbursement of an LC Disbursement under any Letter of Credit as provided in
Section 2.04(e) shall be remitted by the Administrative Agent to the respective
Issuing Bank for such Letter of Credit.
(b) Presumption by Administrative Agent. Unless the
Administrative Agent shall have received notice from a Lender prior to the
proposed date of any Borrowing that such Lender will not make available to the
Administrative Agent such Lender's share of such Borrowing, the Administrative
Agent may assume that such Lender has made such share available on such date in
accordance with paragraph (a) of this Section 2.05 and may, in reliance upon
such assumption, make available to the Borrower a corresponding amount. In
such event, if a Lender has not in fact made its share of the applicable
Borrowing available to the Administrative Agent, then the applicable Lender and
the Borrower severally agree to pay to the Administrative Agent forthwith on
demand such corresponding amount with interest thereon, for each day from and
including the date such amount is made available to the Borrower to but
excluding the date of payment to the Administrative Agent, at the Federal Funds
Effective Rate. If such Lender pays such amount to the Administrative Agent,
then such amount shall constitute such Lender's Loan included in such
Borrowing.
Credit Agreement
<PAGE> 47
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SECTION 2.06. Interest Elections.
(a) Elections by Borrower. Each Borrowing initially shall be
of the Type specified in the applicable Borrowing Request and, in the case of a
Eurodollar Borrowing, shall have an initial Interest Period as specified in
such Borrowing Request. Thereafter, the Borrower may elect to convert such
Borrowing to a different Type or to continue such Borrowing and, in the case of
a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in
this Section 2.06. The Borrower may elect different options for continuations
and conversions with respect to different portions of the affected Borrowing,
in which case each such portion shall be allocated ratably among the Lenders
holding the Loans comprising such Borrowing, and the Loans comprising each such
portion shall be considered a separate Borrowing.
(b) Notice of Elections. To make an election pursuant to
this Section 2.06, the Borrower shall notify the Administrative Agent of such
election by telephone by the time that a Borrowing Request would be required
under Section 2.03 if the Borrower were requesting a Borrowing of the Type
resulting from such election to be made on the effective date of such election.
Each such telephonic Interest Election Request shall be irrevocable and shall
be confirmed promptly by hand delivery or telecopy to the Administrative Agent
of a written Interest Election Request in a form approved by the Administrative
Agent and signed by the Borrower.
(c) Information in Election Notices. Each telephonic and
written Interest Election Request shall specify the following information in
compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request
applies and, if different options for continuations or conversions are
being elected with respect to different portions thereof, the portions
thereof to be allocated to each resulting Borrowing (in which case the
information to be specified pursuant to clauses (iii) and (iv) below
shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be a Base Rate
Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
Credit Agreement
<PAGE> 48
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If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Notice by Administrative Agent to Lenders. Promptly
following receipt of an Interest Election Request, the Administrative Agent
shall advise each Lender of the details thereof and of such Lender's portion of
each resulting Borrowing.
(e) Presumption if No Notice. If the Borrower fails to
deliver a timely Interest Election Request with respect to a Eurodollar
Borrowing prior to the end of the Interest Period applicable thereto, then,
unless such Borrowing is repaid as provided herein, at the end of such Interest
Period such Borrowing shall (x) if a Revolving Credit Borrowing, be converted
to a Base Rate Borrowing and (y) if a Tranche A Term Loan Borrowing or Tranche
B Term Loan Borrowing, be converted into, or continued as, a Eurodollar
Borrowing having an Interest Period of one month's duration. Notwithstanding
any contrary provision hereof, if a Specified Default has occurred and is
continuing and the Administrative Agent, at the request of the Required
Lenders, so notifies the Borrower, then, so long as a Specified Default is
continuing (i) no outstanding Borrowing may be converted to or continued as a
Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be
converted to a Base Rate Borrowing at the end of the Interest Period applicable
thereto.
SECTION 2.07. Termination and Reduction of Commitments.
(a) Termination of Commitments. Unless previously
terminated, (i) the Revolving Credit Commitments shall terminate at the close
of business on the Revolving Credit Maturity Date, (ii) the Tranche A Term Loan
Commitments shall terminate at the close of business on the last day of the
Tranche A Term Loan Availability Period and (iii) the Tranche B Term Loan
Commitments shall terminate after the Borrowing of Tranche B Term Loans on the
Effective Date.
(b) Scheduled Reductions of Revolving Credit Commitments.
The aggregate amount of the Revolving Credit Commitments shall be automatically
reduced at the close of business on each Revolving Credit Commitment Reduction
Date set forth in column (A) below to the amount (subject to reduction pursuant
to paragraph (c) below) set forth in column (B) below opposite such Revolving
Credit Commitment Reduction Date:
Credit Agreement
<PAGE> 49
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<TABLE>
<CAPTION>
(A) (B)
Revolving Credit Revolving Credit
Commitment Reduction Commitments Reduced
Date Falling on or to the Following
Nearest to : Amounts
----------------------- -------------------
<S> <C>
September 30, 2001 $1,462,500,000
December 31, 2001 $1,425,000,000
March 31, 2002 $1,387,500,000
June 30, 2002 $1,350,000,000
September 30, 2002 $1,312,500,000
December 31, 2002 $1,275,000,000
March 31, 2003 $1,200,000,000
June 30, 2003 $1,125,000,000
September 30, 2003 $1,050,000,000
December 31, 2003 $ 975,000,000
March 31, 2004 $ 881,250,000
June 30, 2004 $ 787,500,000
September 30, 2004 $ 693,750,000
December 31, 2004 $ 600,000,000
March 31, 2005 $ 487,500,000
June 30, 2005 $ 375,000,000
September 30, 2005 $ 262,500,000
December 31, 2005 $ 150,000,000
March 31, 2006 $ 0
</TABLE>
Notwithstanding the foregoing, unless the Required Revolving
Credit Lenders consent otherwise (by notice to the Borrower through the
Administrative Agent delivered at any time after the date twenty-four months
prior to the earliest maturity date for the then-outstanding Public Notes
maturing in 2003, 2004 or 2005 or for any Indebtedness incurred in accordance
with Section 7.01(b)(i) that matures prior to June 30, 2007), the Revolving
Credit Commitments shall automatically reduce to zero on the date that is six
months (or, if any Incremental Facility Loans shall be outstanding, twelve
months) prior to such earliest maturity date, provided that the foregoing shall
not apply if on the date six months (or, as applicable, twelve months) prior to
such earliest maturity date the sum of (i) the aggregate principal amount of
all outstanding Public Notes maturing in 2003, 2004 and 2005 plus (ii) the
principal amount of Indebtedness incurred in
Credit Agreement
<PAGE> 50
-44-
accordance with Section 7.01(b)(i) that matures prior to June 30, 2007, is less
than $1,000,000,000.
(c) Voluntary Termination or Reduction. The Borrower may at
any time terminate, or from time to time reduce, the Commitments of any Class;
provided that (i) each reduction of the Commitments of such Class shall be in
an amount that is an integral multiple of $1,000,000 and not less than
$5,000,000, (ii) the Borrower shall not terminate or reduce the Commitments of
such Class if, after giving effect to any concurrent prepayment of Loans in
accordance with Section 2.09, the outstanding Loans of such Class would exceed
the total Commitments of such Class and (iii) the Borrower shall not terminate
or reduce the Revolving Credit Commitments if, after giving effect to any
concurrent prepayment of the Loans in accordance with Section 2.09, the total
Revolving Credit Exposures would exceed the total Revolving Credit Commitments.
(d) Notice of Termination or Reduction. The Borrower shall
notify the Administrative Agent of any election to terminate or reduce
Commitments under paragraph (c) of this Section 2.07 at least three Business
Days prior to the effective date of such termination or reduction, specifying
such election and the effective date thereof. Promptly following receipt of
any notice, the Administrative Agent shall advise the Lenders of the contents
thereof. Each notice delivered by the Borrower pursuant to this Section 2.07
shall be irrevocable; provided that a notice of termination of Commitments
delivered by the Borrower may state that such notice is conditioned upon the
effectiveness of other credit facilities, in which case such notice may be
revoked by the Borrower (by notice to the Administrative Agent on or prior to
the specified effective date) if such condition is not satisfied. Any
termination or reduction of Commitments shall be permanent. Each reduction of
Commitments of any Class shall be made ratably among the Lenders in accordance
with their respective Commitments of such Class.
SECTION 2.08. Repayment of Loans; Evidence of Debt.
(a) Revolving Credit Loans. The Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account of
each Revolving Credit Lender the then unpaid principal amount of such Lender's
Revolving Credit Loans on the Revolving Credit Maturity Date. In addition, if
following any Revolving Credit Commitment Reduction Date the aggregate
principal amount of the Revolving Credit Loans shall exceed the Revolving
Credit Commitments, the Borrower shall pay Revolving Credit Loans in an
aggregate amount equal to such excess.
(b) Tranche A Term Loans. The Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account of
the Tranche A Term Loan Lenders the principal of the Tranche A Term Loans in
nineteen installments payable on the Principal Payment Dates as follows:
Credit Agreement
<PAGE> 51
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<TABLE>
<CAPTION>
Principal Payment Date
Falling on or Nearest to: Amount of Installment
------------------------ ---------------------
<S> <C>
September 30, 2001 $12,500,000
December 31, 2001 $12,500,000
March 31, 2002 $12,500,000
June 30, 2002 $12,500,000
September 30, 2002 $12,500,000
December 31, 2002 $12,500,000
March 31, 2003 $25,000,000
June 30, 2003 $25,000,000
September 30, 2003 $25,000,000
December 31, 2003 $25,000,000
March 31, 2004 $31,250,000
June 30, 2004 $31,250,000
September 30, 2004 $31,250,000
December 31, 2004 $31,250,000
March 31, 2005 $37,500,000
June 30, 2005 $37,500,000
September 30, 2005 $37,500,000
December 31, 2005 $37,500,000
March 31, 2006 $50,000,000
</TABLE>
If on the close of business on the last day of the Tranche A Term Loan
Availability Period the aggregate outstanding principal amount of the Tranche A
Term Loans shall be less than the aggregate original principal amount of the
Tranche A Term Loan Commitments, the shortfall shall be applied to reduce the
foregoing installments ratably.
Notwithstanding the foregoing, unless the Required Tranche A
Term Loan Lenders consent otherwise (by notice to the Borrower through the
Administrative Agent delivered at any time after the date twenty-four months
prior to the earliest maturity date for the then-outstanding Public Notes
maturing in 2003, 2004 or 2005 or for any Indebtedness incurred in accordance
with Section 7.01(b)(i) that matures prior to June 30, 2007), the Tranche A
Term Loans shall be paid in full on the date that is six months (or, if any
Incremental Facility Loans shall be outstanding, twelve months) prior to such
earliest maturity date, provided that the
Credit Agreement
<PAGE> 52
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foregoing shall not apply if on the date six months (or, as applicable, twelve
months) prior to such earliest maturity date the sum of (i) the aggregate
principal amount of all outstanding Public Notes maturing in 2003, 2004 and
2005 plus (ii) the principal amount of Indebtedness incurred in accordance with
Section 7.01(b)(i) that matures prior to June 30, 2007, is less than
$1,000,000,000.
(c) Tranche B Term Loans. The Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account of
the Tranche B Term Loan Lenders the principal of the Tranche B Term Loans in
twenty-one installments payable on the Principal Payment Dates as follows:
<TABLE>
<CAPTION>
Principal Payment Date
Falling on or Nearest to: Amount of Installment
------------------------ ---------------------
<S> <C>
September 30, 2001 $ 2,500,000
December 31, 2001 $ 2,500,000
March 31, 2002 $ 2,500,000
June 30, 2002 $ 2,500,000
September 30, 2002 $ 2,500,000
December 31, 2002 $ 2,500,000
March 31, 2003 $ 2,500,000
June 30, 2003 $ 2,500,000
September 30, 2003 $ 2,500,000
December 31, 2003 $ 2,500,000
March 31, 2004 $ 2,500,000
June 30, 2004 $ 2,500,000
September 30, 2004 $ 2,500,000
December 31, 2004 $ 2,500,000
March 31, 2005 $ 2,500,000
June 30, 2005 $ 2,500,000
September 30, 2005 $ 2,500,000
December 31, 2005 $ 2,500,000
March 31, 2006 $ 2,500,000
June 30, 2006 $ 2,500,000
September 30, 2006 $950,000,000
</TABLE>
Credit Agreement
<PAGE> 53
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Notwithstanding the foregoing, unless the Required Tranche B
Term Loan Lenders consent otherwise (by notice to the Borrower through the
Administrative Agent delivered at any time after the date twenty-four months
prior to the earliest maturity date for the then-outstanding Public Notes
maturing in 2003, 2004 or 2005 or for any Indebtedness incurred in accordance
with Section 7.01(b)(i) that matures prior to June 30, 2007), the Tranche B
Term Loans shall be paid in full on the date that is three months (or, if any
Incremental Facility Loans shall be outstanding, nine months) prior to such
earliest maturity date, provided that the foregoing shall not apply if on the
date three months (or, as applicable, nine months) prior to such earliest
maturity date the sum of (i) the aggregate principal amount of all outstanding
Public Notes maturing in 2003, 2004 and 2005 plus (ii) the principal amount of
Indebtedness incurred in accordance with Section 7.01(b)(i) that matures prior
to June 30, 2007, is less than $1,000,000,000.
(d) Maintenance of Loan Accounts by Lenders. Each Lender
shall maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of the Borrower to such Lender resulting from each
Loan made by such Lender, including the amounts of principal and interest
payable and paid to such Lender from time to time hereunder.
(e) Maintenance of Loan Accounts by Administrative Agent.
The Administrative Agent shall maintain accounts in which it shall record (i)
the amount of each Loan made hereunder, the Class and Type thereof and the
Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Lender hereunder and (iii) the amount of any sum received by the Administrative
Agent hereunder for the account of the Lenders and each Lender's share thereof.
(f) Effect of Loan Accounts. The entries made in the
accounts maintained pursuant to paragraph (d) or (e) of this Section 2.08 shall
be prima facie evidence of the existence and amounts of the obligations
recorded therein; provided that the failure of any Lender or the Administrative
Agent to maintain such accounts or any error therein shall not in any manner
affect the obligation of the Borrower to repay the Loans in accordance with the
terms of this Agreement.
(g) Promissory Notes. Any Lender may request that Loans made
by it be evidenced by a promissory note. In such event, the Borrower shall
prepare, execute and deliver to such Lender a promissory note payable to the
order of such Lender (or, if requested by such Lender, to such Lender and its
registered assigns) and in a form approved by the Administrative Agent.
Thereafter, the Loans evidenced by such promissory note and interest thereon
shall at all times (including after assignment pursuant to Section 10.04) be
represented by one or more promissory notes in such form payable to the order
of the payee named therein (or, if such promissory note is a registered note,
to such payee and its registered assigns).
Credit Agreement
<PAGE> 54
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SECTION 2.09. Prepayment of Loans.
(a) Optional Prepayments. The Borrower shall have the right
at any time and from time to time to prepay any Borrowing in whole or in part,
subject to prior notice in accordance with paragraph (d) of this Section 2.09.
Prepayments of Tranche A Term Loan Borrowings and Tranche B Term Loan
Borrowings under this Section 2.09(a) shall be applied to each of such Classes
of Borrowings (i) as between such Classes of Borrowings, pro rata in accordance
with the respective aggregate principal amounts of the Loans of such Classes
outstanding on the date of prepayment and (ii) as within such Classes of Loans,
to the respective installments thereof in the direct order of their maturities
(i.e., so that the earliest maturing installments are prepaid first).
Notwithstanding the foregoing, the Borrower may at its option make prepayments
of the Tranche B Term Loan Borrowings up to an aggregate amount not exceeding
$250,000,000 without making a ratable prepayment of Tranche A Term Loan
Borrowings, provided that any such prepayment of Tranche B Term Loan Borrowings
shall be applied to the installments thereof in the inverse order of maturity
(i.e., so that the latest maturing installments are prepaid first).
(b) Mandatory Prepayments -- All Loans. The Borrower shall
make prepayments of the Loans hereunder (and reduce the Commitments hereunder)
as follows:
(i) Excess Cash Flow. Not later than the date 135 days after
the end of each fiscal year of the Borrower (commencing with Excess
Cash Flow for the fiscal year ending on December 31, 1999), the
Borrower shall prepay the Loans hereunder (and provide cover for LC
Exposure as specified in clause (iv) of this Section 2.09), and the
Commitments hereunder shall be subject to automatic reduction, in an
aggregate amount equal to 50% of Excess Cash Flow for such fiscal
year, such prepayment and reduction to be effected in each case in the
manner and to the extent specified in clause (iv) of this Section
2.09(b). Notwithstanding the foregoing, to the extent that, during
any fiscal year the Borrower shall have made voluntary prepayments of
any Class of Term Loans, or shall have voluntarily reduced the
Revolving Credit Commitments, then such prepayment or reduction shall
be credited against the prepayment or reduction of the corresponding
Class of Loans otherwise required under this clause (i) with respect
to Excess Cash Flow for the fiscal year in which such prepayment or
reduction occurred.
(ii) Sale of Assets. Without limiting the obligation of the
Restricted Companies to obtain the consent of the Required Lenders to
any Disposition not otherwise permitted hereunder, the Borrower
agrees, on or prior to the occurrence of any Disposition (herein, the
"Current Disposition") as to which the estimated amount of the Net
Cash Payments, together with all prior Dispositions as to which a
prepayment has not yet been made under this Section 2.09(b)(ii) and as
to which a report contemplated by this Section
Credit Agreement
<PAGE> 55
-49-
2.09(b)(ii) has not been delivered, shall exceed $5,000,000, to
deliver to the Administrative Agent a report certified by a Financial
Officer, in form and detail reasonably satisfactory to the
Administrative Agent, with respect to such Current Disposition and all
such prior Dispositions setting out the estimated amount of the Net
Cash Payments of all such Dispositions that will (on the date of the
Current Disposition) have been received in cash, whereupon the
Borrower will prepay the Loans hereunder (and provide cover for LC
Exposure as specified in clause (iv) of this Section 2.09), and the
Commitments hereunder shall be subject to automatic reduction, as
follows:
(w) upon the date of the Current Disposition, in an
aggregate amount equal to 100% of such estimated amount of the
Net Cash Payments of the Current Disposition, to the extent
received in cash on the date of the Current Disposition,
together with 100% of the Net Cash Payments of all such prior
Dispositions to the extent received in cash on or prior to
such date; and
(x) thereafter, quarterly, on the date of the
delivery by the Borrower to the Administrative Agent pursuant
to Section 6.01(c) of the financial statements for each
quarterly fiscal period or (if earlier) the date 60 days after
the end of such quarterly fiscal period (90 days in the case
of the last fiscal quarter in any fiscal year), to the extent
the Restricted Companies shall receive Net Cash Payments
during such quarterly fiscal period in cash under deferred
payment arrangements or Disposition Investments entered into
or received in connection with any Disposition, an amount
equal to (A) 100% of the aggregate amount of such Net Cash
Payments minus (B) any transaction expenses associated with
Dispositions and not previously deducted in the determination
of Net Cash Payments plus (or minus, as the case may be) (C)
any other adjustment received or paid by the Restricted
Companies pursuant to the respective agreements giving rise to
Dispositions and not previously taken into account in the
determination of the Net Cash Payments of Dispositions,
provided that if prior to the date upon which the Borrower
would otherwise be required to make a prepayment under this
clause (x) with respect to any quarterly fiscal period the
aggregate amount of such Net Cash Payments (after giving
effect to the adjustments provided for in this clause (x))
shall exceed $5,000,000, then the Borrower shall within three
Business Days make a prepayment under this clause (x) in an
amount equal to such required prepayment.
Prepayments of Loans (and cover for LC Exposure) and reductions of
Commitments shall be effected in each case in the manner and to the
extent specified in clause (iv) of this Section 2.09(b).
Credit Agreement
<PAGE> 56
-50-
Notwithstanding the foregoing, the Borrower shall not be
required to make a prepayment (or provide cover) pursuant to this
Section 2.09(b)(ii) with respect to the Net Cash Payments from any
Disposition in the event that the Borrower advises the Administrative
Agent at the time a prepayment is required to be made under the
foregoing clauses (w) or (x) that it intends to reinvest such Net Cash
Payments into replacement assets pursuant to an acquisition permitted
under Section 7.04(a)(viii), so long as:
(y) such Net Cash Payments are either (A) delivered
to the Collateral Agent to be held in the Sale Proceeds
Reinvestment Account pending such reinvestment, in which event
the Collateral Agent need not release such Net Cash Payments
except upon presentation of evidence reasonably satisfactory
to it that such Net Cash Payments are to be so reinvested in
compliance with the provisions of this Agreement or (B)
applied by the Borrower to the prepayment of Revolving Credit
Loans hereunder (in which event the Borrower agrees to advise
the Administrative Agent in writing at the time of such
prepayment of Revolving Credit Loans that such prepayment is
being made from the proceeds of a Disposition and that, as
contemplated by the second paragraph of Section 2.01(a), a
portion of the Revolving Credit Commitments equal to the
amount of such prepayment gives rise to a Reserved Commitment
Amount that shall be available hereunder only for purposes of
making acquisitions under Section 7.04(a)(viii) or to make
prepayments of Loans under clause (z)(b) below), and
(z) the Net Cash Payments from any Disposition are
in fact so reinvested within twelve months of such Disposition
(it being understood that, in the event Net Cash Payments from
more than one Disposition are delivered to the Collateral
Agent or applied to the prepayment of Revolving Credit Loans
as provided in clause (y) above, such Net Cash Payments shall
be deemed to be released (or, as the case may be, Revolving
Credit Loans utilizing the Reserved Commitment Amount shall be
deemed to be made) in the same order in which such
Dispositions occurred and, accordingly, (A) any such Net Cash
Payments so held for more than twelve months shall be
forthwith applied to the prepayment of Loans (and cover for LC
Exposure) and reductions of Commitments as provided in clause
(iv) of this Section 2.09(b) and (B) any Reserved Commitment
Amount that remains so unutilized for twelve months shall be
utilized through the borrowing by the Borrower of Revolving
Credit Loans the proceeds of which shall be applied to the
prepayment of Loans (and cover for LC Exposure) and reductions
of Commitments as provided in clause (iv) of this Section
2.09(b)).
As contemplated by Article V of the Restricted Company Guarantee and
Security Agreement, nothing in this Section 2.09(b)(ii) shall be
deemed to obligate the Collateral
Credit Agreement
<PAGE> 57
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Agent to release any of such proceeds from the Sale Proceeds
Reinvestment Account to the Restricted Companies for purposes of
reinvestment as aforesaid upon the occurrence and during the
continuance of any Event of Default.
In the event that any Reserved Commitment Amount with respect
to any Disposition shall remain unutilized for twelve months and the
Borrower shall for any reason not borrow Revolving Credit Loans the
proceeds of which are applied to the prepayment of Loans (and cover
for LC Exposure) and reductions of Commitments as provided above in
this clause (ii), the Revolving Credit Lenders agree (which agreement
shall be absolute and unconditional, regardless of whether or not the
conditions to a borrowing of Revolving Credit Loans hereunder shall
have been satisfied and regardless of the occurrence or continuance of
any Event of Default, including any Event of Default described in
paragraphs (h) or (i) of Article VIII) to purchase participations in
the Loans of the Tranche A Term Loan Lenders and the Tranche B Term
Loan Lenders in amounts equivalent to the amount of the respective
prepayments that each of such Lenders would have received had such
borrowing of Revolving Credit Loans occurred as provided above.
(iii) Change in Control. Upon the occurrence of any Change
in Control, the Borrower shall prepay the Loans hereunder in full (and
provide cover for LC Exposure as specified in clause (iv) of this
Section 2.09), and the Commitments hereunder shall be automatically
terminated.
(iv) Application. Upon each required reduction of
Commitments and prepayment of Loans (and cover for LC Exposure)
pursuant to this Section 2.09(b), the respective Commitments of each
Class shall be reduced, and (if the Commitments of such Class have
terminated) the respective Loans of each Class shall be prepaid,
ratably in accordance with the respective then-outstanding aggregate
amounts of such Commitments or Loans (whichever, as to any particular
Class is greater). If after giving effect to any such reduction of
the Commitments of any Class the aggregate principal amount of the
Loans of such Class (or, in the case of Revolving Credit Commitments,
the aggregate Revolving Credit Exposure) shall exceed the amount of
such Commitments, the Borrower will prepay the Loans of such Class
(and, to the extent necessary, in the case of the Revolving Credit
Commitments, provide cover for LC Exposure pursuant to Section
2.04(i)) in an amount equal to such excess. Prepayments of the Loans
of any Class shall be applied to the installments thereof in the
direct order of maturity (i.e., so that the earliest maturing
installments are prepaid first).
Subject to the requirements of this clause (iv), in making
prepayments of the Loans of any particular Class, the Borrower may
elect to prepay Base Rate Loans of such Class (or Eurodollar Loans of
such Class having Interest Periods that are the earliest
Credit Agreement
<PAGE> 58
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scheduled to expire) in order to minimize amounts that it would
otherwise be required to pay under Section 2.14 in connection with
such prepayment.
(c) Mandatory Prepayments -- Revolving Credit Loans.
(i) Off-Balance Sheet Transactions. In the event that any of
the Restricted Companies shall at any time receive any proceeds from
any Off-Balance Sheet Transaction, the Borrower shall forthwith apply
the amount of such proceeds to the prepayment of Revolving Credit
Loans hereunder (but without any reduction of Revolving Credit
Commitments), it being understood that such proceeds shall not include
amounts collected by the Restricted Companies on behalf of Off-Balance
Sheet Companies representing rental payments or other amounts payable
by customers in respect of Off-Balance Sheet Assets of such
Off-Balance Sheet Companies.
(ii) Excess Operating Cash. In the event that, at any time
prior to the August 1993 Indenture Termination Date, the aggregate
amount of cash and cash equivalents of the Restricted Companies in
bank deposit accounts or otherwise not held in the possession, or
under the control, of the Collateral Agent shall exceed $5,000,000,
the Borrower will forthwith either (x) prepay Revolving Credit Loans
hereunder (but without any reduction of Revolving Credit Commitments)
in an amount equal to such excess or (y) deliver an amount of such
cash and cash equivalents equal to such excess to the Collateral Agent
for deposit into the Concentration Account under and as defined in the
Restricted Company Guarantee and Security Agreement.
(d) Notification of Prepayments. The Borrower shall notify
the Administrative Agent by telephone (confirmed by telecopy) of any prepayment
hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later
than 11:00 a.m., New York City time, three Business Days before the date of
prepayment or (ii) in the case of prepayment of a Base Rate Borrowing, not
later than 11:00 a.m., New York City time, on the date of prepayment. Each
such notice shall be irrevocable and shall specify the prepayment date and the
principal amount of each Borrowing or portion thereof to be prepaid; provided
that, if a notice of prepayment is given in connection with a conditional
notice of termination of Commitments as contemplated by Section 2.07, then such
notice of prepayment may be revoked if such notice of termination is revoked in
accordance with Section 2.07. Promptly following receipt of any such notice
relating to a Borrowing of a particular Class, the Administrative Agent shall
advise the Lenders holding Loans of such Class of the contents thereof. Each
partial prepayment of any Borrowing under paragraph (a) of this Section 2.09
shall be in an amount that would be permitted in the case of an advance of a
Borrowing of the same Type as provided in Section 2.02.
(e) Prepayments Accompanied by Interest. Prepayments shall
be accompanied by accrued interest to the extent required by Section 2.11.
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SECTION 2.10. Fees.
(a) Commitment Fee. The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee, which
shall accrue at a rate per annum equal to the Applicable Rate on the daily
average unused amount of the respective Commitments of such Lender during the
period from and including the Effective Date to but excluding the date on which
such Commitment terminates. Accrued commitment fees shall be payable in
arrears on each Quarterly Date and, in respect of any Commitments, on the date
such Commitments terminate, commencing on the first such date to occur after
the date hereof. All commitment fees shall be computed on the basis of a year
of 360 days and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day).
(b) Letter of Credit Fees. The Borrower agrees to pay with
respect to Letters of Credit outstanding hereunder the following fees:
(i) to the Administrative Agent for the account of each
Revolving Credit Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at a rate per
annum equal to the Applicable Rate used in determining interest on
Revolving Credit Eurodollar Loans on the average daily amount of such
Lender's LC Exposure (excluding any portion thereof attributable to
unreimbursed LC Disbursements) during the period from and including
the Effective Date to but excluding the later of the date on which
such Lender's Revolving Credit Commitment terminates and the date on
which there shall no longer be any Letters of Credit outstanding
hereunder, and
(ii) to each Issuing Bank (x) a fronting fee, which shall
accrue at the rate of 1/4 of 1% per annum on the average daily amount
of the LC Exposure of such Issuing Bank (determined for these purposes
without giving effect to the participations therein of the Revolving
Credit Lenders pursuant to paragraph (d) of Section 2.04, and
excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the Effective Date
to but excluding the later of the date of termination of the Revolving
Credit Commitments and the date on which there shall no longer be any
Letters of Credit of such Issuing Bank outstanding hereunder, and (y)
such Issuing Bank's standard fees with respect to the issuance,
amendment, renewal or extension of any Letter of Credit or processing
of drawings thereunder.
Accrued participation fees and fronting fees shall be payable in arrears on
each Quarterly Date and on the date the Revolving Credit Commitments terminate,
commencing on the first such date to occur after the date hereof, provided that
any such fees accruing after the date on which the Revolving Credit Commitments
terminate shall be payable on demand. All participation fees
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and fronting fees shall be computed on the basis of a year of 360 days and
shall be payable for the actual number of days elapsed (including the first day
but excluding the last day).
(c) Agency Fees. The Borrower agrees to pay to the
Administrative Agent, for its own account, fees payable in the amounts and at
the times separately agreed in writing upon between the Borrower and the
Administrative Agent.
(d) Payment of Fees. All fees payable hereunder shall be
paid on the dates due, in immediately available funds, to the Administrative
Agent for distribution to the Lenders entitled thereto. Fees paid shall not be
refundable under any circumstances, absent manifest error in the determination
thereof.
SECTION 2.11. Interest.
(a) Base Rate Borrowings. The Loans comprising each Base
Rate Borrowing shall bear interest at a rate per annum equal to the Adjusted
Base Rate plus the Applicable Rate.
(b) Eurodollar Borrowings. The Loans comprising each
Eurodollar Borrowing shall bear interest at a rate per annum equal to the
Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus
the Applicable Rate.
(c) Default Interest. Notwithstanding the foregoing, (i)
during the period when any Specified Default shall have occurred and be
continuing, the principal of each Loan hereunder shall bear interest, after as
well as before judgment, at a rate per annum (herein, the "Post-Default Rate")
equal to 2% plus the rate (taking into account the last paragraph of the
definition of "Applicable Rate" in Section 1.01) otherwise applicable to such
Loan as provided above and (ii) if any interest on any Loan or any fee or other
amount payable by the Borrower hereunder is not paid when due, whether at
stated maturity, upon acceleration or otherwise, such overdue amount shall bear
interest, after as well as before judgment, at a rate per annum equal to the
Post-Default Rate for the Loan in respect of which such interest is payable
(or, in the case of a fee or other amount that does not relate to a Loan of a
particular type, at the Post-Default Rate for Base Rate Tranche B Term Loans).
(d) Payment of Interest. Accrued interest on each Loan shall
be payable in arrears on each Interest Payment Date for such Loan; provided
that (i) interest accrued pursuant to paragraph (c) of this Section 2.11 shall
be payable on demand, (ii) in the event of any repayment or prepayment of any
Eurodollar Loan (or the repayment or prepayment in full of the Tranche A or
Tranche B Term Loans), accrued interest on the principal amount repaid or
prepaid shall be payable on the date of such repayment or prepayment, (iii) in
the event of any conversion of any Eurodollar Loan prior to the end of the
current Interest Period therefor, accrued interest on such Loan shall be
payable on the effective date of such conversion and (iv)
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all accrued interest on Revolving Credit Loans shall be payable upon
termination of the Revolving Credit Commitments.
(e) Computation. All interest hereunder shall be computed on
the basis of a year of 360 days, except that interest computed by reference to
the Adjusted Base Rate at times when the Adjusted Base Rate is based on the
Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in
a leap year), and in each case shall be payable for the actual number of days
elapsed (including the first day but excluding the last day). The applicable
Adjusted Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the
Administrative Agent, and such determination shall be conclusive absent
manifest error.
SECTION 2.12. Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination
shall be conclusive absent manifest error) that adequate and
reasonable means do not exist for ascertaining the Adjusted LIBO Rate
or the LIBO Rate, as applicable, for such Interest Period; or
(b) if such Borrowing is of a particular Class of Loans, the
Administrative Agent is advised by the Required Revolving Credit
Lenders, the Required Tranche A Term Loan Lenders or the Required
Tranche B Term Loan Lenders, as the case may be, that the Adjusted
LIBO Rate or the LIBO Rate, as applicable, for such Interest Period
will not adequately and fairly reflect the cost to such Lenders of
making or maintaining their Loans of such Class included in such
Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as a Base Rate Borrowing.
SECTION 2.13. Increased Costs.
(a) Increased Costs Generally. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by,
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any Lender (except any such reserve requirement reflected in the
Adjusted LIBO Rate) or Issuing Bank; or
(ii) impose on any Lender or Issuing Bank or the London
interbank market any other condition affecting this Agreement or
Eurodollar Loans made by such Lender or any Letter of Credit or
participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or any
Issuing Bank of participating in, issuing or maintaining any Letter of Credit
or to reduce the amount of any sum received or receivable by such Lender or
such Issuing Bank hereunder (whether of principal, interest or otherwise), then
the Borrower will pay to such Lender or such Issuing Bank, as the case may be,
such additional amount or amounts as will compensate such Lender or such
Issuing Bank, as the case may be, for such additional costs incurred or
reduction suffered.
(b) Capital Requirements. If any Lender or Issuing Bank
reasonably determines that any Change in Law regarding capital requirements has
or would have the effect of reducing the rate of return on such Lender's or
such Issuing Bank's capital or on the capital of such Lender's or Issuing
Bank's holding company, if any, as a consequence of this Agreement or the Loans
made by, or participations in Letters of Credit held by, such Lender, or the
Letters of Credit issued by such Issuing Bank, to a level below that which such
Lender or such Issuing Bank or such Lender's or Issuing Bank's holding company
could have achieved but for such Change in Law (taking into consideration such
Lender's or Issuing Bank's policies and the policies of such Lender's or
Issuing Bank's holding company with respect to capital adequacy), then from
time to time the Borrower will pay to such Lender or Issuing Bank, as the case
may be, such additional amount or amounts as will compensate such Lender or
Issuing Bank, or such Lender's or Issuing Bank's holding company, for any such
reduction suffered.
(c) Certificates from Lenders. A certificate of a Lender or
Issuing Bank setting forth the amount or amounts necessary to compensate such
Lender or Issuing Bank or its holding company, as the case may be, as specified
in paragraph (a) or (b) of this Section 2.13 shall be delivered to the Borrower
and shall be conclusive so long as it reflects a reasonable basis for the
calculation of the amounts set forth therein and does not contain any manifest
error. The Borrower shall pay such Lender or Issuing Bank the amount shown as
due on any such certificate within 10 days after receipt thereof.
(d) Delay in Requests. Failure or delay on the part of any
Lender or Issuing Bank to demand compensation pursuant to this Section 2.13
shall not constitute a waiver of such Lender's or Issuing Bank's right to
demand such compensation; provided that the Borrower shall not be required to
compensate a Lender or Issuing Bank pursuant to this Section 2.13 for any
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increased costs or reductions incurred more than six months prior to the date
that such Lender or Issuing Bank, as the case may be, notifies the Borrower of
the Change in Law giving rise to such increased costs or reductions and of such
Lender's or Issuing Bank's intention to claim compensation therefor; provided
further that, if the Change in Law giving rise to such increased costs or
reductions is retroactive, then the six-month period referred to above shall be
extended to include the period of retroactive effect thereof.
SECTION 2.14. Break Funding Payments. In the event of (a)
the payment of any principal of any Eurodollar Loan other than on the last day
of an Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Loan on the date specified in any notice delivered
pursuant hereto (regardless of whether such notice is permitted to be revocable
and is revoked in accordance herewith) or (d) the assignment of any Eurodollar
Loan other than on the last day of the Interest Period applicable thereto as a
result of a request by the Borrower pursuant to Section 2.17, then, in any such
event, the Borrower shall compensate each Lender for the loss, cost and expense
attributable to such event.
In the case of a Eurodollar Loan, the loss to any Lender
attributable to any such event shall be deemed to include an amount determined
by such Lender to be equal to the excess, if any, of (i) the amount of interest
that such Lender would pay for a deposit equal to the principal amount of such
Loan for the period from the date of such payment, conversion, failure or
assignment to the last day of the then current Interest Period for such Loan
(or, in the case of a failure to borrow, convert or continue, the duration of
the Interest Period that would have resulted from such borrowing, conversion or
continuation) if the interest rate payable on such deposit were equal to the
Adjusted LIBO Rate for such Interest Period, over (ii) the amount of interest
that such Lender would earn on such principal amount for such period if such
Lender were to invest such principal amount for such period at the interest
rate that would be bid by such Lender (or an affiliate of such Lender) for U.S.
dollar deposits from other banks in the eurodollar market at the commencement
of such period. A certificate of any Lender setting forth any amount or
amounts that such Lender is entitled to receive pursuant to this Section 2.14
shall be delivered to the Borrower and shall be conclusive absent manifest
error. The Borrower shall pay such Lender the amount shown as due on any such
certificate within 10 days after receipt thereof.
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SECTION 2.15. Taxes.
(a) Payments Free of Taxes. Any and all payments by or on
account of any obligation of the Borrower hereunder shall be made free and
clear of and without deduction for any Indemnified Taxes or Other Taxes (except
to the extent that, after request by the Borrower, the Lender shall have failed
to deliver the documents referred to in paragraph (e) of this Section 2.15);
provided that if the Borrower shall be required to deduct any Indemnified Taxes
or Other Taxes from such payments, then (i) the sum payable shall be increased
as necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.15) the
Administrative Agent, Lender or Issuing Bank (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been
made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall
pay the full amount deducted to the relevant Governmental Authority in
accordance with applicable law.
(b) Other Taxes. In addition the Borrower shall pay any
Other Taxes to the relevant Governmental Authority in accordance with
applicable law.
(c) Indemnification by Borrower. The Borrower shall
indemnify the Administrative Agent, each Lender and each Issuing Bank, within
10 days after written demand therefor, for the full amount of any Indemnified
Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or
asserted on or attributable to amounts payable under this Section 2.15) paid by
the Administrative Agent, such Lender or Issuing Bank, as the case may be (and
any penalties, interest and reasonable expenses arising therefrom or with
respect thereto during the period prior to the Borrower making the payment
demanded under this paragraph (c)), whether or not such Indemnified Taxes or
Other Taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority. A certificate as to the amount of such payment or
liability delivered to the Borrower by a Lender or an Issuing Bank, or by the
Administrative Agent on its own behalf or on behalf of a Lender or an Issuing
Bank, shall be conclusive absent manifest error.
(d) Receipt for Payments. As soon as practicable after any
payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental
Authority, the Borrower shall deliver to the Administrative Agent the original
or a certified copy of a receipt issued by such Governmental Authority
evidencing such payment, a copy of the return reporting such payment or other
evidence of such payment reasonably satisfactory to the Administrative Agent.
(e) Foreign Lenders. Any Foreign Lender that is entitled to
an exemption from or reduction of withholding tax under the law of the
jurisdiction in which the Borrower is located, or any treaty to which such
jurisdiction is a party, with respect to payments under this Agreement shall
deliver to the Borrower (with a copy to the Administrative Agent), at the time
or times
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prescribed by applicable law or reasonably requested by the Borrower, such
properly completed and executed documentation prescribed by applicable law as
will permit such payments to be made without withholding or at a reduced rate.
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing
of Set-Offs.
(a) Payments by Obligors. The Borrower shall make each
payment required to be made by it hereunder (whether of principal, interest,
fees or reimbursement of LC Disbursements, or under Section 2.13, 2.14 or 2.15,
or otherwise) prior to 12:00 noon, New York City time, on the date when due, in
immediately available funds, without set-off or counterclaim. Any amounts
received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Administrative Agent at such of its offices in New York
City as shall be notified to the relevant parties from time to time, except
payments to be made directly to an Issuing Bank as expressly provided herein
and except that payments pursuant to Sections 2.13, 2.14, 2.15 and 10.03 shall
be made directly to the Persons entitled thereto. The Administrative Agent
shall distribute any such payments received by it for the account of any other
Person to the appropriate recipient promptly following receipt thereof, and the
Borrower shall have no liability in the event timely or correct distribution of
such payments is not so made. If any payment hereunder shall be due on a day
that is not a Business Day, the date for payment shall be extended to the next
succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension. All
payments hereunder shall be made in U.S. dollars.
(b) Application if Payments Insufficient. If at any time
insufficient funds are received by and available to the Administrative Agent to
pay fully all amounts of principal, unreimbursed LC Disbursements, interest and
fees then due hereunder, such funds shall be applied (i) first, to pay interest
and fees then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of interest and fees then due to such parties, and
(ii) second, to pay principal and unreimbursed LC Disbursements then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of principal and unreimbursed LC Disbursements then due to such
parties.
(c) Pro Rata Treatment. Except to the extent otherwise
provided herein: (i) each borrowing of Loans of a particular Class from the
Lenders under Section 2.01 hereof shall be made from the relevant Lenders, each
payment of commitment fee under Section 2.10 hereof in respect of Commitments
of a particular Class shall be made for account of the relevant Lenders, and
each termination or reduction of the amount of the Commitments of a particular
Class under Section 2.03 hereof shall be applied to the respective Commitments
of such Class of the relevant Lenders, pro rata according to the amounts of
their respective Commitments of such Class; (ii) Eurodollar Loans of any Class
having the same Interest Period shall be allocated pro rata
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among the relevant Lenders according to the amounts of their Commitments or
such Class (in the case of the making of Loans) or their respective Loans of
such Class (in the case of conversions and continuations of Loans); (iii) each
payment or prepayment by the Borrower of principal of Loans of a particular
Class shall be made for account of the relevant Lenders pro rata in accordance
with the respective unpaid principal amounts of the Loans of such Class held by
them; (iv) each payment by the Borrower of interest on Loans of a particular
Class shall be made for account of the relevant Lenders pro rata in accordance
with the amounts of interest on such Loans then due and payable to the
respective Lenders; and (v) each payment by the Borrower of participation fees
in respect of Letters of Credit shall be made for the account of the Revolving
Credit Lenders pro rata in accordance with the amount of participation fees
then due and payable to the Revolving Credit Lenders.
(d) Sharing of Payments by Lenders. If, at any time after
the occurrence and during the continuance of an Event of Default hereunder, any
Lender shall, by exercising any right of set-off or counterclaim or otherwise
(including through voluntary prepayment by the Restricted Companies, or through
the exercise of any remedies under, or payments made pursuant to, the
Restricted Company Guarantee and Security Agreement), obtain payment in respect
of any principal of or interest on any of its Loans (or participations in LC
Disbursements) of any Class resulting in such Lender receiving payment of a
greater proportion of the aggregate principal amount of its Loans (and
participations in LC Disbursements) of such Class and accrued interest thereon
than the proportion of such amounts received by any other Lender of any other
Class, then the Lender receiving such greater proportion shall purchase (for
cash at face value) participations in the Loans (and LC Disbursements) of the
other Lenders to the extent necessary so that the benefit of such payments
shall be shared by all the Lenders ratably in accordance with the aggregate
amount of principal of and accrued interest on their respective Loans (and
participations in LC Disbursements); provided that (i) if any such
participations are purchased and all or any portion of the payment giving rise
thereto is recovered, such participations shall be rescinded and the purchase
price restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment
obtained by a Lender as consideration for the assignment of or sale of a
participation in any of its Loans (or participations in LC Disbursements) to
any assignee or participant, other than to any Credit Party or any subsidiary
or Affiliate thereof (as to which the provisions of this paragraph shall
apply). The Borrower consents to the foregoing and agrees, to the extent it
may effectively do so under applicable law, that any Lender acquiring a
participation pursuant to the foregoing arrangements may exercise against the
Borrower rights of set-off and counterclaim with respect to such participation
as fully as if such Lender were a direct creditor of the Borrower in the amount
of such participation.
(e) Presumptions of Payment. Unless the Administrative Agent
shall have received notice from the Borrower prior to the date on which any
payment is due to the Administrative Agent for the account of the Lenders or
any Issuing Bank entitled thereto (the
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"Applicable Recipient") hereunder that the Borrower will not make such payment,
the Administrative Agent may assume that the Borrower has made such payment on
such date in accordance herewith and may, in reliance upon such assumption,
distribute to the Applicable Recipient the amount due. In such event, if the
Borrower has not in fact made such payment, then each Applicable Recipient
severally agrees to repay to the Administrative Agent forthwith on demand the
amount so distributed to such Applicable Recipient with interest thereon, for
each day from and including the date such amount is distributed to it to but
excluding the date of payment to the Administrative Agent, at the Federal Funds
Effective Rate.
(f) Certain Deductions by Administrative Agent. If any
Lender shall fail to make any payment required to be made by it pursuant to
Section 2.04(d), 2.04(e), 2.05(b) or 2.16(e), then the Administrative Agent
may, in its discretion (notwithstanding any contrary provision hereof), apply
any amounts thereafter received by the Administrative Agent for the account of
such Lender to satisfy such Lender's obligations under such Section until all
such unsatisfied obligations are fully paid.
SECTION 2.17. Mitigation Obligations; Replacement of Lenders.
(a) Designation of Different Lending Office. If any Lender
requests compensation under Section 2.13, or if the Borrower is required to pay
any additional amount to any Lender or any Governmental Authority for the
account of any Lender pursuant to Section 2.15, then such Lender shall use
reasonable efforts to designate a different lending office for funding or
booking its Loans hereunder or to assign its rights and obligations, hereunder
to another of its offices, branches or affiliates, if, in the judgment of such
Lender, such designation or assignment (i) would eliminate or reduce amounts
payable pursuant to Section 2.13 or 2.15, as the case may be, in the future and
(ii) would not subject such Lender to any unreimbursed cost or expense and
would not otherwise be disadvantageous to such Lender. The Borrower hereby
agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.
(b) Replacement of Lenders -- Increased Costs, Etc. If any
Lender requests compensation under Section 2.13, or if the Borrower is required
to pay any additional amount to any Lender or any Governmental Authority for
the account of any Lender pursuant to Section 2.15, or if any Lender defaults
in its obligation to fund Loans hereunder, then the Borrower may, at its sole
expense and effort, upon notice to such Lender and the Administrative Agent,
require such Lender to assign and delegate, without recourse (in accordance
with and subject to the restrictions contained in Section 10.04), all its
interests, rights and obligations under this Agreement to an assignee that
shall assume such obligations (which assignee may be another Lender, if a
Lender accepts such assignment); provided that (i) the Borrower shall have
received the prior written consent of the Administrative Agent (and, if a
Revolving Credit Commitment is being assigned, each Issuing Bank), which
consents shall not unreasonably be withheld or
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delayed, (ii) such Lender shall have received payment of an amount equal to the
outstanding principal of its Loans (and participations in LC Disbursements),
accrued interest thereon, accrued fees and all other amounts payable to it
hereunder, from the assignee (to the extent of such outstanding principal and
accrued interest and fees) or the Borrower (in the case of all other amounts)
and (iii) in the case of any such assignment resulting from a claim for
compensation under Section 2.13 or payments required to be made pursuant to
Section 2.15, such assignment will result in a reduction in such compensation
or payments. A Lender shall not be required to make any such assignment and
delegation if, prior thereto, as a result of a waiver by such Lender or
otherwise, the circumstances entitling the Borrower to require such assignment
and delegation cease to apply.
(c) Replacement of Lenders -- Amendments. If, in connection
with a request by any Credit Party to obtain the consent of the Lenders to a
waiver, amendment or modification of any of the provisions of this Agreement or
any other Loan Document that requires the consent of all of the Lenders under
Section 10.02, one or more Lenders (the "Declining Lenders") having Loans, LC
Exposure and unused Commitments representing not more than 2% of the sum of the
total Loans, LC Exposure and unused Commitments at such time have declined to
agree to such request, then the Borrower may, at its sole expense and effort,
upon notice to such Lender(s) and the Administrative Agent, require all (but
not less than all) of such Declining Lenders to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 10.04), all their interests, rights and obligations under this
Agreement to one or more assignees that shall assume such obligations (any of
which assignees may be another Lender, if a Lender accepts such assignment);
provided that (i) the Borrower shall have received the prior written consent of
the Administrative Agent (and, if a Revolving Credit Commitment is being
assigned, each Issuing Bank), which consents shall not unreasonably be withheld
or delayed, (ii) each such Declining Lender shall have received payment of an
amount equal to the outstanding principal of its Loans (and participations in
LC Disbursements), accrued interest thereon, accrued fees and all other amounts
payable to it hereunder, from the assignee (to the extent of such outstanding
principal and accrued interest and fees) or the Borrower (in the case of all
other amounts) and (iii) the Borrower shall have paid to each of the Lenders
compensation in an amount equivalent (taking into account the total
Commitments, LC Exposure and Loans of such other Lenders) to any compensation
required to induce the assignees to take such assignment from the Declining
Lenders.
ARTICLE III
Guarantee by NCI
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SECTION 3.01. The Guarantee. NCI hereby guarantees to each
Lender, each Issuing Bank and the Administrative Agent and their respective
successors and assigns the prompt payment in full when due (whether at stated
maturity, by acceleration or otherwise) of the principal of and interest on the
Loans made by the Lenders to the Borrower, all LC Disbursements and all other
amounts from time to time owing to the Lenders, any Issuing Bank or either
Agent by the Borrower hereunder or under any other Loan Document, and all
obligations of the Borrower to any Lender (or any affiliate of any Lender)
under any Hedging Agreement, in each case strictly in accordance with the terms
thereof (such obligations being herein collectively called the "Guaranteed
Obligations"). NCI hereby further agrees that if the Borrower shall fail to
pay in full when due (whether at stated maturity, by acceleration or otherwise)
any of the Guaranteed Obligations, NCI will promptly pay the same, without any
demand or notice whatsoever, and that in the case of any extension of time of
payment or renewal of any of the Guaranteed Obligations, the same will be
promptly paid in full when due (whether at extended maturity, by acceleration
or otherwise) in accordance with the terms of such extension or renewal.
SECTION 3.02. Obligations Unconditional. The obligations of
NCI under Section 3.01 are absolute and unconditional irrespective of the
value, genuineness, validity, regularity or enforceability of this Agreement,
the other Loan Documents or any other agreement or instrument referred to
herein or therein, or any substitution, release or exchange of any other
guarantee of or security for any of the Guaranteed Obligations, and, to the
fullest extent permitted by applicable law, irrespective of any other
circumstance whatsoever that might otherwise constitute a legal or equitable
discharge or defense of a surety or guarantor, it being the intent of this
Section 3.02 that the obligations of NCI hereunder shall be absolute and
unconditional under any and all circumstances. Without limiting the generality
of the foregoing, it is agreed that the occurrence of any one or more of the
following shall not alter or impair the liability of NCI hereunder which shall
remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to NCI,
the time for any performance of or compliance with any of the
Guaranteed Obligations shall be extended, or such performance or
compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions
hereof or of the other Loan Documents or any other agreement or
instrument referred to herein or therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall
be accelerated, or any of the Guaranteed Obligations shall be
modified, supplemented or amended in any respect, or any right
hereunder or under the other Loan Documents or any other agreement or
instrument referred to herein or therein shall be waived or any other
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guarantee of any of the Guaranteed Obligations or any security therefor
shall be released or exchanged in whole or in part or otherwise dealt
with; or
(iv) any lien or security interest granted to, or in favor
of, the Collateral Agent, any Issuing Bank or any Lender or Lenders as
security for any of the Guaranteed Obligations shall fail to be
perfected.
NCI hereby expressly waives diligence, presentment, demand of payment, protest
and all notices whatsoever, and any requirement that the Administrative Agent,
the Collateral Agent, any Issuing Bank or any Lender exhaust any right, power
or remedy or proceed against the Borrower hereunder or under the other Loan
Documents or any other agreement or instrument referred to herein or therein,
or against any other Person under any other guarantee of, or security for, any
of the Guaranteed Obligations.
SECTION 3.03. Reinstatement. The obligations of NCI under
this Article III shall be automatically reinstated if and to the extent that
for any reason any payment by or on behalf of the Borrower in respect of the
Guaranteed Obligations is rescinded or must be otherwise restored by any holder
of any of the Guaranteed Obligations, whether as a result of any proceedings in
bankruptcy or reorganization or otherwise, and NCI agrees that it will
indemnify the Administrative Agent, each Issuing Bank and each Lender on demand
for all reasonable costs and expenses (including fees of counsel) incurred by
the Administrative Agent or such Issuing Bank or Lender in connection with such
rescission or restoration, including any such costs and expenses incurred in
defending against any claim alleging that such payment constituted a
preference, fraudulent transfer or similar payment under any bankruptcy,
insolvency or similar law.
SECTION 3.04. Subrogation. NCI hereby waives all rights of
subrogation or contribution, whether arising by contract or operation of law
(including, without limitation, any such right arising under the Federal
Bankruptcy Code of 1978, as amended) or otherwise by reason of any payment by
it pursuant to the provisions of this Article III and further agrees with the
Borrower for the benefit of each of its creditors (including, without
limitation, each Issuing Bank, each Lender and the Administrative Agent) that
any such payment by it shall constitute a contribution of capital by NCI to the
Borrower.
SECTION 3.05. Remedies. NCI agrees that, as between NCI and
the Lenders, the obligations of the Borrower hereunder may be declared to be
forthwith due and payable as provided in Article VIII or Section 2.04(i), as
applicable (and shall be deemed to have become automatically due and payable in
the circumstances provided in Article VIII or Section 2.04(i), as applicable)
for purposes of Section 3.01 notwithstanding any stay, injunction or other
prohibition preventing such declaration (or such obligations from becoming
automatically due and payable) as against the Borrower and that, in the event
of such declaration (or such obligations being
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deemed to have become automatically due and payable), such obligations (whether
or not due and payable by the Borrower) shall forthwith become due and payable
by NCI for purposes of Section 3.01.
SECTION 3.06. Instrument for the Payment of Money. NCI
hereby acknowledges that the guarantee in this Article III constitutes an
instrument for the payment of money, and consents and agrees that any Issuing
Bank, any Lender or the Administrative Agent, at its sole option, in the event
of a dispute by NCI in the payment of any moneys due hereunder, shall have the
right to bring motion-action under New York CPLR Section 3213.
SECTION 3.07. Continuing Guarantee. The guarantee in this
Article III is a continuing guarantee, and shall apply to all Guaranteed
Obligations whenever arising.
ARTICLE IV
Representations and Warranties
NCI and each Restricted Company represents and warrants to the
Lenders and the Agents, as to itself and each of its subsidiaries, that:
SECTION 4.01. Organization; Powers. NCI is duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Each of the Restricted Companies is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization. Each
Credit Party has all requisite power and authority under their respective
organizational documents to carry on its business as now conducted and, except
where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect, is qualified to
do business in, and is in good standing in, every jurisdiction where such
qualification is required.
SECTION 4.02. Authorization; Enforceability. The
Transactions are within the corporate power of each Credit Party and have been
duly authorized by all necessary corporate and, if required, stockholder action
on the part of such Credit Party. This Agreement has been duly executed and
delivered by each Credit Party and constitutes a legal, valid and binding
obligation of such Credit Party, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in
equity or at law.
SECTION 4.03. Governmental Approvals; No Conflicts. The
Transactions (a) do not require any consent or approval of, registration or
filing with, or any other action by, any
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Governmental Authority, (b) will not violate any applicable law, policy or
regulation or the charter, by-laws or other organizational documents of any
Credit Party or any order of any Governmental Authority, (c) will not violate
or result in a default under any indenture, agreement or other instrument
binding upon any Credit Party, or any of its assets, or give rise to a right
thereunder to require any payment to be made by any Credit Party, and (d)
except for the Liens created by the Security Documents, will not result in the
creation or imposition of any Lien on any asset of the Credit Parties.
SECTION 4.04. Financial Condition; No Material Adverse
Change.
(a) Financial Statements. The Credit Parties have heretofore
delivered to the Lenders the following financial statements:
(i) the audited consolidated balance sheet and statements of
operations, changes in stockholders' equity and cash flows of NCI and
its subsidiaries as of and for the fiscal year ended December 31,
1996, reported on by Deloitte & Touche LLP, independent public
accountants;
(ii) the unaudited combined condensed consolidated balance
sheet and statements of changes in stockholders' equity and cash flows
of NCI and its subsidiaries as of and for the nine-month period ended
September 30, 1997, together with the unaudited consolidated
statements of operations for such period and for the fiscal quarter
ended September 30, 1997, in each case certified by a Financial
Officer of NCI;
(iii) pro forma combined condensed balance sheet and
statements of operations, changes in stockholders' equity and cash
flows of the Restricted Companies as of and for the fiscal year ended
December 31, 1996, certified by a Financial Officer of the Borrower;
and
(iv) pro forma combined condensed balance sheet and
statements of changes in stockholders' equity and cash flows of the
Restricted Companies as of and for the nine-month period ended
September 30, 1997, together with the pro forma combined statements of
operations for such period and for the fiscal quarter ended September
30, 1997, in each case certified by a Financial Officer of NCI.
Such financial statements present fairly, in all material respects, the
consolidated financial position and results of operations and cash flows of NCI
and its subsidiaries, and the pro forma combined condensed financial position
and results of operations and cash flows of the Restricted Companies, as of
such dates and for such periods in accordance with GAAP, subject to year-end
audit adjustments and the absence of footnotes in the case of the statements as
at and for the fiscal quarter and nine-month period ended September 30, 1997.
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(b) No Material Adverse Change. Since September 30, 1997,
there has been no material adverse change in the business, assets, operations,
prospects or condition, financial or otherwise, of NCI and its subsidiaries, or
of the Restricted Companies, in each case taken as a whole.
(c) No Material Undisclosed Liabilities. None of the Credit
Parties has on the date hereof any contingent liabilities, liabilities for
taxes, unusual forward or long-term commitments or unrealized or anticipated
losses from any unfavorable commitments in each case that are material, except
as referred to or reflected or provided for in the balance sheets as at
September 30, 1997 referred to above, or pursuant to the Vendor Equipment
Agreements.
(d) Year 2000 Issues. The Restricted Companies have
initiated a review of their operations with a view to assessing whether their
business or operations will, in the receipt, transmission, processing,
manipulation, storage, retrieval, retransmission or other utilization of data,
be vulnerable to any significant risk that computer hardware or software used
in their business or operations will not, in the case of dates or time periods
occurring after December 31, 1999, function at least as effectively as in the
case of dates or time periods occurring prior to January 1, 2000. Based on
such review, as of the date hereof, the Borrower has no reason to believe that
a Material Adverse Effect will occur with respect to such business or
operations resulting from any such risk.
SECTION 4.05. Properties.
(a) Title Generally. Each of the Credit Parties has good
title to, or valid leasehold interests in, all its real and personal property
material to its business, except for minor defects in title that do not
interfere with its ability to conduct its business as currently conducted or to
utilize such properties for their intended purposes.
(b) Real Property. The Restricted Companies have heretofore
delivered to the Collateral Agent a complete and correct list in all material
respects, as of December 31, 1997, of all of the real property interests owned
or leased by the Restricted Companies as of such date, indicating in each case
whether the respective property is owned or leased (and, if leased, the type of
the operations of the Restricted Companies conducted or to be conducted on such
property), the identity of the owner or lessor (to the extent available) and
lessee and the city or market in which the respective property is located.
(c) Intellectual Property. Each of the Credit Parties and
their respective subsidiaries owns, or is licensed to use, all trademarks,
tradenames, copyrights, patents and other intellectual property material to its
business, and the use thereof by the Credit Parties and their respective
subsidiaries does not infringe upon the rights of any other Person, except for
any such
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infringements that, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
SECTION 4.06. Litigation and Environmental Matters.
(a) Litigation Generally. There are no actions, suits or
proceedings by or before any arbitrator or Governmental Authority pending
against or, to the knowledge of any of the Credit Parties, threatened against
or affecting any of the Credit Parties or any of their respective subsidiaries
(i) as to which there is a reasonable possibility of an adverse determination
and that, if adversely determined, could reasonably be expected, individually
or in the aggregate, to result in a Material Adverse Effect (other than the
Disclosed Matters) or (ii) that involve any of the Basic Documents or the
Transactions.
(b) Environmental Matters. Except for the Disclosed Matters
and except with respect to any other matters that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect, no Credit Party nor any of their respective subsidiaries (i) has failed
to comply with any Environmental Law or to obtain, maintain or comply with any
permit, license or other approval required under any Environmental Law, (ii)
has become subject to any Environmental Liability, (iii) has received notice of
any claim with respect to any Environmental Liability or any inquiry,
allegation, notice or other communication from any Governmental Authority
concerning its compliance with any Environmental Law or (iv) knows of any basis
for any Environmental Liability.
(c) No Change in Status of Disclosed Matters. Since the date
of this Agreement, there has been no change in the status of the Disclosed
Matters that, individually or in the aggregate, has resulted in, or materially
increased the likelihood of, a Material Adverse Effect.
SECTION 4.07. Compliance with Laws and Agreements. Each of
the Credit Parties and their respective subsidiaries is in compliance with all
laws, regulations, policies and orders of any Governmental Authority applicable
to it or its property and all indentures, agreements and other instruments
binding upon it or its property, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect. No Default has occurred and is continuing.
SECTION 4.08. Investment and Holding Company Status. No
Credit Party nor any of their respective subsidiaries is (a) an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940, as amended, or (b) a "holding company" as defined in, or subject
to regulation under, the Public Utility Holding Company Act of 1935, as
amended.
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SECTION 4.09. Taxes. Each of the Credit Parties and their
respective subsidiaries has timely filed or caused to be filed all Tax returns
and reports required to have been filed and has paid or caused to be paid all
Taxes required to have been paid by it, except (a) Taxes that are being
contested in good faith by appropriate proceedings and for which such
Restricted Company has set aside on its books adequate reserves with respect
thereto in accordance with GAAP or (b) to the extent that the failure to do so
could not reasonably be expected to result in a Material Adverse Effect.
SECTION 4.10. ERISA. No ERISA Event has occurred or is
reasonably expected to occur that, when taken together with all other such
ERISA Events for which liability is reasonably expected to occur, could
reasonably be expected to result in a Material Adverse Effect. As of the date
hereof, none of the Restricted Companies has, or within the past six years has
contributed to or been required to contribute to, any "employee benefit pension
plan" subject to Title IV of ERISA.
SECTION 4.11. Disclosure. The Credit Parties have disclosed
to the Lenders all agreements, instruments and corporate or other restrictions
to which any Credit Party is subject, and all other matters known to any Credit
Party, that, individually or in the aggregate, could reasonably be expected to
result in a Material Adverse Effect. None of the reports, financial
statements, certificates or other information furnished by or on behalf of the
Credit Parties to the Administrative Agent or any Lender in connection with the
negotiation of this Agreement or delivered hereunder (as modified or
supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not materially misleading; provided that, with respect to projected
financial information, the Credit Parties represent only that such information
was prepared in good faith based upon assumptions believed to be reasonable at
the time.
SECTION 4.12. Material Agreements and Liens.
(a) Indebtedness. Part A of Schedule 4.12 is a complete and
correct list, as of the date of this Agreement, of each credit agreement, loan
agreement, indenture, purchase agreement, guarantee, letter of credit or other
arrangement providing for or otherwise relating to any Indebtedness or any
extension of credit (or commitment for any extension of credit) to, or
guarantee by, any of the Credit Parties the aggregate principal or face amount
of which equals or exceeds (or may equal or exceed) $5,000,000, and the
aggregate principal or face amount outstanding or that may become outstanding
under each such arrangement is correctly described in Part A of said Schedule
4.12.
(b) Liens. Part B of Schedule 4.12 hereto is a complete and
correct list, as of the date of this Agreement, of each Lien securing
Indebtedness of any Person the aggregate principal
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or face amount of which equals or exceeds (or may equal or exceed) $5,000,000
and covering any property of any of the Credit Parties, and the aggregate
Indebtedness secured (or that may be secured) by each such Lien and the
property covered by each such Lien is correctly described in Part B of said
Schedule 4.12.
SECTION 4.13. Regulatory Matters.
(a) License Information. The FCC Licenses and PUC
Authorizations held or managed by the Restricted Companies that are material to
the Mobile Communications Business of the Restricted Companies are valid and in
full force and effect without conditions except for such conditions as are
generally applicable to holders of FCC Licenses and such Authorizations. No
event (including the pendency of any petition to deny, informal objection,
petition to revoke, or other complaint, investigation or proceeding before the
FCC or any PUC) has occurred and is continuing which could reasonably be
expected to (i) result in the imposition of a material forfeiture or the
revocation, termination or adverse modification of any FCC License or PUC
Authorization held or managed by a Restricted Company and material to the
Mobile Communications Business of the Restricted Companies or (ii) materially
and adversely affect any rights of the Restricted Companies thereunder that are
material to the Mobile Communications Business of the Restricted Companies.
None of the Restricted Companies has any reason to believe or
has any knowledge that the FCC Licenses and PUC Authorizations held or managed
by the Restricted Companies that are material to the Mobile Communications
Business of the Restricted Companies will not be renewed in the ordinary
course. The Restricted Companies (taking into account the Commitments
hereunder and the other financial sources reflected or assumed in the business
plan of NCI set forth in the Information Memorandum) have sufficient time,
materials, equipment, contract rights and other required resources to complete,
in a timely fashion and in full, construction of each SMR System they currently
operate or currently plan to operate in compliance with all applicable
technical standards and construction requirements and deadlines. The current
ownership and operation by each of the Restricted Companies of its Mobile
Communications Business comply with the Communications Act of 1934, as amended,
and all rules, regulations and policies of the FCC, any PUC and of any other
Governmental Authority, except for such non-compliance that could not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
(b) Shared Frequency Agreements, Etc. Except for the
agreements set forth in Schedule 4.13, none of the Restricted Companies is, on
the date hereof, a party to (i) any agreement for the shared use of frequencies
with respect to SMR Licenses in the 800 MHz band (herein, "800 MHz SMR
Licenses") held by the Restricted Companies, (ii) any management, loading or
similar agreements with respect to such 800 MHz SMR Licenses, or (iii) any
agreement pursuant to which the Restricted Companies have agreed to share with
others any
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portion of the revenues derived from any such 800 MHz SMR Licenses, or pursuant
to which such 800 MHz SMR Licenses shall be subject to any right on the part of
any other Person to require any Restricted Companies to sell any such 800 MHz
SMR Licenses, which if terminated, amended or modified (or which if such right
were exercised), individually or collectively, would have a Material Adverse
Effect. The aggregate number of channels covered by 800 MHz SMR Licenses
managed by the Restricted Companies (i.e. 800 MHz SMR Licenses not issued in
the name of a Restricted Company) do not exceed 3% of the total number of
channels covered by 800 MHz SMR Licenses held or managed by the Restricted
Companies.
(c) Condition of Systems. All of the material properties,
equipment and systems owned, leased or managed by each Restricted Company are,
and (to the best knowledge of the Restricted Companies) all such material
property, equipment and systems to be acquired or added in connection with any
contemplated system expansion or construction will be, in good repair, working
order and condition and are and will be in compliance with all terms and
conditions of the FCC Licenses and all standards or rules imposed by any
Governmental Authority (including the FCC or any PUC) or as imposed under any
agreements with telephone companies and customers, except for any such failure
to be in good repair, working order or condition, and any such non-compliance,
that could not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect.
(d) Fees. Each of the Restricted Companies (as to all SMR
Systems owned, leased or managed by any of such entities) has paid all
franchise, license or other fees and charges which have become due pursuant to
any Authorization in respect of its business and has made appropriate provision
as is required by GAAP for any such fees and charges which have accrued.
(e) License Compliance. Except as specifically set forth in
Schedule 4.13 hereto, each of the Restricted Companies (as to all SMR Systems
owned or managed by any of such entities) has secured all Authorizations with
the FCC, and, if applicable, any PUC and any other Governmental Authority
exercising jurisdiction over the Mobile Communications Business of the
Restricted Companies (or the construction of delivery systems therefor)
required for the conduct of the business and operations of the Mobile
Communications Business as currently conducted, except where the failure to so
obtain such Authorizations could not reasonably be expected to result in a
Material Adverse Effect. All management agreements covering any FCC Licenses
managed by the Restricted Companies, and all agreements among the Restricted
Companies with respect to the operation of licenses, are in compliance with all
applicable laws as well as the rules, orders and policies of any Governmental
Authority, including the FCC and applicable PUC's, except for any
non-compliance that could not reasonably be expected to result in a Material
Adverse Effect. The Restricted Companies have timely filed all required
reports, applications, certificates, and other documents with the FCC and any
applicable PUC or other Governmental Authority with respect to any SMR Systems
owned or managed by any Restricted
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Company, except where failure to file any such documents could not result in a
Material Adverse Effect.
(f) Coverage. The aggregate Population in the geographic
regions covered by the SMR Licenses held or managed by the Restricted Companies
as at the date hereof is at least equal to 250,000,000. In addition, as of the
date hereof, each of the key markets listed in Schedule 1.01 are covered by 800
MHz SMR Licenses held by the Restricted Companies.
SECTION 4.14. Subsidiaries. Set forth in Schedule 4.14 is a
complete and correct list of all of the Restricted Companies and their
subsidiaries as of the date hereof together with, for each such subsidiary, (a)
the jurisdiction of organization of such subsidiary, (b) each Person holding
ownership interests in such subsidiary and (c) the nature of the ownership
interests held by each such Person and the percentage of ownership of such
subsidiary represented by such ownership interests. Except as disclosed in
Schedule 4.14, (i) each Credit Party owns, free and clear of Liens (other than
Liens created pursuant to the Security Documents), and has the unencumbered
right to vote, all outstanding ownership interests in each Person shown to be
held by it in Schedule 4.14, (y) all of the issued and outstanding capital
stock of each such Person organized as a corporation is validly issued, fully
paid and nonassessable and (z) there are no outstanding Equity Rights with
respect to such Person.
SECTION 4.15. Capitalization of Credit Parties.
(a) Capitalization of NCI. NCI has heretofore delivered to
the Administrative Agent a complete and correct copy of its Proxy Statement
dated June 7, 1995 pursuant to which the approval of the shareholders of NCI
was solicited, inter alia, with respect to the "Motorola Transaction" therein
referred to and the Securities Purchase Agreement dated as of April 4, 1995
among NCI, Digital Radio, L.L.C. (the "McCaw Investor") and Craig O. McCaw.
Such Proxy Statement attaches, as Exhibits thereto, true and complete copies of
the Agreement and Plan of Contribution and Merger (including all amendments
thereto) pursuant to which such Motorola Transaction was consummated, and such
Securities Purchase Agreement, and neither of such Agreement and Plan of
Contribution and Merger, nor such Securities Purchase Agreement, has been
subsequently amended, modified or supplemented.
As of the date hereof, except as described in Part A of
Schedule 4.15, none of the Equity Rights described in said Proxy Statement
pursuant to which Motorola or the McCaw Investor are entitled to acquire shares
of NCI capital stock (all of which Equity Rights are described in Part A of
Schedule 4.15) have been amended, modified or supplemented and (ii) except as
set forth in Part B of Schedule 4.15, there are no outstanding obligations of
NCI or any Restricted Company, to repurchase, redeem, or otherwise acquire any
shares of capital stock of NCI or any Restricted Company, nor are there any
outstanding obligations of NCI, any Restricted Company or any of their
subsidiaries to make payments to any Person, such as
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"phantom stock" payments, where the amount thereof is calculated with reference
to the fair market value or equity value of NCI or any Restricted Company.
(b) Capitalization of Restricted Companies. As of the date
hereof, the aggregate amount of equity capital received in the form of cash
after September 27, 1996 by the Restricted Companies in respect of shares of
common stock that does not exceed the aggregate proceeds of Qualifying Debt or
Equity Issuances by NCI after such date is equal to $2,327,100,000. Of such
amount, NCI hereby designates $1,200,500,000 as "Permanent Equity Capital" for
purposes of this Agreement.
SECTION 4.16. Vendor Equipment Agreements. The Restricted
Companies have heretofore delivered to the Administrative Agent (or to Special
Counsel for delivery to the Administrative Agent) a true and complete copy of
each Vendor Equipment Agreement (including all modifications and supplements
thereto and all schedules and exhibits delivered thereunder, other than
modifications or supplements of schedules relating to the pricing and payment
terms of equipment to be purchased thereunder).
SECTION 4.17. Public Note Indentures. NCI has heretofore
delivered to the Administrative Agent a true and complete copy of each Public
Note Indenture (including all modifications and supplements thereto) for each
of the Existing Public Notes. The Restricted Companies constitute all of the
"Restricted Subsidiaries" on the date hereof under and as defined in the Public
Note Indentures.
ARTICLE V
Conditions
SECTION 5.01. Effective Date. The effectiveness of the
obligations of the Lenders to make Loans, and of any Issuing Bank to issue
Letters of Credit, hereunder is subject to the conditions precedent that each
of the following conditions shall have been satisfied (or waived in accordance
with Section 10.02):
(a) Counterparts of Agreement. The Administrative Agent (or
Special Counsel) shall have received from each party hereto either (i)
a counterpart of this Agreement signed on behalf of such party or (ii)
written evidence satisfactory to the Administrative Agent (which may
include telecopy transmission of a signed signature page of this
Agreement) that such party has signed a counterpart of this Agreement.
(b) Opinion of Counsel to Credit Parties. The Administrative
Agent (or Special Counsel) shall have received a favorable written
opinion (addressed to the Administrative
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Agent and the Lenders and dated the Effective Date) of Jones, Day,
Reavis & Pogue, counsel to the Credit Parties, covering such matters
relating to the Credit Parties, this Agreement, the other Loan
Documents or the Transactions as the Required Lenders shall request
(and each Credit Party hereby requests such counsel to deliver such
opinion). To the extent deemed appropriate by the Restricted
Companies, internal corporate matters in such opinion (such as due
incorporation and the like) may be rendered in a separate opinion from
the General Counsel of NCI.
(c) Opinion of Special Communications Counsel. The
Administrative Agent (or Special Counsel) shall have received a
favorable written opinion (addressed to the Administrative Agent and
the Lenders and dated the Effective Date) of Dow, Lohnes & Albertson,
special communications counsel to the Credit Parties, covering such
matters relating to the Credit Parties, this Agreement, the other Loan
Documents or the Transactions as the Required Lenders shall request
(and each Credit Party hereby requests such counsel to deliver such
opinion).
(d) Opinion of Special Counsel. The Administrative Agent
shall have received a favorable written legal opinion (addressed to
the Administrative Agent and the Lenders and dated the Effective Date)
of Special Counsel, substantially in the form of Exhibit B (and each
of the Arrangers requests Special Counsel to deliver such opinion).
(e) Corporate Matters. The Administrative Agent (or Special
Counsel) shall have received such documents and certificates as the
Administrative Agent or Special Counsel may reasonably request
relating to the organization, existence and good standing of each
Credit Party, the authorization of the Transactions and any other
legal matters relating to the Credit Parties, this Agreement, the
other Loan Documents or the Transactions, all in form and substance
reasonably satisfactory to the Administrative Agent and its counsel.
(f) Financial Officer Certificate. The Administrative Agent
(or Special Counsel) shall have received a certificate, dated the
Effective Date and signed by the President, a Vice President or a
Financial Officer of the Borrower, confirming compliance with the
conditions set forth in paragraphs (a) and (b) of Section 5.02.
(g) Notes. The Administrative Agent (or Special Counsel)
shall have received for each Lender that shall have requested a
promissory note, a duly completed and executed promissory note for
such Lender.
(h) Restricted Company Guarantee and Security Agreement. The
Collateral Agent (or Special Counsel) shall have received (i) from
each Restricted Company a counterpart of the Restricted Company
Guarantee and Security Agreement signed on behalf of such Restricted
Company and (ii) to the extent not previously delivered to the
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Collateral Agent under the Existing Credit Agreement or the
"Restricted Company Guarantee and Security Agreement" executed and
delivered pursuant thereto, the stock certificates identified under
the name of such Restricted Company in Annex 1 thereto, accompanied by
undated stock powers executed in blank. In addition, each Restricted
Company shall have taken such other action to the extent not
previously taken under the Existing Credit Agreement or said
"Restricted Company Guarantee and Security Agreement" (including
delivering to the Collateral Agent, for filing, appropriately
completed and duly executed copies of Uniform Commercial Code
financing statements) as the Collateral Agent shall have requested in
order to perfect the security interests created pursuant to the
Restricted Company Guarantee and Security Agreement, excluding,
however, filings of Uniform Commercial Code financing statements with
respect to fixtures (which shall be subject to the provisions of the
last paragraph of Section 6.13 of the Restricted Company Guarantee and
Security Agreement).
(i) Concentration Account; Lock Boxes. The Collateral Agent
shall have received evidence satisfactory to it that, as contemplated
by Article V of the Restricted Company Guarantee and Security
Agreement, the Restricted Companies shall have implemented
arrangements under which all cash generated by the Restricted
Companies in the ordinary course of their business operations prior to
the August 1993 Indenture Termination Date will be deposited directly
into lock box or segregated depository accounts at banks that have
acknowledged the Lien of the Collateral Agent in such cash and that
have agreed to remit such cash to the Concentration Account under and
as defined in the Restricted Company Guarantee and Security Agreement.
(j) Mortgages. To the extent not previously delivered to the
Collateral Agent under the Existing Credit Agreement or any collateral
lease assignments executed and delivered pursuant thereto, the
Collateral Agent shall have received from each Restricted Company,
duly executed collateral lease assignments, in such form as shall be
satisfactory to the Collateral Agent, with respect to the leasehold
interests of such Restricted Company, provided that the filing and
recording of such collateral lease assignments, and related Uniform
Commercial Code financing statements with respect to fixtures, shall
be subject to the provisions of the last paragraph of Section 6.13 of
the Restricted Company Guarantee and Security Agreement.
(k) Repayment of Indebtedness. The Administrative Agent
shall have received evidence that the principal of and interest on,
and all other amounts owing in respect of, the Indebtedness under the
Existing Credit Agreement and the Existing Vendor Financing
Agreements, shall have been (or shall be simultaneously) paid in full
and that any commitments to extend credit thereunder shall have been
canceled. In addition, the Administrative Agent shall have received
evidence from the "Vendors" and the "Vendor Lenders" under and as
defined in the Existing Vendor Financing Agreements, that none
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of such "Vendors" or "Vendor Lenders" any longer claims any Liens on
any Property of the Restricted Companies, and that each of such
"Vendors" and "Vendor Lenders" shall have agreed to the termination of
the "Intercreditor and Collateral Agency Agreement" and "Second
Secured Intercreditor and Collateral Agency Agreement", as each of
such terms is defined in the Existing Credit Agreement.
(l) Fees and Expenses. The Administrative Agent shall have
received all fees and other amounts due and payable on or prior to the
Effective Date, including, to the extent invoiced, reimbursement or
payment of all out-of-pocket expenses required to be reimbursed or
paid by the Borrower hereunder.
Notwithstanding the foregoing, the obligations of the Lenders to make Loans,
and of the Issuing Banks to issue Letters of Credit, hereunder shall not become
effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 10.02) at or prior to 3:00 p.m., New York City time, on
March 31, 1998 (and, in the event such conditions are not so satisfied or
waived, the Commitments shall terminate at such time).
SECTION 5.02. Each Extension of Credit. The obligation of
each Lender to make a Loan on the occasion of any Borrowing, and of any Issuing
Bank to issue, amend, renew or extend any Letter of Credit, is subject to the
satisfaction of the following conditions:
(a) Representations and Warranties. The representations and
warranties of each Credit Party set forth in this Agreement and the
other Loan Documents shall be true and correct on and as of the date
of such Borrowing, or (as applicable) the date of issuance, amendment,
renewal or extension of such Letter of Credit, both before and after
giving effect thereto and to the use of the proceeds thereof (or, if
any such representation or warranty is expressly stated to have been
made as of a specific date, such representation or warranty shall be
true and correct as of such specific date).
(b) No Defaults. At the time of and immediately after giving
effect to such Borrowing, or (as applicable) the date of issuance,
amendment, renewal or extension of such Letter of Credit, no Default
shall have occurred and be continuing.
Each Borrowing Request, or request for issuance, amendment, renewal or
extension of a Letter of Credit, shall be deemed to constitute a representation
and warranty by the Borrower (both as of the date of such Borrowing Request, or
request for issuance, amendment, renewal or extension, and as of the date of
the related Borrowing or issuance, amendment, renewal or extension) as to the
matters specified in paragraphs (a) and (b) of this Section 5.02.
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ARTICLE VI
Affirmative Covenants
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall
have been paid in full and all Letters of Credit shall have expired or
terminated and all LC Disbursements shall have been reimbursed, each of the
Credit Parties covenants and agrees with the Lenders that:
SECTION 6.01. Financial Statements and Other Information.
NCI and the Borrower will furnish to the Administrative Agent and each Lender:
(a) within 120 days after the end of each fiscal year, the
audited consolidated statements of operations, changes in
stockholders' equity and cash flows of NCI and its subsidiaries for
such fiscal year, and the related audited consolidated balance sheet
for NCI and its subsidiaries as of the end of such fiscal year,
setting forth in each case in comparative form the corresponding
figures for the previous fiscal year, all reported on by Deloitte &
Touche LLP, or other independent public accountants of recognized
national standing (without a "going concern" or like qualification or
exception and without any qualification or exception as to the scope
of such audit), to the effect that such audited consolidated financial
statements present fairly in all material respects the financial
condition and results of operations of NCI and its subsidiaries on a
consolidated basis in accordance with GAAP consistently applied;
(b) within 120 days after the end of each fiscal year, the
unaudited combined statements of operations, changes in stockholders'
equity and cash flows of the Restricted Companies for such fiscal year
(and unaudited individual statements of operations, changes in
stockholders' equity and cash flows for any Non-Core Company and
Off-Balance Sheet Company), and the related unaudited combined balance
sheet for the Restricted Companies as of the end of such fiscal year
(and unaudited individual balance sheets for any Non-Core Company or
Off-Balance Sheet Company), setting forth in each case in comparative
form the corresponding figures for the previous fiscal year, all
certified by a Financial Officer of the Borrower as presenting fairly
in all material respects the financial condition and results of
operations of the Restricted Companies on a combined basis (or, as the
case may be, of any Non-Core Company or Off-Balance Sheet Company on
an individual basis) in accordance with GAAP consistently applied,
each of which financial statements for the Restricted Companies shall
be accompanied with a reconciliation, in form and detail satisfactory
to the Administrative Agent, to the audited financial statements for
NCI and its subsidiaries for such fiscal year delivered pursuant to
clause (a) above;
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(c) within 60 days after the end of each fiscal quarter of
each fiscal year (90 days in the case of the last fiscal quarter in
each fiscal year):
(i) the unaudited consolidated statements of
operations of NCI and its subsidiaries (and, separately
stated, the unaudited combined statements of operations of the
Restricted Companies, and unaudited individual statements of
operations for any Non-Core Company or Off-Balance Sheet
Company) for such fiscal quarter and for the then elapsed
portion of the fiscal year,
(ii) the unaudited consolidated statements of
changes in stockholders' equity and cash flows of NCI and its
subsidiaries (and, separately stated, the unaudited combined
statements of changes in stockholders' equity and cash flows
of the Restricted Companies, and unaudited individual
statements of changes in stockholders' equity and cash flows
of any Non-Core Company or Off-Balance Sheet Company) for the
then elapsed portion of the fiscal year and
(iii) the unaudited related consolidated balance
sheet for NCI and its subsidiaries (and, separately stated,
the related unaudited combined balance sheet for the
Restricted Companies, and unaudited individual balance sheets
for any Non-Core Company and Off-Balance Sheet Company) as at
the end of such fiscal quarter,
setting forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance
sheet, as of the end of) the previous fiscal year, all certified by a
Financial Officer of NCI or the Borrower (as the case may be) as
presenting fairly, in all material respects, the financial condition
and results of operations of NCI and its subsidiaries on a
consolidated basis (or, as the case may be, of the Restricted
Companies on a combined basis or of any Non-Core Company or
Off-Balance Sheet Company on an individual basis) in accordance with
GAAP consistently applied, subject to normal year-end audit
adjustments and the absence of footnotes;
(d) concurrently with any delivery of financial statements
under clause (a), (b) or (c) above, a certificate of a Financial
Officer of each of NCI and the Borrower:
(i) certifying as to whether a Default has occurred
and, if a Default has occurred, specifying the details thereof
and any action taken or proposed to be taken with respect
thereto,
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(ii) setting forth a calculation, in detail
satisfactory to the Administrative Agent, of the number of
Network Subscriber Units of the Restricted Companies as at the
last day of the fiscal period covered by such financial
statements,
(iii) setting forth reasonably detailed calculations
demonstrating compliance with Sections 7.01(f), 7.01(g),
7.01(h), the last paragraph of Section 7.01, 7.03(f), clauses
(iv), (vi), (vii) and (viii) of 7.04(a), 7.05(c), 7.05(d),
7.08 (which calculations shall include the corresponding
figures for the most-recently ended fiscal quarter with
respect to Capital Expenditures and Debt Service necessary to
demonstrate compliance with said Section 7.08) and 7.11,
(iv) setting forth reasonably detailed calculations
of the amounts, if any, of Indebtedness incurred since the
date hereof through the last day of the fiscal period covered
by said financial statements utilizing the baskets sets forth
in Section 7.01(b) and 7.01(c), and demonstrating compliance
with the provisions of each of said Sections,
(v) setting forth the estimated amount of Net Cash
Payments received during the most-recently ended fiscal
quarter from Dispositions during such quarter,
(vi) if any of the Public Notes maturing in 2003,
2004 or 2005 shall mature within twenty-four months of the
last day of the immediately following fiscal quarter,
describing the respective dates and amounts of the Public
Notes so maturing and the aggregate amount of all Public Notes
maturing in such years outstanding as at the last day of the
fiscal quarter as of which such financial statements are
prepared, provided that this requirement shall no longer be
applicable if the aggregate outstanding principal amount of
such Public Notes (including amounts scheduled to accrete in
respect thereof through maturity) shall be less than
$1,000,000,000 and the Borrower shall have delivered to the
Administrative Agent a certificate to such effect from a
Financial Officer; and
(vii) stating whether any change in GAAP or in the
application thereof has occurred since the later of the date
of the financial statements as at December 31, 1996 referred
to in Section 4.04 and the date of the last certificate
delivered pursuant to this clause (d) and, if any such change
has occurred, specifying the effect of such change on the
financial statements accompanying such certificate;
(e) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other
materials filed by any Credit Party with the Securities and Exchange
Commission, or any Governmental Authority succeeding to any
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or all of the functions of said Commission, or with any national
securities exchange, or distributed by NCI to the holders of the
Public Notes or to its shareholders generally;
(f) as soon as available and in any event within 45 days
after the end of each fiscal quarter of each fiscal year of the
Borrower, a report identifying any SMR License or PUC Authorization
material to the Mobile Communications Business of the Restricted
Companies that has been lost, surrendered or canceled during such
period, and within 10 Business Days of the receipt by any of the
Restricted Companies of notice that any such SMR License or PUC
Authorization has been lost or canceled or is subject to any action
that might reasonably be expected to cause such loss or cancellation,
copies of any such notice accompanied by a report describing the
measures undertaken by the Restricted Companies to prevent such loss
or cancellation (and the anticipated impact, if any, that such loss or
cancellation will have upon the Mobile Communications Business of the
Restricted Companies); and
(g) promptly following any request therefor, such other
information regarding the operations, business affairs and financial
condition of any Credit Party, or compliance with the terms of this
Agreement, as the Administrative Agent or any Lender may reasonably
request.
SECTION 6.02. Notices of Material Events. NCI and the
Borrower will furnish to the Administrative Agent and each Lender prompt
written notice of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or
proceeding by or before any arbitrator or Governmental Authority
against or affecting any Credit Party that, if adversely determined,
could reasonably be expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together
with any other ERISA Events that have occurred, could reasonably be
expected to result in liability of the Restricted Companies in an
aggregate amount exceeding $10,000,000; and
(d) any other development that results in, or could
reasonably be expected to result in, a Material Adverse Effect.
Each notice delivered under this Section 6.02 shall be accompanied by a
statement of a Financial Officer or other executive officer of NCI or the
Borrower, as the case may be, setting forth the details of the event or
development requiring such notice and any action taken or proposed to be taken
with respect thereto.
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SECTION 6.03. Existence; Conduct of Business. Each of the
Credit Parties will do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its legal existence and the rights,
licenses, permits, privileges and franchises material to the conduct of its
business; provided that the foregoing shall not prohibit any merger,
consolidation, liquidation or dissolution permitted under Section 7.03. In
that connection, each of the Restricted Companies shall take any and all
necessary and appropriate action to maintain all of the SMR Licenses and other
FCC Licenses and PUC Authorizations material to the Mobile Communications
Business of the Restricted Companies in full force and effect without adverse
modification, shall construct and operate each SMR System and other ancillary
system in compliance with applicable FCC Licenses and PUC Authorizations, and
shall otherwise comply in all material respects with the terms of all FCC
Licenses and PUC Authorizations as well as applicable laws, rules, policies,
decisions and orders of the FCC, any applicable PUC and any other Governmental
Authority, including new rules issued by the FCC with respect to RF Emissions.
Without limiting the generality of the foregoing, each of the
Restricted Companies will:
(i) do all things necessary to maintain its corporate
existence separate and apart from NCI and the Unrestricted Companies
and any division thereof, including holding regular meetings of its
shareholders and Board of Directors and maintaining appropriate
corporate books and records (including current minute books);
(ii) not suffer any limitation on the authority of its own
officers and directors to conduct its business and affairs in
accordance with their independent business judgment, or authorize or
suffer any Person other than its own officers to conduct its business
and affairs in accordance with their independent business judgment, or
authorize or suffer any Person other than its own officers and
directors to act on its behalf with respect to matters (other than
matters customarily delegated to others under power of attorney) for
which a corporation's own officers and directors would customarily be
responsible;
(iii) maintain the operations of the Restricted Companies
separate and apart from the operations of NCI and the Unrestricted
Companies, including (A) following customary corporate formalities,
(B) identifying separately all of its assets from those of NCI and the
Unrestricted Companies, (C) when dealing with creditors of the
Restricted Companies, or supplying financial information to creditors
of the Restricted Companies, identifying the respective Restricted
Company as a separate legal entity, (D) if NCI shall issue account
statements on behalf of the Restricted Companies to customers of the
Restricted Companies, identifying that such statements are being
delivered "for the respective operating companies" (or words of
similar import) rendering the services
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covered by such statements and (E) accounting for and managing all of
its liabilities separately from those of NCI and the Unrestricted
Companies, including payment by it of all payroll and other
administrative expenses and taxes (except as contemplated by the
Overhead Services Agreement and the Tax Sharing Agreement) from its
own assets; and
(iv) not commingle its funds with those of NCI, any
Unrestricted Company, any Non-Core Company or any Off-Balance Sheet
Company, or use its funds for other than in the business conducted by
the Restricted Companies, provided that nothing in this clause (iv)
shall prohibit a Restricted Company from billing and collecting
amounts payable to an Unrestricted Company, a Non-Core Company or an
Off-Balance Sheet Company (including the deposit of such amounts into
such Restricted Company's lock box or depository account) and
remitting such collected amounts to the respective Unrestricted
Company, Non-Core Company or Off-Balance Sheet Company entitled
thereto.
SECTION 6.04. Payment of Obligations. Each of the Credit
Parties will pay its obligations, including Tax liabilities, that, if not paid,
could result in a Material Adverse Effect before the same shall become
delinquent or in default, except where (a) the validity or amount thereof is
being contested in good faith by appropriate proceedings, (b) such Credit Party
has set aside on its books adequate reserves with respect thereto in accordance
with GAAP and (c) the failure to make payment pending such contest could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 6.05. Maintenance of Properties; Insurance. Each of
the Credit Parties will (a) keep and maintain all property material to the
conduct of its business in good working order and condition, ordinary wear and
tear excepted, and (b) maintain, with financially sound and reputable insurance
companies, insurance in such amounts and against such risks as are customarily
maintained by companies engaged in the same or similar businesses operating in
the same or similar locations.
SECTION 6.06. Books and Records; Inspection Rights. Each of
the Credit Parties will keep proper books of record and account in which full,
true and correct entries are made of all dealings and transactions in relation
to its business and activities. Each of the Credit Parties will permit any
representatives designated by the Administrative Agent or any Lender, upon
reasonable prior notice, to visit and inspect its properties, to examine and
make extracts from its books and records, and to discuss its affairs, finances
and condition with its officers and independent accountants, all at such
reasonable times and as often as reasonably requested.
SECTION 6.07. Fiscal Year. The Credit Parties will not
change the last day of their fiscal year from December 31 of each year, or the
last days of the first three fiscal quarters in each of their fiscal years from
March 31, June 30 and September 30 of each year, respectively.
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SECTION 6.08. Compliance with Laws. Each of the Credit
Parties will comply with all laws, rules, regulations and orders of any
Governmental Authority applicable to it or its property, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
SECTION 6.09. Use of Proceeds.
(a) Revolving Credit and Tranche A Term Loans. The proceeds
of the Revolving Credit and Tranche A Term Loans hereunder will be used for
capital expenditures, general corporate purposes (including the payment of
interest and fees hereunder), working capital, investments, spectrum
acquisitions and refinancing of Indebtedness of the Restricted Companies
(including Indebtedness under the Existing Credit Agreement and the Existing
Vendor Financing Agreements and, subject to the next following sentence,
Indebtedness under the Existing Public Notes), in each case in compliance with
the applicable provisions of the Public Note Indentures and of this Agreement.
Notwithstanding the foregoing, the aggregate amount of proceeds of Loans
hereunder that may be applied to the repurchase, redemption, repayment or
refinancing of the Existing Public Notes may not on any date, taking into
account all previous Loans hereunder the proceeds of which were so applied,
exceed the sum of (i) $500,000,000 plus (ii) the aggregate amount of Additional
Equity Capital on such date.
(b) Tranche B Term Loans. The proceeds of the Tranche B Term
Loans hereunder will be used for refinancing of Indebtedness under the Existing
Credit Agreement and the Existing Vendor Financing Agreements and, to the
extent that after all Indebtedness under the Existing Credit Agreement and the
Existing Vendor Financing Agreements shall have been paid in full, will be used
for any other purpose to which Revolving Credit Loans or Tranche A Term Loans
may be applied pursuant to Section 6.09(a).
(c) Regulations G, U and X. No part of the proceeds of any
Loan will be used, whether directly or indirectly, for any purpose that entails
a violation of any of the Regulations of the Board, including Regulations G, U
and X.
SECTION 6.10. Hedging Agreements. Within 90 days after the
Effective Date, the Borrower will enter into and thereafter maintain in full
force and effect one or more Hedging Agreements with one or more of the Lenders
(and/or with a bank or other financial institution having capital, surplus and
undivided profits of at least $500,000,000), that satisfy the following
requirements:
(a) as at the last day of each fiscal quarter ending after
the date 90 days after the Effective Date, the notional principal
amount of such Hedging Agreement(s), together with the aggregate
principal amount of Indebtedness of NCI and the Restricted Companies
bearing interest at a fixed rate, shall be at least equal to 50% of
the sum of the
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Commitments hereunder and all other Indebtedness of NCI and the
Restricted Companies outstanding on the last day of such fiscal
quarter; and
(b) each such Hedging Agreement shall have a minimum term of
three years and shall enable the Restricted Companies during the term
thereof to protect themselves against three-month London interbank
offered rate fluctuations at rates, and in a manner, reasonably
satisfactory to each of the Arrangers.
SECTION 6.11. Certain Obligations Respecting Subsidiaries and
Collateral Security.
(a) Guarantors. In the event that any Restricted Company
shall form or acquire any new subsidiary after the date hereof (and in the
event that NCI shall form or acquire any new subsidiary after the date hereof
constituting a "Restricted Subsidiary" under and as defined in the Public Note
Indentures or shall designate an existing Unrestricted Company as a "Restricted
Subsidiary" under and as defined in the Public Note Indentures), such Credit
Party will, within five Business Days of such formation or acquisition, cause
such new subsidiary (or such "Restricted Subsidiary"):
(i) to execute and deliver to the Collateral Agent a Joinder
Agreement (and thereby become a party to this Agreement, as a
"Restricted Company" hereunder, and the Restricted Company Guarantee
and Security Agreement as a "Guarantor" thereunder) and to pledge and
grant a security interest in its property pursuant to the Restricted
Company Guarantee and Security Agreement to the Collateral Agent for
the benefit of the Lenders;
(ii) to take such action (including delivering such shares of
stock and executing and delivering such Uniform Commercial Code
financing statements) as shall be necessary to create and perfect
valid and enforceable first priority Liens consistent with the
provisions of the Security Documents, on substantially all of the
shares of stock and property of such new subsidiary (or such
"Restricted Subsidiary") under the Restricted Company Guarantee and
Security Agreement; and
(iii) to deliver such proof of corporate action, incumbency
of officers and other documents (including, opinions of counsel, but
only in the case of any such subsidiary, or group of subsidiaries,
that in the aggregate have assets with a fair market value exceeding
$10,000,000 and then only to the extent requested by the
Administrative Agent or any Lender) as is consistent with those
delivered by each Restricted Company pursuant to Section 5.01 upon the
Effective Date or as either Agent shall have requested.
Notwithstanding the foregoing, (x) no Non-Core Company or Off-Balance Sheet
Company shall be required to execute and deliver any Joinder Agreement (or take
any of the other actions)
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referred to in clause (i) above, and no Non-Core Company or Off-Balance Sheet
Company shall become a "Restricted Company" for purposes of this Agreement, but
any Restricted Company that owns any shares of stock or other equity interest
in any Non-Core Company or Off-Balance Sheet Company shall take the actions
specified in clause (ii) above with respect to such stock or other equity
interests and (y) no subsidiary that is an "Unrestricted Subsidiary" under and
as defined in the Public Note Indentures shall be designated as a "Restricted
Subsidiary" under and as defined in the Public Note Indentures unless
immediately prior thereto and after giving effect thereto, no Default shall
have occurred and be continuing.
(b) Ownership of Subsidiaries. Each Restricted Company will
take such action from time to time as shall be necessary to ensure that the
percentage of the equity capital of any class or character owned by it in any
subsidiary on the date hereof (or, in the case of any newly formed or newly
acquired subsidiary, on the date of formation or acquisition) is not at any
time decreased, other than by reason of transfers to another Restricted
Company, provided that this sentence shall not apply to the equity capital of
any Non-Core Company. In the event that any additional shares of stock shall
be issued by any subsidiary of any Restricted Company to any Restricted
Company, the respective Restricted Company shall forthwith deliver to the
Collateral Agent pursuant to the Restricted Company Guarantee and Security
Agreement the certificates evidencing such shares of stock, accompanied by
undated stock powers executed in blank and to take such other action as the
Collateral Agent shall request to perfect the security interest created therein
pursuant to the Restricted Company Guarantee and Security Agreement.
(c) Regulatory Matters. If after the date hereof there shall
be a change in law, or the rules or regulations of the FCC or applicable to any
PUC Authorization, the effect of which is to permit the granting of a security
interest in the FCC Licenses or such PUC Authorization, the Restricted
Companies will, within five Business Days after request therefor by the
Collateral Agent (or the Required Lenders through the Collateral Agent) execute
and deliver all such instruments and documents, and take such other actions, as
shall be necessary or desirable, or that the Collateral Agent (or the Required
Lenders) may reasonably request, in order to create and perfect (or to confirm
the creation and perfection of) a security interest in the FCC Licenses or such
PUC Authorization.
(d) Real Property Interests. Within 120 days after the end
of each fiscal year of the Borrower, the Restricted Companies will deliver to
the Collateral Agent a revised list, as of the last day of such fiscal year, of
the information heretofore delivered pursuant to Section 4.05(b), setting forth
all of the real property interests owned or leased by the Restricted Companies
as at such date, such list to be in the same form and detail, and otherwise to
be reasonably satisfactory, to the Collateral Agent. In addition, within 60
days after the end of each fiscal quarter of each fiscal year of the Borrower,
the Restricted Companies will deliver to the Collateral Agent a supplement, as
of the last day of such fiscal quarter, with respect to the information
heretofore delivered pursuant to Section 4.05(b), setting forth any additional
real
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property interests owned or leased by the Restricted Companies since the date
of the most recent list or supplement, as the case may be, delivered pursuant
to Section 4.05(b) or this paragraph (d), such list to be in the same form and
detail, and otherwise to be reasonably satisfactory, to the Collateral Agent.
SECTION 6.12. Planned Option Issuances. NCI will,
immediately upon receipt thereof, contribute to one or more of the Restricted
Companies, as additional equity capital in respect of the common stock of the
Restricted Companies, any proceeds received by NCI after the date hereof from
Planned Option Issuances.
SECTION 6.13. Non-Core Assets; Designation of Non-Core and
Off-Balance Sheet Companies.
(a) Non-Core Assets. Not later than 60 days following each
fiscal quarter, the Borrower will supplement Schedule 1.01 (by delivering a
revised copy thereof to the Administrative Agent, which shall promptly forward
a copy thereof to each Lender), as necessary, to:
(i) delete any key market set forth in Schedule 1.01 in the
event that the 800 MHz SMR Licenses held by the Restricted Companies
for such key market shall be canceled or fail to be renewed, and
(ii) add such additional key markets, if any, as shall be
necessary so that the aggregate Population residing within key markets
listed on Schedule 1.01 and covered by 800 MHz SMR Licenses held by
the Restricted Companies, is not less than the percentage of the
aggregate Population of the United States of America represented by
such key markets on the date hereof (i.e. 68%), or such lesser
percentage to which the Required Lenders may consent.
(b) Designation of Non-Core Companies or Off-Balance Sheet
Companies. NCI may at any time after the Effective Date designate any of the
Restricted Companies and any newly-acquired or newly-formed subsidiary of any
Restricted Company (any such Restricted Company or newly-acquired or
newly-formed subsidiary being herein called a "Prospective Designated Company")
to be a "Non-Core Company" or "Off-Balance Sheet Company" for purposes of this
Agreement, by delivering to each of the Agents a certificate of a Financial
Officer of NCI stating that the conditions set forth in this Section 6.13(b)
have been satisfied with respect to such designation, such conditions being as
follows:
(i) no Restricted Company (x) is directly or indirectly
liable for any Indebtedness of such Prospective Designated Company or
(y) has any obligation (A) to subscribe for additional equity
interests in such Prospective Designated Company (other than in
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exchange for the transfer of Non-Core Assets or Off-Balance Sheet
Assets in connection with an Off-Balance Sheet Transaction, as the
case may be, permitted hereunder) or (B) to maintain or preserve such
Prospective Designated Company's financial condition or to cause such
Prospective Designated Company to achieve certain levels of operating
results, except in the case of either of the foregoing clauses (x) or
(y) to the extent of any Guarantee that, after giving effect to such
designation, would be permitted under Section 7.04(b);
(ii) no Restricted Company has made an investment in such
Prospective Designated Company, except to the extent of any investment
that, after giving effect to such designation, would be permitted
under 7.04(a)(v) or 7.04(a)(vi) (and, for purposes of this clause
(ii), the amount of any such investment described in Section
7.04(a)(vi) on the date of such designation shall be deemed to be
equal to the greater of (x) the amount of the investments by the
Restricted Companies in such Prospective Designated Company
(determined in accordance with the last sentence of Section 7.04(a))
on the date of such designation, and (y) the fair market value of all
property of such Prospective Designated Company on such date of
designation, excluding property of third parties being contributed to
such Prospective Designated Company on the date of such designation);
(iii) immediately following such designation it is intended
that such Prospective Designated Company enter into a transaction
(such as incurring Indebtedness from, or granting a Lien to, a third
party, or, in the case of a Non-Core Company, selling an equity
interest to a third party) that would not be permitted hereunder if
such Prospective Designated Company were not designated as a Non-Core
Company or Off-Balance Sheet Company hereunder, as applicable; and
(iv) if such Prospective Designated Company is to be a
Non-Core Company, such Prospective Designated Company does not at the
time of such designation own any property other than Non-Core Assets,
cash and incidental property not material in value (in relation to the
Non-Core Assets owned by such Prospective Designated Company), and
property of third parties being contributed to such Prospective
Designated Company on the date of such designation;
(v) if such Prospective Designated Company is to be an
Off-Balance Sheet Company, such Prospective Designated Company does
not at the time of such designation own any property other than
Off-Balance Sheet Assets, and cash and incidental property not
material in value (in relation to the aggregate assets owned by such
Prospective Designated Sheet Company); and
(vi) at the time of such designation and after giving effect
thereto, no Default (including any Default under Section 7.11) shall
have occurred and be continuing.
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Upon such designation, the Collateral Agent shall take such action, at the
expense of the Borrower and as shall be reasonably requested by the Borrower,
to release the Prospective Designated Company so designated from its
obligations (if any) as a Guarantor under the Restricted Company Guarantee and
Security Agreement, and release all Liens granted by such Prospective
Designated Company to the Collateral Agent pursuant to the Security Documents.
ARTICLE VII
Negative Covenants
Until the Commitments have expired or terminated and the
principal of and interest on each Loan and all fees payable hereunder have been
paid in full and all Letters of Credit shall have expired or terminated and all
LC Disbursements shall have been reimbursed, the Credit Parties covenant and
agree with the Lenders that:
SECTION 7.01. Indebtedness. No Credit Party will create,
incur, assume or permit to exist any Indebtedness, except:
(a) Indebtedness created hereunder;
(b) Indebtedness of the Credit Parties existing on January
28, 1998 and set forth in Schedule 7.01 and,
(i) in the case of the Public Notes, extensions,
renewals and refinancings thereof, so long as (x) any such
extension, renewal and refinancing does not increase the
outstanding stated principal amount of the Public Notes being
extended, renewed or refinanced plus reasonable premiums and
expenses incurred in connection with the extension, renewal or
refinancing, (y) the maturity date of such extension, renewal
or refinancing is later than the maturity date of the Public
Notes being extended, renewed or refinanced and (z) the terms
and conditions of such extension, renewal or refinancing
(other than in respect of the rate of interest, which shall
not be restricted except as provided in the last paragraph of
this Section 7.01), are no less favorable to NCI, the
Restricted Companies, the Lenders, and the Agents than the
terms and conditions of the February 1994 Indenture and the
Public Notes issued thereunder (as each is in effect on the
date hereof);
(ii) in the case of any such Indebtedness of the
Restricted Companies, extensions, renewals and refinancings
thereof, so long as (w) such extension,
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renewal and refinancing does not increase the outstanding
principal amount of the Indebtedness being extended, renewed
or refinanced plus accrued interest and fees and reasonable
premiums and expenses incurred in connection with the
extension, renewal or refinancing, (x) the Average Life to
Maturity of the Indebtedness so extended, renewed or
refinanced shall not be shorter than the Average Life to
Maturity of the Indebtedness being extended, renewed or
refinanced, (y) at the time of such extension, renewal or
refinancing, and after giving effect thereto, no Default shall
have occurred and be continuing and (z) the terms and
conditions of such Indebtedness as so extended, renewed or
refinanced (other than in respect of the rate of interest,
which shall not be restricted) are no less favorable to the
Restricted Companies, the Lenders and the Agents than the
terms and conditions of this Agreement and the other Loan
Documents;
and for purposes hereof, Public Notes or other Indebtedness referred
to above shall be deemed to have been "refinanced" with the proceeds
of new Indebtedness incurred by NCI or the Restricted Companies, as
the case may be, if such proceeds are applied to the redemption,
repayment or repurchase and cancellation (including amounts
constituting reasonable premiums and expenses incurred in connection
therewith) of Public Notes or other Indebtedness simultaneously with
the incurrence of such new Indebtedness or (but only in the case of
Indebtedness incurred pursuant to clause (c) below) within 18 months
of the date of incurrence of such new Indebtedness (so long as, at the
time of such application, the Borrower shall have delivered a
certificate of a Financial Officer setting forth the amount of such
Indebtedness incurred pursuant to said clause (c) that is so applied
to refinance Indebtedness pursuant to this clause (b));
(c) additional Indebtedness incurred by NCI after January 28,
1998, provided that (i) the sum of (x) the aggregate principal amount
of any such Indebtedness issued at par plus (y) the net proceeds
(after underwriting or placement agent fees or commissions) of any
such Indebtedness issued at less than par, shall not exceed
$1,600,000,000, (ii) no scheduled payments, prepayments, redemptions
or sinking fund or like payments in respect of such Indebtedness shall
be required prior to the date nine months after the maturity date for
the Tranche B Loans hereunder and (iii) the terms and conditions of
such Indebtedness (other than in respect of the rate of interest,
which shall not be restricted except as provided in the last paragraph
of this Section 7.01) are no less favorable to NCI, the Restricted
Companies, the Lenders and the Agents than the terms and conditions of
the February 1994 Indenture and the Public Notes issued thereunder (as
each is in effect on the date hereof), and provided further that if
any proceeds of Indebtedness incurred pursuant to this paragraph (c)
are, within 18 months of the date upon which such Indebtedness is
incurred, applied to "refinance" Public Notes as contemplated by
Section 7.01(b), such Indebtedness shall, to the extent so applied, be
deemed to be incurred pursuant to Section 7.01(b) and not pursuant to
this paragraph (c);
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(d) Indebtedness of any Restricted Company to any other
Restricted Company;
(e) Indebtedness of the Borrower (and Guarantees thereof by
the other Restricted Companies pursuant to the Restricted Company
Guarantee and Security Agreement, and by NCI pursuant to Article III)
in an aggregate principal amount not exceeding $500,000,000 arising
pursuant to an amendment to this Agreement consented to by the
Required Lenders pursuant to which an additional Tranche of either
Revolving Credit or Term Loans (the "Incremental Facility Loans") will
be provided for herein, so long as
(i) the Average Life to Maturity of the Incremental
Facility Loans shall be later than the Average Life to
Maturity (determined on a combined basis) of the Revolving
Credit Loans, Tranche A Term Loans and Tranche B Term Loans
(except that the Incremental Facility Loans shall be entitled
to participate, to the same extent as Tranche A and Tranche B
Term Loans hereunder, in mandatory prepayments pursuant to
Section 2.09(b)),
(ii) the final maturity of the Incremental Facility
Loans shall not be earlier than the date six months after the
final Principal Payment Date for the Tranche B Term Loans (but
such final maturity may be accelerated to the date six months
after any accelerated final Principal Payment Date for the
Tranche B Term Loans pursuant to the last sentence of Section
2.08(c)), and
(iii) each entity (not already a Lender hereunder)
that becomes a "Lender" hereunder in respect of the
Incremental Facility Loans shall have been consented to by the
Administrative Agent (which consent shall not be unreasonably
withheld or delayed),
it being understood that no Lender shall be obligated to make
Incremental Facility Loans and that the participation by any Lender in
any such Incremental Facility Loans shall be in the sole discretion of
such Lender;
(f) Indebtedness (herein referred to as "Vendor
Indebtedness") of the Borrower (and Guarantees thereof by the other
Restricted Companies and by NCI pursuant to a Guarantee in
substantially the form of Article III) in an aggregate principal
amount not exceeding $395,000,000 arising pursuant to one or more
agreements entered into with vendors (or affiliates of vendors) from
which the Restricted Companies purchase equipment and related
services, so long as
(i) the agreements pursuant to which such Vendor
Indebtedness is incurred shall contain covenants and defaults
no more restrictive than those set
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forth in this Agreement, and shall otherwise be in form
satisfactory to (and shall have been consented to by) the
Required Lenders and, to the extent that the Borrower desires
that such Vendor Indebtedness be entitled to participate in
mandatory prepayments pursuant to Section 2.09(b) as provided
in clause (iii) below, the Required Lenders shall have
consented to an amendment to this Agreement modifying the
provisions of said Section 2.09(b) to effect such
participation,
(ii) such Vendor Indebtedness shall not be entitled
to the benefits of any Liens on any property of any of the
Credit Parties other than the Liens in favor the Collateral
Agent pursuant to the Security Documents (which Liens shall be
spread to cover such Vendor Indebtedness, on an equal and
ratable basis, pursuant to such intercreditor agreements and
other instruments entered into with the Credit Parties and the
respective vendors (or affiliates thereof) extending the
credit giving rise to such Vendor Indebtedness as shall be
satisfactory in form and substance to the Collateral Agent),
(iii) the Average Life to Maturity of any such
Vendor Indebtedness shall be later than the Average Life to
Maturity (determined on a combined basis) of the Revolving
Credit Loans, Tranche A Term Loans and Tranche B Term Loans,
except that, to the extent consented to by the Required
Lenders as contemplated in clause (i) above, such Vendor
Indebtedness shall be entitled to participate, to the same
extent as Tranche A and Tranche B Term Loans (and, if any
thereof are outstanding, Incremental Facility Loans)
hereunder, in mandatory prepayments pursuant to Section
2.09(b),
(iv) the final maturity of any such Vendor
Indebtedness shall not be earlier than the date six months
after the final Principal Payment Date for the Tranche B Term
Loans (but such final maturity may be accelerated to the date
six months after any accelerated final Principal Payment Date
for the Tranche B Term Loans pursuant to the last sentence of
Section 2.08(c)) and
(v) the proceeds of any such Vendor Indebtedness
shall be applied solely for purposes to which the Revolving
Credit Loans or Tranche A Term Loans could be applied
hereunder pursuant to Section 6.09(a);
(g) other Indebtedness (in addition to any amounts permitted
pursuant to the foregoing paragraphs (a) through (f) and the following
paragraph (h) of this Section 7.01) of the Restricted Companies in an
aggregate principal amount not exceeding $75,000,000 at any time
outstanding (or such greater amount to which the Required Lenders
shall have consented); and
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(h) other unsecured Indebtedness of NCI in an aggregate
principal amount not exceeding $10,000,000 at any time outstanding (or
such greater amount to which the Required Lenders shall have
consented).
Notwithstanding the provisions of paragraphs (b)(i) and (c)
above, during the period from the date hereof through and including March 31,
1999, Current-Pay Indebtedness may be incurred under said paragraphs (b)(i) and
(c) in excess of an aggregate principal amount of $500,000,000 only if the
aggregate amount of Cash-Pay Interest accruing during the twelve-month period
following any such issuance of Current-Pay Indebtedness on the Public Notes
(and on all Indebtedness incurred under said paragraphs after the date hereof)
then outstanding (giving effect to any refinancings or redemptions of Public
Notes with the proceeds of any such Current-Pay Indebtedness) does not exceed
the aggregate amount of Cash-Pay Interest that would have accrued during such
twelve-month period on the Public Notes outstanding on the date hereof.
SECTION 7.02. Liens. NCI will not create, incur, assume or
permit to exist any Lien on any of its assets now owned or hereafter acquired
by NCI to secure Indebtedness (the "Relevant Indebtedness") without making
effective provision for securing the Indebtedness of NCI hereunder (and, if NCI
shall so determine, any other Indebtedness of NCI which is not subordinated in
right of payment to the Indebtedness hereunder) equally and ratably with the
Relevant Indebtedness as to such assets for so long as the Relevant
Indebtedness shall be so secured.
No Restricted Company will create, incur, assume or permit to
exist any Lien on any of its assets except:
(a) Liens created by the Security Documents securing the
obligations of the Restricted Companies hereunder (including in
respect of Incremental Facility Loans), in respect of Vendor
Indebtedness permitted under Section 7.01(f), and under the Security
Documents;
(b) Permitted Encumbrances;
(c) any Lien on any property or asset of any Restricted
Company existing on the date hereof and set forth in Schedule 4.12;
provided that (i) such Lien shall not apply to any other property or
asset of any Restricted Company and (ii) such Lien shall secure only
those obligations that it secures on the date hereof (and extensions,
renewals and refinancings thereof that comply with the requirements of
Section 7.01(b));
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(d) Liens securing judgments for the payment of money in an
amount not resulting (whether immediately or with the passage of time)
in an Event of Default under clause (k) of Article VIII;
(e) any Lien existing on any property or asset prior to the
acquisition thereof by a Restricted Company or existing on any
property or asset of any Person that becomes a subsidiary of a
Restricted Company after the date hereof prior to the time such Person
becomes such a subsidiary; provided that (i) such Lien is not created
in contemplation of or in connection with such acquisition or such
Person becoming a subsidiary, as the case may be, (ii) such Lien shall
not apply to any other property or assets of any Restricted Company
and (iii) such Lien shall secure only Indebtedness in existence at the
time of such acquisition, and that is permitted under Section 7.01(g),
and no other Indebtedness or obligations; and
(f) Liens on fixed or capital assets acquired, constructed or
improved by the Restricted Companies; provided that (i) such Liens
secure Indebtedness permitted under Section 7.01(g), (ii) such Liens
and the Indebtedness secured thereby are incurred prior to or within
90 days after such acquisition or the completion of such construction
or improvement, (iii) the Indebtedness secured thereby does not exceed
the cost of acquiring, constructing or improving such fixed or capital
assets and (iv) such Liens shall not apply to any other property or
assets of the Restricted Companies.
SECTION 7.03. Fundamental Changes. NCI shall not sell,
transfer, lease or otherwise dispose of any shares of stock of any of the
Restricted Companies owned by it. In addition, NCI shall not merge or
consolidate with any other Person unless (i) at the time thereof, and after
giving effect thereto, no Default shall have occurred and be continuing, (ii)
either (x) NCI shall be the continuing or surviving entity or (y) the
continuing or surviving entity shall have assumed all of the obligations of NCI
hereunder pursuant to an instrument in form and substance satisfactory to the
Administrative Agent and shall have delivered such proof of corporate action,
incumbency of officers, opinions of counsel and other documents as is
consistent with those delivered by NCI pursuant to Section 5.01 upon the
Effective Date or as the Administrative Agent shall have requested and (iii)
the net worth (determined on a consolidated basis in accordance with GAAP) of
the continuing or surviving entity immediately after giving effect thereto
shall be greater than or equal to the net worth (so determined) of NCI
immediately prior to giving effect thereto.
No Restricted Company will merge into or consolidate with any
other Person, or permit any other Person to merge into or consolidate with it
(but prior to the August 1993 Indenture Termination Date, only to the extent
that any such merger or consolidation would effect a transfer of cash or other
property constituting Collateral), or sell, transfer, lease or otherwise
dispose of (in one transaction or in a series of transactions) any cash or
other property
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(including the stock of any of its subsidiaries), whether now owned or
hereafter acquired (but prior to the August 1993 Indenture Termination Date,
only to the extent constituting Collateral), except that:
(a) any Restricted Company (other than a License Company) may
merge into the Borrower in a transaction in which the Borrower is the
surviving corporation;
(b) any Restricted Company may merge into any other
Restricted Company, provided that no such merger may involve a License
Company, unless (x) immediately after giving effect thereto no Default
shall have occurred and be continuing and (y) in the case of any
License Company substantially all of whose assets consist of FCC
Licenses or PUC Authorizations, the surviving entity in such merger is
a License Company substantially all of whose assets consist of FCC
Licenses or PUC Authorizations;
(c) any Restricted Company may permit any other Person to
merge into or consolidate with such Restricted Company to the extent
permitted by Section 7.04(a)(viii);
(d) any Restricted Company other than the Borrower may sell,
transfer, lease or otherwise dispose of its assets to another
Restricted Company, provided that no such transaction may involve a
disposition of assets of any License Company unless (x) immediately
after giving effect thereto no Default shall have occurred and be
continuing and (y) in the case of any transfer of assets by a License
Company substantially all of whose assets consist of FCC Licenses or
PUC Authorizations, the acquiror of such assets (after giving effect
to such acquisition) is a License Company substantially all of whose
assets consist of FCC Licenses or PUC Authorizations;
(e) any Restricted Company may sell, transfer, lease or
otherwise dispose of its assets to any Person on an arms-length basis
in the ordinary course of business;
(f) any Restricted Company may sell any of its assets for
consideration in an amount not less than the fair market value of such
assets, provided that (A) at least 85% of such consideration is in the
form of cash, (B) the Net Cash Payments of such sale are applied to
prepay the Loans and reduce the Commitments hereunder to the extent
required by Section 2.09(b)(ii), (C) at the time of such sale and
immediately after giving effect thereto no Default shall have occurred
and be continuing and (D) the aggregate fair market value of all such
assets sold by the Restricted Companies after the Effective Date shall
not exceed $250,000,000;
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(g) the Restricted Companies may dispose of assets relating
to any Mobile Communications Business (or the capital stock of any
Restricted Company that owns such assets), provided that:
(i) both immediately prior to such disposition and,
after giving effect thereto, no Default shall have occurred
and be continuing; and
(ii) such disposition is an exchange, with another
Person not an Affiliate of such Restricted Company, of such
assets for assets of like kind owned by such Person (or the
capital stock, or other equity ownership interest, of such
Person) comprising a Mobile Communications Business, as the
case may be, of equal or greater value, as determined in good
faith by the Board of Directors of such Restricted Company,
provided that (x) the acquisition of assets of such Person
pursuant to such exchange (excluding acquisitions of FCC
Licenses in exchange for other FCC Licenses for the purpose of
enabling the Restricted Companies to create contiguous blocks
of spectrum covered by the SMR Licenses of the Restricted
Companies) shall comply with the provisions of one of Section
7.04(a)(viii) and be treated as an acquisition covered by said
Sections and (y) the Borrower shall have furnished to the
Lenders, promptly following request therefor, copies of such
information or documents relating to such disposition as the
Administrative Agent or any Lender or Lenders (through the
Agent) shall have reasonably requested;
(h) subject to Section 7.11, the Restricted Companies may
sell, transfer, lease or otherwise dispose of Non-Core Assets
(including any equity interests in Non-Core Companies) to any Person,
whether for cash or non-cash or other consideration (including for
equity interests in the Person to whom such Non-Core Assets, or equity
interests in Non-Core Companies, are being transferred);
(i) the Restricted Companies may sell Off-Balance Sheet
Equipment to an Off-Balance Sheet Company or other Person, for cash in
an amount not less than the original purchase price or acquisition
cost for such Off-Balance Sheet Equipment paid by the Restricted
Companies; and
(j) the Restricted Companies may sell or otherwise transfer
Off-Balance Sheet Assets in connection with Off-Balance Sheet
Transactions (excluding, however, Off-Balance Sheet Equipment sold in
accordance with the provisions of paragraph (i) above), so long as (x)
on any date the aggregate amount of Off-Balance Sheet Receivables that
have been previously sold or transferred pursuant to this paragraph
(j) but which remains outstanding on such date, together with the
aggregate amount of Off-Balance Sheet Equipment that shall have been
transferred and which remains in use, shall not exceed
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$150,000,000 at any time on or before March 31, 1999, and $250,000,000
at any time thereafter, (y) such sale is effected pursuant to
documentation and in a manner that is consistent with the requirements
of the Public Notes and that, in the judgment of each of the Agents,
will not adversely affect the restrictions imposed by this Article VII
and (z) at the time of such sale, and after giving effect thereto, no
Default shall have occurred and be continuing.
SECTION 7.04. Investments, Loans, Advances, Guarantees and
Acquisitions; Hedging Agreements.
(a) Investments and Acquisitions, Etc. No Restricted Company
will purchase, hold or acquire any capital stock, evidences of indebtedness or
other securities (including any option, warrant or other right to acquire any
of the foregoing) of, make or permit to exist any loans or advances to, or make
or permit to exist any investment or any other interest in, any other Person,
or purchase or otherwise acquire (in one transaction or a series of
transactions) any assets of any other Person constituting a business unit (but
prior to the August 1993 Indenture Termination Date, only if the effect of any
such transaction would be to transfer any cash or other property constituting
Collateral) from any Restricted Company to any other Person, except:
(i) Permitted Investments, and Disposition Investments
received in connection with any Disposition permitted under Section
7.03(f) or any Disposition to which the Lenders shall have consented
in accordance with Section 10.02, so long as each such Disposition
Investment shall have been delivered to the Collateral Agent to be
held as collateral security by the Collateral Agent pursuant to the
Restricted Company Guarantee and Security Agreement;
(ii) investments by Restricted Companies in the capital stock
of other Restricted Companies, and Investments (whether consisting of
equity interests, or debt or other securities) received (a) upon or as
a result of any transfer of Non-Core Assets to any Person to the
extent such transfer is permitted under Section 7.03(h) or (b) upon or
as a result of any transfer of Off-Balance Sheet Assets to any Person
to the extent such transfer is permitted under Section 7.03(j);
(iii) loans or advances made by any Restricted Company to any
other Restricted Company;
(iv) investments in Affiliates (excluding Investments in
Unrestricted Companies, Non-Core Companies and Off-Balance Sheet
Companies, as to which the provisions of clauses (v) and (vi) below
shall apply), so long as (x) the aggregate amount of such Investments
as to all Restricted Companies shall not exceed $5,000,000 at any one
time
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outstanding and (y) both immediately prior to each such investment and
after giving effect thereto, no Default shall have occurred and be
continuing;
(v) investments in Non-Core Companies or other Affiliates
consisting of the transfer of Non-Core Assets to such Non-Core
Companies or Affiliates, and investments in Off-Balance Sheet
Companies consisting of the transfer of Off-Balance Sheet Assets in an
Off-Balance Sheet Transaction;
(vi) subject to the last sentence of this Section 7.04(a),
investments in NCI and investments in Unrestricted Companies, and
investments in Non-Core Companies and Off-Balance Sheet Companies
(excluding, however, investments consisting of the transfer of
Non-Core Assets to Non-Core Companies or Off-Balance Sheet Assets to
Off-Balance Sheet Companies), as to all such investments for all
Restricted Companies in an aggregate amount at any one time
outstanding not exceeding the sum of (A) $500,000,000 plus (B) the net
aggregate amount of Permanent Equity Capital received after the date
hereof (and prior to the date of any such Investment) by the
Restricted Companies in respect of shares of common stock from the
proceeds of Qualifying Debt or Equity Issuances by NCI (other than
from the proceeds of Planned Option Issuances), so long as (x) any
such investments in Non-Core Companies or Off-Balance Sheet Companies
shall consist solely of cash and (y) both immediately prior to each
such investment and after giving effect thereto, no Default shall have
occurred and be continuing;
(vii) acquisitions of SMR Licenses in any auction of 800 MHz
spectrum by the FCC, so long as:
(A) following consummation of each such acquisition,
(x) the Restricted Companies shall have complied with the
requirements of Section 7.09(b) with respect to the SMR
Licenses acquired in such acquisition and (y) all
Authorizations required by the FCC in connection with such
acquisition shall have been duly granted pursuant to a Final
Order and (if the fair market value of the SMR Licenses so
acquired shall exceed $10,000,000 and the Administrative Agent
or any Lender shall have requested the same) the
Administrative Agent and the Lenders shall have received an
opinion of counsel with respect to such acquisition that is
satisfactory in form and substance to the Required Lenders;
(B) the Borrower shall have delivered to the
Administrative Agent a supplement to Schedule 4.13 setting
forth a list of the respective SMR Licenses acquired in
connection with such acquisition; and
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(C) both immediately prior to each such acquisition
and after giving effect thereto, no Default shall have
occurred and be continuing;
(viii) acquisitions of FCC Licenses in the 800 MHz or 900 MHz
band (other than pursuant to any auction referred to in clause (vii)
above), and acquisitions of any Mobile Communications Business and the
related assets of any other Person (or, if for the purpose of enabling
the Restricted Companies to create contiguous blocks of spectrum
covered by the SMR Licenses of the Restricted Companies, acquisitions
of cellular telephone and other businesses), whether by way of
purchase of assets or stock, by merger or consolidation or otherwise,
so long as:
(A) subject to the last sentence of this Section
7.04(a), the aggregate Purchase Price for all such
acquisitions consummated after the date hereof (excluding any
portion thereof that shall have been paid through the issuance
of equity securities of NCI) shall not exceed $275,000,000,
provided that any acquisition (herein, a "Pending
Acquisition") effected pursuant to the terms of one or more
definitive agreements in effect on the date hereof shall be
excluded from the acquisitions subject to such $275,000,000
limit;
(B) each such acquisition of FCC Licenses is for the
purpose of enabling the Restricted Companies to create
contiguous blocks of spectrum covered by the SMR Licenses of
the Restricted Companies;
(C) any such acquisition of a Mobile Communications
Business (if by purchase of assets, merger or consolidation)
shall be effected in such manner so that the acquired
business, and the related assets, are owned by a Restricted
Company (which may include a new Wholly Owned Subsidiary that
becomes a Restricted Company pursuant to Section 6.11(a)) and,
if effected by merger or consolidation involving the Borrower,
the Borrower shall be the continuing or surviving entity;
(D) any such acquisition of a Mobile Communications
Business (if by purchase of stock) shall be effected in such
manner so that the acquired entity becomes a Wholly Owned
Subsidiary that becomes a Restricted Company pursuant to
Section 6.11;
(E) if the fair market value of the assets of any
Mobile Communications Business to be so acquired shall exceed
$10,000,000, the Restricted Companies shall deliver to the
Administrative Agent (which shall promptly forward copies
thereof to each Lender, upon request by such Lender) (x) no
later than five Business Days prior to the consummation of
each such acquisition (or such earlier
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date as shall be five Business Days after the execution and
delivery thereof), executed counterparts of the respective
agreements or instruments pursuant to which such acquisition
is to be consummated (including any related management,
non-compete, employment, option or other material agreements),
any schedules to such agreements or instruments and all other
material ancillary documents to be executed or delivered in
connection therewith and (y) promptly following request
therefor, copies of such other information or documents
relating to each such acquisition as the Administrative Agent
or the Required Lenders shall have reasonably requested;
(F) following consummation of each such acquisition,
(x) the Restricted Companies shall have complied with the
requirements of Section 7.09(b) with respect to any FCC
Licenses or PUC Authorizations acquired in such acquisition
and (y) all Authorizations required by the FCC in connection
with such acquisition shall have been duly granted pursuant to
a Final Order and (if the fair market value of the assets so
acquired shall exceed $10,000,000 and the Administrative Agent
or any Lender shall have requested the same) the
Administrative Agent and the Lenders shall have received an
opinion of counsel with respect to such acquisition that is
satisfactory in form and substance to the Required Lenders;
(G) to the extent applicable, the Restricted
Companies shall have complied with the provisions of Section
6.11, including delivery to the Collateral Agent of (x) the
certificates evidencing any capital stock of a Restricted
Company, accompanied by undated stock powers executed in blank
and (y) the agreements, instruments, opinions of counsel and
other documents required under said Section 6.11 to be
delivered;
(H) in the case of a transaction described in clause
(E) above, and upon request by the Administrative Agent, the
Borrower shall deliver to the Administrative Agent a
supplement to Schedule 4.13 setting forth a list of the
respective SMR Licenses, other FCC Licenses and PUC
Authorizations acquired in connection with such acquisition;
and
(I) both immediately prior to each such acquisition
and after giving effect thereto, no Default shall have
occurred and be continuing; and
(ix) the acquisition of FCC Licenses pursuant to an exchange
transaction permitted under Section 7.03(g) for the purpose of
enabling the Restricted Companies to create contiguous blocks of
spectrum covered by the SMR Licenses of the Restricted Companies.
Credit Agreement
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The aggregate amount of an investment at any one time
outstanding for purposes of clauses (iv) and (vi) above, shall be deemed to be
equal to (A) the aggregate amount of cash, together with the aggregate fair
market value of property, loaned, advanced, contributed, transferred or
otherwise invested that gives rise to such investment minus (B) the aggregate
amount of dividends, distributions or other payments received in cash in
respect of such investment; the amount of an investment shall not in any event
be reduced by reason of any write-off of such investment.
Anything herein to the contrary notwithstanding, the aggregate
amount of investments made pursuant to clause (vi) above, and the aggregate
Purchase Price for all acquisitions effected pursuant to clause (viii) above
(including Pending Acquisitions, as defined in said clause (viii)), shall not
on any date exceed an amount equal to the sum of (x) $775,000,000 plus (y) the
net aggregate amount of Permanent Equity Capital received after the date hereof
(and prior to the date of any such Investment or acquisition) by the Restricted
Companies in respect of shares of common stock from the proceeds of Qualifying
Debt or Equity Issuances by NCI (other than from the proceeds of Planned Option
Issuances).
(b) Guarantees. No Restricted Company will Guarantee any
obligations of any other Person, except Guarantees constituting Indebtedness
permitted by Section 7.01(g) and Guarantees by any Restricted Company of any
other Restricted Company.
(c) Hedging Agreements. No Restricted Company will enter
into any Hedging Agreement, other than Hedging Agreements entered into in the
ordinary course of business to hedge or mitigate risks to which the Restricted
Companies are exposed in the conduct of their business or the management of
their liabilities (including, in the case of the Borrower, the Hedging
Agreements required by Section 6.10).
SECTION 7.05. Restricted Payments. No Restricted Company
will declare or make, or agree to pay or make, directly or indirectly, any
Restricted Payment consisting of any cash or other property (but prior to the
August 1993 Indenture Termination Date, only to the extent constituting
Collateral), except:
(a) any Restricted Company may make Restricted Payments to
the extent necessary to make required payments under the Overhead
Services Agreement, and required tax distributions under the Tax
Sharing Agreement;
(b) so long as at the time thereof, and after giving effect
thereto, no Default shall have occurred and be continuing, any
Restricted Company that is a subsidiary of NCI may make Restricted
Payments to NCI to the extent necessary to enable NCI to make
scheduled payments of principal and interest on the Public Notes;
Credit Agreement
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(c) in addition to the Restricted Payments permitted under
the foregoing clauses (a) and (b), during any fiscal year (commencing
with Excess Cash Flow for the fiscal year ending December 31, 1999),
the Restricted Companies may make Restricted Payments, subject to the
satisfaction of each of the following conditions on the date of such
payment and after giving effect thereto:
(i) no Default shall have occurred and be
continuing;
(ii) the Total Indebtedness to Cash Flow Ratio as at
the last day of the fiscal quarter ending on or most recently
ended prior to the date of such Restricted Payment shall be
less than 5.00 to 1;
(iii) the aggregate amount of Restricted Payments
under this clause (c) made during such fiscal year (the
"current fiscal year") shall not exceed 50% of Excess Cash
Flow for the fiscal year immediately preceding the current
fiscal year;
(iv) the Borrower shall have delivered to the
Administrative Agent, at least ten Business Days (but not more
than twenty Business Days) prior to the date of the proposed
Restricted Payment, a certificate of a Financial Officer
setting forth computations in reasonable detail demonstrating
satisfaction of the foregoing conditions as at the date of
such certificate; and
(v) prior to, or concurrently with, the making of
such Restricted Payment, the Borrower shall prepay the Loans
as required by Section 2.09(b)(i); and
(d) so long as at the time thereof, and after giving effect
thereto, no Default shall have occurred and be continuing, the
Borrower may make Restricted Payments to NCI to the extent necessary
to enable NCI to refinance or repurchase (directly or indirectly) any
of the Public Notes (it being understood that the amount of such
Restricted Payment may include any redemption or tender premium
required to be paid by NCI in connection with such refinancing or
repurchase), provided that the aggregate amount of all such Restricted
Payments shall not exceed on any date, taking into account all
previous Restricted Payments under this paragraph (d), the sum of (i)
$500,000,000 plus (ii) the aggregate amount of Additional Equity
Capital on such date; and
(e) so long as at the time thereof, and after giving effect
thereto, no Default shall have occurred and be continuing (including
any Default under Section 7.11), the Restricted Companies may make
Restricted Payments to NCI consisting of the transfer of Non-Core
Assets, or of the equity interests in Non-Core Companies, to NCI.
Credit Agreement
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SECTION 7.06. Transactions with Affiliates. Except as
expressly permitted by this Agreement, no Restricted Company will sell, lease
or otherwise transfer any cash or other property (but prior to the August 1993
Indenture Termination Date, only to the extent constituting Collateral) to, or
purchase, lease or otherwise acquire any property or assets from, or otherwise
engage in any other transactions with, any of its Affiliates, except
(a) in the ordinary course of business at prices and on terms
and conditions not less favorable to such Restricted Company than
could be obtained on an arm's-length basis from unrelated third
parties,
(b) transactions between or among the Restricted Companies
not involving any other Affiliate,
(c) any Restricted Payment permitted by Section 7.05,
(d) as contemplated by the Overhead Services Agreement and
the Tax Sharing Agreement,
(e) pursuant to the Vendor Equipment Agreements, or new
agreements with vendors, provided that any amendments, modifications
or supplements to any Vendor Equipment Agreement, and any such new
agreement, with any vendor that owns capital stock of NCI representing
more than 50% of its then-outstanding voting power (without giving
effect to the dilutive effect of any unexercised options, warrants or
conversion rights) shall be subject to the requirements of this
Section 7.06,
(f) subject to Section 7.11, any sale, transfer or other
disposition of Non-Core Assets, or of the equity interests in any
Non-Core Company, to an Affiliate that is not a subsidiary of NCI, to
the extent such transaction is permitted under Section 7.03, and
(g) transactions by any of the Restricted Companies with any
Unrestricted Company, Non-Core Company or Qualified Affiliate (as
defined below) with respect to the operation of Non-Core Assets owned
by such Unrestricted Company, Non-Core Company or Qualified Affiliate
to the extent such Non-Core Assets are integrated (as defined below)
with the Mobile Communications Business operated by the Restricted
Companies, and to the extent the respective Restricted Company
receives fair market value for the property or services supplied by it
to such Unrestricted Company, Non-Core Company or Qualified Affiliate,
provided that nothing herein shall be deemed to prohibit the provision
of services by a Restricted Company to any Non-Core Company or
Qualified Affiliate to which a Restricted Company shall have
transferred Non-Core Assets in exchange for an equity interest in such
Non-Core Company or Qualified
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Affiliate, if such services are provided pursuant to a contract
entered into by such Restricted Company at the time of such transfer
of such Non-Core Assets to such Non-Core Company or Qualified
Affiliate and if such contract shall have been approved by the
disinterested directors of NCI prior to the execution and delivery
thereof.
For purposes of the foregoing clause (g), (A) "Qualified
Affiliate" means any Affiliate in which one or more Restricted Companies holds
an equity interest and in which neither NCI nor any other subsidiary of NCI
holds any equity interest, (B) Non-Core Assets shall be deemed "integrated"
with the Mobile Communications Business operated by the Restricted Companies if
(i) such Non-Core Assets are operated under the "Nextel" tradename, (ii) such
Non-Core Assets are employed in an SMR System using digital technology that is
the same as, or compatible with, the technology used in the Mobile
Communications Business of the Restricted Companies and (iii) one or more of
the Restricted Companies has entered into arrangements with the holder of such
Non-Core Assets for the provision of common billing services, switching or
related services or other management services and for reciprocal roaming
agreements and (C) "disinterested directors" means, with respect to any
transaction involving a Qualified Affiliate, directors that are not officers or
employees of NCI or any of its subsidiaries and that do not have a direct or
indirect economic interest in such transaction or the Qualified Affiliate.
SECTION 7.07. Restrictive Agreements. No Restricted Company
will directly or indirectly, enter into, incur or permit to exist any agreement
or other arrangement that prohibits, restricts or imposes any condition upon
(a) the ability of any Restricted Company to create, incur or permit to exist
any Lien upon any of its property or assets, or (b) the ability of any
Restricted Company to pay dividends or other distributions with respect to any
shares of its capital stock or to make or repay loans or advances to any
Restricted Company or to Guarantee Indebtedness of any other Restricted
Company; provided that
(i) the foregoing shall not apply to restrictions and
conditions (w) imposed by law or by this Agreement, the other Loan
Documents, (x) existing on the date hereof identified in Schedule 7.07
(but shall apply to any extension or renewal of, or any amendment or
modification expanding the scope of, any such restriction or
condition), (y) consisting of customary restrictions on transfers of
site leases (provided that, except for leases within the scope of the
exceptions contained in Section 6.13 of the Restricted Company
Guaranty and Security Agreement, the Restricted Companies agree that
any such lease entered into after September 27, 1996 shall expressly
permit the creation of a security interest in the rights of the
respective Restricted Company party thereto as security for
indebtedness for borrowed money, or guaranties thereof), or (z)
contained in agreements relating to the sale of a Restricted Company
pending such sale, provided such restrictions and conditions apply
only to the Restricted Company or assets that are to be sold and such
sale is permitted hereunder and
Credit Agreement
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(ii) clause (a) above shall not apply to (x) restrictions or
conditions imposed by any agreement relating to secured Indebtedness
permitted by this Agreement if such restrictions or conditions apply
only to the property or assets securing such Indebtedness or (y)
customary provisions in leases and other contracts restricting the
assignment thereof.
SECTION 7.08. Certain Financial and Other Covenants.
(a) Total Indebtedness to Cash Flow Ratio. NCI will not
permit the Total Indebtedness to Cash Flow Ratio at any time during any period
below to exceed the ratio set opposite such period below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
From June 30, 1999
through September 29, 1999 17.50 to 1
From September 30, 1999
through December 30, 1999 13.00 to 1
From December 31, 1999
through March 30, 2000 10.00 to 1
From March 31, 2000
through September 29, 2000 7.50 to 1
From September 30, 2000
through March 30, 2001 6.00 to 1
From March 31, 2001
and at all times thereafter 5.00 to 1
</TABLE>
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(b) Interest Coverage Ratio. NCI will not permit the
Interest Coverage Ratio at any time during any period below to be less than the
ratio set opposite such period below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
From June 30, 1999
through September 29, 1999 1.10 to 1
From September 30, 1999
through March 30, 2000 1.50 to 1
From March 31, 2000
and at all times thereafter 2.00 to 1
</TABLE>
(c) Pro-Forma Debt Service Ratio. NCI will not permit the
Pro-Forma Debt Service Ratio as at the last day of any fiscal quarter ending on
or after December 31, 2000 to be less than 1.00 to 1.
(d) Fixed Charges Ratio. NCI will not permit the Fixed
Charges Ratio as at the last day of any fiscal quarter ending on or after
December 31, 2000 to be less than 1.00 to 1.
(e) Secured Indebtedness to Cash Flow Ratio. The Restricted
Companies will not permit the Secured Indebtedness to Cash Flow Ratio at any
time during any period below to exceed the ratio set opposite such period
below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
From June 30, 1999
through September 29, 1999 10.00 to 1
From September 30, 1999
through December 30, 1999 7.00 to 1
</TABLE>
Credit Agreement
<PAGE> 112
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<TABLE>
<S> <C>
From December 31, 1999
through March 30, 2000 5.00 to 1
From March 31, 2000
through March 30, 2001 4.00 to 1
From March 31, 2001
and at all times thereafter 3.00 to 1
</TABLE>
(f) Secured Indebtedness to Revenue Ratio. The Restricted
Companies will not permit the Secured Indebtedness to Revenue Ratio as at any
date set forth below to exceed the ratio set forth opposite such date below:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
March 31, 1998 2.50 to 1
June 30, 1998 2.25 to 1
September 30, 1998, December 31,
1998 and March 31, 1999 2.00 to 1
</TABLE>
(g) Minimum Annualized Revenue. The Restricted Companies
will not permit Annualized Revenue (adjusted as provided in the next sentence)
as at any date below to be less than the amount set opposite such date below:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
March 31, 1998 $ 900,000,000
June 30, 1998 $1,100,000,000
September 30, 1998 $1,300,000,000
December 31, 1998 $1,500,000,000
March 31, 1999 $1,750,000,000
</TABLE>
For purposes of this paragraph (g), Annualized Revenue as at any date shall be
reduced, for each acquisition consummated prior to such date by any Restricted
Company the Purchase Price for which exceeds $50,000,000 (excluding, however,
any such acquisition consummated prior to the date hereof), by an amount equal
to the product of 4 multiplied by the revenue of the business, or attributable
to the assets, so acquired for the fiscal quarter ending on, or most recently
ended prior to, the date of such acquisition, provided that, if at the last day
of any fiscal quarter of the Restricted Companies (the "current fiscal
quarter") fewer than four complete fiscal quarters shall have elapsed following
the date of such acquisition, such product shall be further multiplied by a
fraction, the numerator of which is the number of days during the period
commencing on the date
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of such acquisition to but excluding the last day of the current fiscal quarter
and the denominator of which is 365.
(h) Minimum Network Subscriber Units. The Restricted
Companies will not permit the aggregate number of Network Subscriber Units
(adjusted as provided in the next sentence) as at any date below to be less
than the number set opposite such date below:
<TABLE>
<CAPTION>
Date Number
---- ------
<S> <C>
March 31, 1998 1,300,000
June 30, 1998 1,500,000
September 30, 1998 1,700,000
December 31, 1998 2,000,000
March 31, 1999 2,400,000
</TABLE>
For purposes of this paragraph (h), Network Subscriber Units as at any date
shall be reduced, for each acquisition consummated prior to such date by any
Restricted Company the Purchase Price for which exceeds $50,000,000 (excluding,
however, any such acquisition consummated prior to the date hereof), by the
number or Network Subscriber Units of the business, or attributable to the
assets, so acquired on the date on which such acquisition is consummated.
SECTION 7.09. Lines of Business, Etc.
(a) Business Activities. No Restricted Company will engage
to any substantial extent in any line or lines of business activity other than
the Mobile Communications Business, and businesses reasonably related thereto,
provided that nothing herein shall be deemed to prohibit the Restricted
Companies from acquisitions pursuant to Section 7.04(a)(viii) of FCC Licenses
in the 800 MHz or 900 MHz bands, or of cellular telephone and other businesses,
for the purpose of enabling the Restricted Companies to create contiguous
blocks of spectrum covered by the SMR Licenses of the Restricted Companies.
(b) License Companies. The Restricted Companies will not at
any time permit any FCC Licenses and PUC Authorizations (including any thereof
acquired after the date hereof, but excluding any PUC Authorizations issued by
PUC's in any jurisdiction that prohibits the actions contemplated by this
paragraph (b)) to be held by any First Tier Restricted Company, provided that
(i) with respect to the FCC Licenses and PUC Authorizations covered by the
applications referred to in Section 5.01(p), the Restricted Companies will
cause such FCC Licenses and PUC Authorizations to the extent necessary to be
transferred by the respective First Tier Restricted Companies to a Restricted
Company that is not a First Tier Restricted Company as provided in this
paragraph (b) no later than the date 90 days after the Effective Date and (ii)
with respect to any FCC Licenses and PUC Authorizations acquired by any First
Tier Restricted
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<PAGE> 114
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Company after the date hereof pursuant to an acquisition permitted under
Section 7.04, such First Tier Restricted Company will cause such FCC Licenses
and PUC Authorizations to the extent necessary to be transferred as provided in
this paragraph (b) no later than the date 90 days after the respective
acquisition date therefor.
SECTION 7.10. Modifications to Certain Agreements. The
Credit Parties will not consent to any modification, supplement or waiver of
any of the provisions of the Overhead Services Agreement (other than to add new
Restricted Companies as parties thereto), the Tax Sharing Agreement (other than
to add new subsidiaries of NCI as parties thereto), without, in each case, the
prior consent of the Administrative Agent (with the approval of the Required
Lenders). In addition, NCI will not consent to any modification, supplement or
waiver of any of the provisions of the Public Note Indentures or the Public
Notes without the prior consent of the Administrative Agent (with the approval
of the Required Lenders), provided that no such prior consent shall be
necessary for the removal of any one or more of the covenants or other
requirements from a Public Note Indenture, or any modifications thereto that
have the effect of making such covenants or other provisions of any Public Note
Indenture less restrictive.
SECTION 7.11. Disposition of Non-Core Assets, Etc. Anything
herein to the contrary notwithstanding, the aggregate Population of the United
States of America covered by the 800 MHz SMR Licenses, if any, included (a) in
the Non-Core Assets owned by all Non-Core Companies, (b) in any Non-Core Assets
sold, transferred, leased or otherwise disposed of as permitted under Section
7.03(h) and (c) in any Non-Core Assets that are transferred to NCI pursuant to
a Restricted Payment permitted under Section 7.05(e), may not exceed 15% (or
such greater percentage to which the Required Lenders may consent) of the total
Population of the United States of America, in each case determined as at the
most recent of the events referred to in the foregoing clauses (a), (b) or (c).
ARTICLE VIII
Events of Default
If any of the following events ("Events of Default") shall
occur:
(a) the Borrower shall fail to pay any principal of any Loan
or any reimbursement obligation in respect of any LC Disbursement when
and as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan
or any fee or any other amount (other than an amount referred to in
clause (a) of this Article) payable under this
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<PAGE> 115
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Agreement, when and as the same shall become due and payable, and such
failure shall continue unremedied for a period of three or more
Business Days;
(c) any representation or warranty made or deemed made by or
on behalf of any Credit Party in or in connection with this Agreement
or any of the other Basic Documents or any amendment or modification
hereof or thereof (or in any report, certificate, financial statement
or other document furnished pursuant to or in connection with this
Agreement, any of the other Basic Documents or any amendment or
modification hereof or thereof) shall prove to have been incorrect
when made or deemed made in any material respect;
(d) the Credit Parties shall fail to observe or perform any
covenant, condition or agreement contained in Section 6.02, 6.03 (with
respect to the existence of the Restricted Companies), 6.09, 6.11 or
6.12, Article VII, or in Section 5.01 or 6.02 of the Restricted
Company Guarantee and Security Agreement;
(e) any Credit Party shall fail to observe or perform any
covenant, condition or agreement contained in this Agreement or any
other Loan Document (other than those specified in clause (c) or (d)
of this Article), and such failure shall continue unremedied for a
period of thirty or more days after notice thereof from the
Administrative Agent (given at the request of any Lender) to the
Borrower;
(f) any Credit Party (or any subsidiary of any Restricted
Company, other than an Excluded Subsidiary) shall fail to make any
payment (whether of principal or interest and regardless of amount) in
respect of any Material Indebtedness, when and as the same shall
become due and payable;
(g) any event or condition occurs that results in any
Material Indebtedness becoming due prior to its scheduled maturity or
that enables or permits (with or without the giving of notice, the
lapse of time or both) the holder or holders of any Material
Indebtedness or any trustee or agent on its or their behalf to cause
any Material Indebtedness to become due, or to require the prepayment,
repurchase, redemption or defeasance thereof, prior to its scheduled
maturity; provided that this clause (g) shall not apply to secured
Indebtedness that becomes due as a result of the voluntary sale or
transfer of the property or assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of any Credit Party (or any
subsidiary of any Restricted Company) or its debts, or of a
substantial part of its assets, under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter
in effect or (ii) the appointment of a receiver, trustee,
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<PAGE> 116
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custodian, sequestrator, conservator or similar official for any
Credit Party (or any subsidiary of any Restricted Company) or for a
substantial part of its assets, and, in any such case, such proceeding
or petition shall continue undismissed for 60 days or an order or
decree approving or ordering any of the foregoing shall be entered;
(i) any Credit Party (or any subsidiary of any Restricted
Company) shall (i) voluntarily commence any proceeding or file any
petition seeking liquidation, reorganization or other relief under any
Federal, state or foreign bankruptcy, insolvency, receivership or
similar law now or hereafter in effect, (ii) consent to the
institution of, or fail to contest in a timely and appropriate manner,
any proceeding or petition described in clause (h) of this Article,
(iii) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for any
Credit Party (or any subsidiary of any Restricted Company) or for a
substantial part of its assets, (iv) file an answer admitting the
material allegations of a petition filed against it in any such
proceeding, (v) make a general assignment for the benefit of creditors
or (vi) take any action for the purpose of effecting any of the
foregoing;
(j) any Credit Party (or any subsidiary of any Restricted
Company) shall become unable, admit in writing or fail generally to
pay its debts as they become due;
(k) one or more judgments for the payment of money in an
aggregate amount in excess of $10,000,000 shall be rendered against
any one or more of the Credit Parties (or any subsidiary of any
Restricted Company) and the same shall remain undischarged for a
period of 30 consecutive days during which execution shall not be
effectively stayed, or any action shall be legally taken by a judgment
creditor to attach or levy upon any assets of any Credit Party (or any
subsidiary of any Restricted Company) to enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the opinion
of the Required Lenders, when taken together with all other ERISA
Events that have occurred, could reasonably be expected to result in a
Material Adverse Effect;
(m) a proceeding shall have been initiated by or before, or
any action shall have been taken by, the FCC, a PUC, a court of
competent jurisdiction, or other Governmental Authority which either:
(i) has resulted in the cancellation, non-renewal or
adverse modification of any one or more SMR Licenses, radio
channels authorized under SMR Licenses or PUC Authorizations
held by one or more of the Restricted Companies or any of
their subsidiaries, or
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<PAGE> 117
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(ii) in the reasonable opinion of the Required
Lenders, is likely to result in the cancellation, non-renewal
or adverse modification of any one or more SMR Licenses, radio
channels authorized under SMR Licenses, or PUC Authorizations
held by one or more Restricted Companies or any of their
subsidiaries,
that, in the aggregate, in the judgment of the Required Lenders, have
resulted or are reasonably likely to result in a Material Adverse
Effect, and the same shall continue uncured for a period of 45 or more
days after notice thereof to the Borrower by the Required Lenders
(through the Administrative Agent);
(n) any FCC License or PUC Authorization, or any other
material operating assets, rights or other property, relating to the
operation of all or any part of the Mobile Communications Business of
any of the Restricted Companies (excluding, however, the Non-Core
Assets) shall be held by NCI or any of the Unrestricted Companies,
other than any FCC Licenses or PUC Authorizations that are (i)
acquired by Unrestricted Companies after the date hereof, (ii) not
material to the Mobile Communications Business of the Restricted
Companies, (iii) subject to management agreements in favor of the
Restricted Companies and (iv) do not relate to a portion of the Mobile
Communications Business of the Restricted Companies representing more
than 5% of the aggregate Operating Cash Flow;
(o) a reasonable basis shall exist for the assertion against
any Credit Party, or any predecessor in interest of any Credit Party
or their Affiliates, of (or there shall have been asserted against any
Credit Party) any claims or liabilities, whether accrued, absolute or
contingent, based on or arising from the generation, storage,
transport, handling or disposal of Hazardous Materials or RF Emissions
by any Credit Party or any of its subsidiaries, Affiliates or
predecessors that, in the judgment of the Required Lenders is
reasonably likely to be determined adversely to any Credit Party, and
the amount thereof (either individually or in the aggregate) is
reasonably likely to have a Material Adverse Effect (insofar as such
amount is payable by a Credit Party but after deducting any portion
thereof that is reasonably expected to be paid by other creditworthy
Persons jointly and severally liable therefor); or
(p) Any of the following shall occur: (i) the Liens created
by the Security Documents shall at any time, with respect to any
material portion of the property of the Restricted Companies, not
constitute valid and perfected Liens on the Collateral intended to be
covered thereby (to the extent perfection by filing, registration,
recordation or possession is required herein or therein) in favor of
the Collateral Agent for the benefit of the Lenders hereunder, free
and clear of all other Liens (other than Liens permitted under Section
7.02 or under the respective Security Documents); (ii) except for
expiration in accordance with its terms, any of the Security Documents
shall for whatever reason be
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terminated, or shall cease to be in full force and effect, with
respect to any material portion of the property of the Restricted
Companies; or (iii) the enforceability of any of the Security
Documents shall be contested by any Credit Party;
then, and in every such event (other than an event with respect to any Credit
Party described in clause (h) or (i) of this Article), and at any time
thereafter during the continuance of such event, the Administrative Agent may,
and at the request of the Required Lenders shall, by notice to the Borrower,
take either or both of the following actions, at the same or different times:
(i) terminate the Commitments, and thereupon the Commitments shall terminate
immediately, and (ii) declare the Loans then outstanding to be due and payable
in whole (or in part, in which case any principal not so declared to be due and
payable may thereafter be declared to be due and payable), and thereupon the
principal of the Loans so declared to be due and payable, together with accrued
interest thereon and all fees and other obligations of the Borrower accrued
hereunder, shall become due and payable immediately, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower; and in case of any event with respect to any Credit Party
described in clause (h) or (i) of this Article, the Commitments shall
automatically terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and all fees and other obligations of
the Borrower accrued hereunder, shall automatically become due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Borrower.
ARTICLE IX
The Agents
Each of the Lenders and each Issuing Bank hereby irrevocably
appoints each of the Administrative Agent and the Collateral Agent as its agent
and authorizes such Agent to take such actions on its behalf and to exercise
such powers as are delegated to such Agent by the terms of this Agreement and
the other Loan Documents, together with such actions and powers as are
reasonably incidental thereto.
Each of The Toronto-Dominion Bank and The Chase Manhattan Bank
shall have the same rights and powers in its capacity as a Lender hereunder as
any other Lender and may exercise the same as though Toronto Dominion (Texas)
Inc. were not the Administrative Agent and The Chase Manhattan Bank were not
the Collateral Agent, and each such bank and its Affiliates may accept deposits
from, lend money to and generally engage in any kind of business with any
Credit Party or any subsidiary or other Affiliate of any thereof as if it were
not such Agent hereunder.
Neither Agent shall have any duties or obligations except
those expressly set forth in this Agreement and the other Loan Documents.
Without limiting the generality of the
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foregoing, (a) neither Agent shall be subject to any fiduciary or other implied
duties, regardless of whether a Default has occurred and is continuing, (b)
neither Agent shall have any duty to take any discretionary action or exercise
any discretionary powers, except discretionary rights and powers expressly
contemplated by this Agreement and the other Loan Documents that such Agent is
required to exercise in writing by the Required Lenders, and (c) except as
expressly set forth herein and in the other Loan Documents, neither Agent shall
have any duty to disclose, and shall not be liable for the failure to disclose,
any information relating to any Credit Party or any of their respective
subsidiaries that is communicated to or obtained by the bank serving as such
Agent or any of its Affiliates in any capacity. Neither Agent shall be liable
for any action taken or not taken by it with the consent or at the request of
the Required Lenders or, if provided herein, with the consent or at the request
of the Required Revolving Credit Lenders, the Required Tranche A Term Loan
Lenders or the Required Tranche B Term Loan Lenders, or in the absence of its
own gross negligence or wilful misconduct. Neither Agent shall be deemed to
have knowledge of any Default unless and until written notice thereof is given
to such Agent by the Borrower, a Lender or the other Agent, and neither Agent
shall be responsible for or have any duty to ascertain or inquire into (i) any
statement, warranty or representation made in or in connection with this
Agreement or the other Loan Documents, (ii) the contents of any certificate,
report or other document delivered hereunder or under any of the other Loan
Documents or in connection herewith of therewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set
forth herein or in any other Loan Document, (iv) the validity, enforceability,
effectiveness or genuineness of this Agreement, the other Loan Documents or any
other agreement, instrument or document, or (v) the satisfaction of any
condition set forth in Article V or elsewhere herein, other than to confirm
receipt of items expressly required to be delivered to such Agent.
Neither Agent shall, except to the extent expressly instructed
by the Required Lenders with respect to collateral security under the Security
Documents, be required to initiate or conduct any litigation or collection
proceedings hereunder or under any other Loan Document.
Each Agent shall be entitled to rely upon, and shall not incur
any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. Each Agent also may rely
upon any statement made to it orally or by telephone and believed by it to be
made by the proper Person, and shall not incur any liability for relying
thereon. Each Agent may consult with legal counsel (who may be counsel for the
Borrower), independent accountants and other experts selected by it, and shall
not be liable for any action taken or not taken by it in accordance with the
advice of any such counsel, accountants or experts.
Either Agent may perform any and all of its duties, and
exercise its rights and powers, by or through any one or more sub-agents
appointed by such Agent. Either Agent and any such sub-agent may perform any
and all its duties and exercise its rights and powers through
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their respective Related Parties. The exculpatory provisions of the preceding
paragraphs shall apply to any such sub-agent and to the Related Parties of such
Agent and any such sub-agent, and shall apply to their respective activities in
connection with the syndication of the credit facilities provided for herein as
well as activities as such Agent.
Subject to the appointment and acceptance of a successor
Administrative Agent or Collateral Agent, as the case may be, as provided in
this paragraph, either Agent may resign at any time by notifying the Lenders,
each Issuing Bank, the Borrower and the other Agent. Upon any such
resignation, the Required Lenders shall have the right, in consultation with
the Borrower, to appoint a successor Administrative Agent, and the Required
Lenders shall have the right, in consultation with the Borrower, to appoint a
successor Collateral Agent. If no successor shall have been so appointed and
shall have accepted such appointment within 30 days after such retiring Agent
gives notice of its resignation, then such retiring Agent may, on behalf of the
Lenders and the Issuing Banks, appoint a successor Administrative Agent or
Collateral Agent, as the case may be, which shall be a bank with an office in
New York, New York, or an Affiliate of any such bank. Upon the acceptance of
its appointment as Administrative Agent or Collateral Agent, as the case may
be, by a successor, such successor shall succeed to and become vested with all
the rights, powers, privileges and duties of such retiring Agent, and such
retiring Agent shall be discharged from its duties and obligations hereunder
and under the other Loan Documents. The fees payable by the Borrower to a
successor Agent shall be the same as those payable to its predecessor unless
otherwise agreed between the Borrower and such successor. After an Agent's
resignation hereunder, the provisions of this Article and Section 10.03 shall
continue in effect for its benefit in respect of any actions taken or omitted
to be taken by it while it was acting as Administrative Agent or Collateral
Agent, as the case may be.
Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent, the Collateral Agent, any
Issuing Bank or any other Lender and based on such documents and information as
it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Lender also acknowledges that it will, independently
and without reliance upon the Administrative Agent, the Collateral Agent, any
Issuing Bank or any other Lender and based on such documents and information as
it shall from time to time deem appropriate, continue to make its own decisions
in taking or not taking action under or based upon this Agreement and the other
Loan Documents, any related agreement or any document furnished hereunder or
thereunder.
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ARTICLE X
Miscellaneous
SECTION 10.01. Notices. Except in the case of notices and
other communications expressly permitted to be given by telephone, all notices
and other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to NCI or the Borrower, to it at 1505 Farm Credit
Drive, Suite 100, McLean, Virginia 22102, Attention Steven Shindler,
Senior Vice President and Chief Financial Officer (Telecopy No.
703-394-3011);
(b) if to any Restricted Company other than the Borrower, to
such Restricted Company care of the Borrower at the address for
notices indicated in clause (a) above;
(c) if to the Administrative Agent, to it at 909 Fannin
Street, Suite 1700, Houston, Texas 77010, Attention Sophia Sgarbi
(Telecopy No. 713-951-9921);
(d) if to the Collateral Agent, to it at 270 Park Avenue,
37th Floor, New York, New York 10017, Attention Tracey Navin (Telecopy
No. 212-270-4164); and
(e) if to any Lender (including any Lender in its capacity as
an Issuing Bank hereunder), to it at its address (or telecopy number)
set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and
other communications hereunder by notice to the other parties hereto. All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the date
of receipt.
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SECTION 10.02. Waivers; Amendments.
(a) No Deemed Waivers; Remedies Cumulative. No failure or
delay by the Administrative Agent, any Issuing Bank or any Lender in exercising
any right or power hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Agents, the Issuing Banks and the Lenders hereunder
are cumulative and are not exclusive of any rights or remedies that they would
otherwise have. No waiver of any provision of this Agreement or consent to any
departure by any Restricted Company therefrom shall in any event be effective
unless the same shall be permitted by paragraph (b) of this Section 10.02, and
then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. Without limiting the generality of the
foregoing, the making of a Loan or issuance of a Letter of Credit shall not be
construed as a waiver of any Default, regardless of whether the Administrative
Agent, any Lender or the respective Issuing Bank may have had notice or
knowledge of such Default at the time.
(b) Amendments to this Agreement. Neither this Agreement nor
any provision hereof may be waived, amended or modified except pursuant to an
agreement or agreements in writing entered into by the Restricted Companies and
the Required Lenders or by the Restricted Companies and the Administrative
Agent with the consent of the Required Lenders; provided that no such agreement
shall:
(i) increase the Commitment of any Lender without the written
consent of such Lender;
(ii) reduce the principal amount of any Loan or LC
Disbursement or reduce the rate of interest thereon, or reduce any
fees payable hereunder, without the written consent of each Lender
affected thereby;
(iii) postpone the scheduled date of payment of the principal
amount of any Loan or LC Disbursement, or any interest thereon, or any
fees payable hereunder, or reduce the amount of, waive or excuse any
such payment, or postpone the scheduled date of expiration of any
Commitment, without the written consent of each Lender affected
thereby;
(iv) change Section 2.09 in a manner that would alter the
application of prepayments thereunder, or change Section 2.16(b), (c)
or (d) in a manner that would alter the pro rata sharing of payments
required thereby, without in each case the written consent of each
Lender (except as a result of (x) the designation of Incremental
Facility
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Loans, and the related commitments to provide Incremental Facility
Loans hereunder, as a "Class" of Loans or Commitments hereunder, or
(y) the incurrence of Vendor Indebtedness in accordance with Section
7.01(f), either of which, as contemplated by Section 7.01(e) or
7.01(f), as applicable, shall only require the consent of the Required
Lenders);
(v) alter the rights or obligations of the Borrower to prepay
Loans without the written consent of each Lender (other than the
obligations of the Borrower under Section 2.09(b)(iii), which may be
altered with the consent of the Required Lenders, and except as a
result of (x) the designation of Incremental Facility Loans as "Loans"
hereunder, or (y) the incurrence of Vendor Indebtedness in accordance
with Section 7.01(f), either of which, as contemplated by Section
7.01(e) or 7.01(f), as applicable, shall only require the consent of
the Required Lenders);
(vi) change any of the provisions of this Section 10.02 or
the definition of "Required Lenders", "Required Revolving Credit
Lenders", "Required Tranche A Term Loan Lenders" or "Required Tranche
B Term Loan Lenders", or any other provision hereof specifying the
number or percentage of Lenders required to waive, amend or modify any
rights hereunder or under any other Loan Document or make any
determination or grant any consent hereunder or thereunder, without
the written consent of each Lender (except as a result of the
designation of Incremental Facility Loans, and the related commitments
to provide Incremental Facility Loans hereunder, as a "Class" of Loans
or Commitments hereunder which, as contemplated by Section 7.01(e),
shall only require the consent of the Required Lenders); or
(vii) release NCI from its obligations in respect of its
Guarantee under Article III, without the written consent of each
Lender;
provided further that no such agreement shall amend, modify or otherwise affect
the rights or duties of either Agent or any Issuing Bank hereunder without the
prior written consent of such Agent or Issuing Bank, as the case may be.
Anything in this Agreement to the contrary notwithstanding, no
waiver or modification of any provision of this Agreement that has the effect
(either immediately or at some later time) of enabling the Borrower to satisfy
a condition precedent to the making of a Loan of any Class shall be effective
against the Lenders of such Class, unless the Required Revolving Credit
Lenders, Required Tranche A Term Loan Lenders or Required Tranche B Term Loans
Lenders (whichever of such Class is so affected) shall have concurred with such
waiver or modification.
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(c) Amendments to Security Documents. No Security Document
nor any provision thereof may be waived, amended or modified except pursuant to
an agreement or agreements in writing entered into by the Restricted Companies
party thereto, and by the Collateral Agent with the consent of the Required
Lenders; provided that, (i) without the written consent of each Lender, no such
agreement shall release any Restricted Company from its obligations under any
Security Document and (ii) without the written consent of each Lender, no such
agreement shall release any collateral or otherwise terminate any Lien under
any Security Document or provide for additional obligations to be secured by
such collateral security (unless either (x) the Lien for such additional
obligations shall be junior to the Lien in favor of the other obligations
secured by such Security Document, in which event the Collateral Agent may
consent to such junior Lien and enter into appropriate intercreditor
arrangements provided that it obtains the consent of the Required Lenders
thereto, or (y) such additional obligations result from the designation of
Incremental Facility Loans in accordance with Section 7.01(e) or constitute
Vendor Indebtedness incurred in accordance with Section 7.01(f), in which event
the Collateral Agent may consent to such additional obligations being secured
by such collateral and enter into appropriate intercreditor arrangements,
without the consent of any Lender thereto), alter the relative priorities of
the obligations entitled to the benefits of the Liens created under the
Security Documents or release any Guarantor under the Restricted Company
Guarantee and Security Agreement from its guarantee obligations thereunder,
except that no such consent shall be required, and the Collateral Agent is
hereby authorized (and so agrees with the Restricted Companies), to release any
Lien covering property (and to release any such Guarantor) that is the subject
of either a disposition of property permitted hereunder or a disposition to
which the Required Lenders have consented; provided further that no such
agreement shall amend, modify or otherwise affect the rights or duties of the
Collateral Agent without the prior written consent of the Collateral Agent.
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SECTION 10.03. Expenses; Indemnity; Damage Waiver.
(a) Costs and Expenses. The Credit Parties jointly and
severally agree to pay, or reimburse the Agents or Lenders for paying, (i) all
reasonable out-of-pocket expenses incurred by each Agent and its Affiliates,
including the reasonable fees, charges and disbursements of Special Counsel
(and of special communications counsel for such Agent), in connection with the
syndication of the credit facilities provided for herein, the preparation of
this Agreement and the other Loan Documents or any amendments, modifications or
waivers of the provisions hereof or thereof (whether or not the transactions
contemplated hereby or thereby shall be consummated), (ii) all out-of-pocket
expenses incurred by any Issuing Bank in connection with the issuance,
amendment, renewal or extension of any Letter of Credit or any demand for
payment thereunder, (iii) all amounts that the Collateral Agent is required to
make under any indemnity issued to any bank with which lock box or segregated
deposit arrangements are entered into pursuant to Section 5.01((i) or the
Restricted Company Guarantee and Security Agreement, (iv) all out-of-pocket
expenses incurred by either Agent, any Issuing Bank or any Lender, including
the fees, charges and disbursements of any counsel for such Agent, Issuing Bank
or Lender, in connection with the enforcement or protection of its rights in
connection with this Agreement and the other Loan Documents, including its
rights under this Section 10.03, or in connection with the Loans made or
Letters of Credit issued hereunder, including in connection with any workout,
restructuring or negotiations in respect thereof, (v) all transfer, stamp,
documentary or other similar taxes, assessments or charges levied by any
governmental or revenue authority in respect of this Agreement or any of the
other Loan Documents or any other document referred to herein or therein and
all costs, expenses, taxes, assessments and other charges incurred in
connection with any filing, registration, recording or perfection of any
security interest contemplated by any Security Document or any other document
referred to therein, and (vi) all costs, expenses and other charges in respect
of title insurance procured with respect to the Liens created pursuant to the
Mortgages.
(b) Indemnification by Credit Parties. The Credit Parties
jointly and severally agree to indemnify each Agent, each Issuing Bank and each
Lender, and each Related Party of any of the foregoing Persons (each such
Person being called an "Indemnitee") against, and hold each Indemnitee harmless
from, any and all losses, claims, damages, liabilities and related expenses,
including the fees, charges and disbursements of any counsel for any
Indemnitee, incurred by or asserted against any Indemnitee arising out of, in
connection with, or as a result of (i) the execution or delivery of this
Agreement, the other Loan Documents or any agreement or instrument contemplated
hereby, the performance by the parties hereto and thereto of their respective
obligations hereunder or thereunder or the consummation of the Transactions or
any other transactions contemplated hereby or thereby, (ii) any Loan or Letter
of Credit or the use of the proceeds therefrom (including any refusal by any
Issuing Bank to honor a demand for payment under a Letter of Credit if the
documents presented in connection with such demand do
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not strictly comply with the terms of such Letter of Credit), (iii) any actual
or alleged presence or release of Hazardous Materials or RF Emissions on or
from any property owned or operated by any Credit Party or any of their
subsidiaries, or any Environmental Liability related in any way to any Credit
Party or any of their subsidiaries, or (iv) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether
any Indemnitee is a party thereto; provided that such indemnity shall not, as
to any Indemnitee, be available to the extent that such losses, claims,
damages, liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the
gross negligence or wilful misconduct of such Indemnitee.
(c) Reimbursement by Lenders. To the extent that the Credit
Parties fail to pay any amount required to be paid by them to either Agent
under paragraph (a) or (b) of this Section 10.03, each Lender severally agrees
to pay to such Agent such Lender's Applicable Percentage (determined as of the
time that the applicable unreimbursed expense or indemnity payment is sought)
of such unpaid amount; provided that the unreimbursed expense or indemnified
loss, claim, damage, liability or related expense, as the case may be, was
incurred by or asserted against such Agent in its capacity as such. To the
extent that the Credit Parties fail to pay any amount required to be paid by
them to any Issuing Bank under paragraph (a) or (b) of this Section 10.03, each
Revolving Credit Lender severally agrees to pay to such Issuing Bank such
Lender's Applicable Percentage (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against such Agent in its capacity as such.
(d) Waiver of Consequential Damages, Etc. To the extent
permitted by applicable law, none of the Credit Parties shall assert, and each
Credit Party hereby waives, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement, the other Loan Documents or any agreement or instrument
contemplated hereby or thereby, the Transactions, any Loan or Letter of Credit
or the use of the proceeds thereof.
(e) Payments. All amounts due under this Section 10.03 shall
be payable promptly after written demand therefor.
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SECTION 10.04. Successors and Assigns.
(a) Assignments Generally. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby, except that no Credit Party
may assign or otherwise transfer any of its rights or obligations hereunder
without the prior written consent of each Lender (and any attempted assignment
or transfer by any Credit Party without such consent shall be null and void).
Nothing in this Agreement, expressed or implied, shall be construed to confer
upon any Person (other than the parties hereto, their respective successors and
assigns permitted hereby and, to the extent expressly contemplated hereby, the
Related Parties of each of the Administrative Agent, the Issuing Banks and the
Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement.
(b) Assignments by Lenders. Any Lender may assign to one or
more banks or other financial institutions (including funds) all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commitments and the Loans at the time owing to it); provided that
(i) except in the case of an assignment to a Lender or an
Affiliate of a Lender or an Approved Fund, each of the Borrower and
the Administrative Agent (and, in the case of an assignment of all or
a portion of a Revolving Credit Commitment or any Revolving Credit
Lender's obligations in respect of its LC Exposure, each Issuing Bank)
must give their prior written consent to such assignment (which
consent shall not be unreasonably withheld or delayed) and, in the
case of any such assignment as to which no consent of the
Administrative Agent is required, the Administrative Agent shall have
acknowledged receipt of such assignment,
(ii) except in the case of an assignment to a Lender or an
Affiliate of a Lender or an Approved Fund or an assignment of the
entire remaining amount of the assigning Lender's Commitments, the
amount of the Commitments of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and Acceptance
with respect to such assignment is delivered to the Administrative
Agent) shall not be less than $5,000,000 unless each of the Borrower
and the Administrative Agent otherwise consents,
(iii) each partial assignment of rights with respect to any
Class of Loans and/or Commitments shall be made as an assignment of a
proportionate part of all the assigning Lender's rights and
obligations under this Agreement with respect to such Class
(including, in the case of any assignment of Revolving Credit
Commitments, of a proportionate part of the assigning Lender's LC
Exposure),
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(iv) the parties to each assignment shall execute and deliver
to the Administrative Agent (with sufficient copies for the assignor,
the assignee and the Borrower) an Assignment and Acceptance, together
with a processing and recordation fee of $3,500, and
(v) the assignee, if it shall not be a Lender, shall deliver
to the Administrative Agent an Administrative Questionnaire;
provided, further that any consent of the Borrower otherwise required under
this paragraph shall not be required if an Event of Default under clause (h) or
(i) of Article VIII has occurred and is continuing.
Upon acceptance and recording pursuant to paragraph (d) of
this Section 10.04, from and after the effective date specified in each
Assignment and Acceptance, the assignee thereunder shall be a party hereto and,
to the extent of the interest assigned by such Assignment and Acceptance, have
the rights and obligations of a Lender under this Agreement, and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all of the
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.13, 2.14, 2.15 and 10.03). Any assignment or transfer
by a Lender of rights or obligations under this Agreement that does not comply
with this paragraph shall be treated for purposes of this Agreement as a sale
by such Lender of a participation in such rights and obligations in accordance
with paragraph (e) of this Section 10.04.
(c) Maintenance of Register by Administrative Agent. The
Administrative Agent, acting for this purpose as an agent of the Borrower,
shall maintain a copy of each Assignment and Acceptance delivered to it and a
register for the recordation of the names and addresses of the Lenders, and the
Commitment of, and principal amount of the Loans and LC Disbursements owing to,
each Lender pursuant to the terms hereof from time to time (the "Register").
The entries in the Register shall be conclusive, and the Borrower, the
Administrative Agent, the Issuing Banks and the Lenders may treat each Person
whose name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary. The Register shall be available for inspection by the Borrower, any
Issuing Bank and any Lender, at any reasonable time and from time to time upon
reasonable prior notice.
(d) Effectiveness of Assignments. Upon its receipt of a duly
completed Assignment and Acceptance executed by an assigning Lender and an
assignee, the assignee's completed Administrative Questionnaire (unless the
assignee shall already be a Lender
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hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section 10.04 and any written consent to such assignment required by
paragraph (b) of this Section 10.04, the Administrative Agent shall accept such
Assignment and Acceptance and record the information contained therein in the
Register on a date mutually agreed upon between the assignor, the assignee and
the Administrative Agent (which shall be no later than the date 5 Business Days
after compliance with the requirements of this paragraph). No assignment shall
be effective for purposes of this Agreement unless it has been recorded in the
Register as provided in this paragraph.
(e) Participations. Any Lender may, without the consent of
the Restricted Companies (except that during the first six months after the
Effective Date, the prior written consent of the Borrower shall be obtained for
any participation described in this paragraph (e), such consent not to be
unreasonably withheld or delayed), the Administrative Agent or any Issuing Bank
sell participations to one or more banks or other entities (a "Participant") in
all or a portion of such Lender's rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans and LC Exposure
owing to it); provided that (i) such Lender's obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations and (iii) the
Borrower, the Administrative Agent, the Issuing Banks and the other Lenders
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement. Any agreement or
instrument pursuant to which a Lender sells such a participation shall provide
that such Lender shall retain the sole right to enforce this Agreement and to
approve any amendment, modification or waiver of any provision of this
Agreement; provided that such agreement or instrument may provide that such
Lender will not, without the consent of the Participant, agree to any
amendment, modification or waiver described in the first proviso to Section
10.02(b), or the first proviso to Section 10.02(c), that affects such
Participant. Subject to paragraph (f) of this Section 10.04, the Borrower
agrees that each Participant shall be entitled to the benefits of Sections
2.13, 2.14 and 2.15 to the same extent as if it were a Lender and had acquired
its interest by assignment pursuant to paragraph (b) of this Section 10.04.
(f) Limitations on Rights of Participants. A Participant
shall not be entitled to receive any greater payment under Section 2.13 or 2.15
than the applicable Lender would have been entitled to receive with respect to
the participation sold to such Participant, unless the sale of the
participation to such Participant is made with the Borrower's prior written
consent. A Participant that would be a Foreign Lender if it were a Lender
shall not be entitled to the benefits of Section 2.15 unless the Borrower is
notified of the participation sold to such Participant and such Participant
agrees, for the benefit of the Borrower, to comply with Section 2.15(e) as
though it were a Lender.
(g) Pledges. Any Lender may at any time pledge or assign a
security interest in all or any portion of its rights under this Agreement to
secure obligations of such Lender,
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including any such pledge or assignment to a Federal Reserve Bank, and this
Section 10.04 shall not apply to any such pledge or assignment of a security
interest; provided that no such pledge or assignment of a security interest
shall release a Lender from any of its obligations hereunder or substitute any
such assignee for such Lender as a party hereto.
(h) No Assignments to Borrower or Affiliates. Anything in
this Section 10.04 to the contrary notwithstanding, no Lender may assign or
participate any interest in any Loan held by it hereunder to the Borrower or
any of its Affiliates or subsidiaries without the prior consent of each Lender.
SECTION 10.05. Survival. All covenants, agreements,
representations and warranties made by the Credit Parties herein and in the
other Loan Documents, and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement and the other Loan Documents,
shall be considered to have been relied upon by the other parties hereto and
shall survive the execution and delivery of this Agreement and the other Loan
Documents and the making of any Loans and issuance of any Letters of Credit,
regardless of any investigation made by any such other party or on its behalf
and notwithstanding that the Administrative Agent, any Issuing Bank or any
Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect so long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement or the other Loan Documents is outstanding and unpaid or any Letter
of Credit is outstanding and so long as the Commitments have not expired or
terminated. The provisions of Sections 2.13, 2.14, 2.15 and 10.03 and Article
IX shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, any assignment or
participation pursuant to Section 10.04 (with respect to matters arising prior
to such assignment or participation), the repayment of the Loans, the
expiration or termination of the Letters of Credit and the Commitments or the
termination of this Agreement or any other Loan Document or any provision
hereof or thereof.
SECTION 10.06. Counterparts; Integration; Effectiveness.
This Agreement may be executed in counterparts (and by different parties hereto
on different counterparts), each of which shall constitute an original, but all
of which when taken together shall constitute a single contract. This
Agreement and any separate letter agreements with respect to fees payable to
the Administrative Agent constitute the entire contract among the parties
relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof. This Agreement shall become effective when it shall have been executed
by the Administrative Agent and when the Administrative Agent shall have
received counterparts hereof which, when taken together, bear the signatures of
each of the other parties hereto, and thereafter shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. Delivery of an executed counterpart of a signature
Credit Agreement
<PAGE> 131
-125-
page of this Agreement by telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.
SECTION 10.07. Severability. Any provision of this Agreement
held to be invalid, illegal or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such invalidity, illegality
or unenforceability without affecting the validity, legality and enforceability
of the remaining provisions hereof; and the invalidity of a particular
provision in a particular jurisdiction shall not invalidate such provision in
any other jurisdiction.
SECTION 10.08. Right of Setoff. If an Event of Default shall
have occurred and be continuing, each Lender is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such Lender
to or for the credit or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement held
by such Lender, irrespective of whether or not such Lender shall have made any
demand under this Agreement and although such obligations may be unmatured.
The rights of each Lender under this Section 10.08 are in addition to any other
rights and remedies (including other rights of setoff) which such Lender may
have.
SECTION 10.09. Governing Law; Jurisdiction; Consent to
Service of Process.
(a) Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of New York.
(b) Submission to Jurisdiction. Each party hereto hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of the Supreme Court of the State of New York sitting
in New York County and of the United States District Court of the Southern
District of New York, and any appellate court from any thereof, in any action
or proceeding arising out of or relating to this Agreement or the other Loan
Documents, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in such
New York State court (or, to the extent permitted by law, in such Federal
court). Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Administrative Agent,
any Issuing Bank or any Lender may otherwise have to bring any action or
proceeding relating to this Agreement against any Credit Party or its
properties in the courts of any jurisdiction.
Credit Agreement
<PAGE> 132
-126-
(c) Waiver of Venue. Each party hereto hereby irrevocably
and unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection which it may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or relating to
this Agreement or the other Loan Documents in any court referred to in
paragraph (b) of this Section 10.09. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
(d) Service of Process. Each party to this Agreement
irrevocably consents to service of process in the manner provided for notices
in Section 10.01. Nothing in this Agreement will affect the right of any party
to this Agreement to serve process in any other manner permitted by law.
SECTION 10.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY
HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 10.10.
SECTION 10.11. Headings. Article and Section headings and
the Table of Contents used herein are for convenience of reference only, are
not part of this Agreement and shall not affect the construction of, or be
taken into consideration in interpreting, this Agreement.
SECTION 10.12. Confidentiality. Each of the Agents, the
Issuing Banks and the Lenders agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed (a) to
its and its Affiliates, directors, officers, employees and agents, including
accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential
nature of such Information and instructed to keep such Information
confidential), (b) to any direct or indirect contractual counterparty in swap
agreements (or to such contractual counterparty's professional advisor), so
long as such contractual counterparty (or such professional advisor) agrees to
be bound by the provisions of this Section 10.12, (c) to the extent requested
by any regulatory authority, (d) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, (e) to any other party
to this Agreement, (f) in connection with the exercise
Credit Agreement
<PAGE> 133
-127-
of any remedies hereunder or any suit, action or proceeding relating to this
Agreement or the enforcement of rights hereunder, (g) subject to the execution
and delivery of an agreement containing provisions substantially the same as
those of this Section 10.12, to any assignee of or Participant in, or any
prospective assignee of or Participant in, any of its rights or obligations
under this Agreement, (h) with the consent of the Borrower or (i) to the extent
such Information (i) becomes publicly available other than as a result of a
breach of this Section 10.12 or (ii) becomes available to the Administrative
Agent, any Issuing Bank or any Lender on a nonconfidential basis from a source
other than the Borrower.
For the purposes of this Section 10.12, "Information" means
all information received from the Borrower relating to the Credit Parties or
their business, other than any such information that is available to either
Agent, any Issuing Bank or any Lender on a nonconfidential basis prior to
disclosure by the Borrower; provided that, in the case of information received
from the Borrower after the date hereof, such information is clearly identified
at the time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section 10.12 shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.
SECTION 10.13. Designation as Credit Facility. NCI hereby
designates each of the Commitments and Loans hereunder as the "Credit Facility"
under and for all purposes of the Public Note Indentures. In that connection,
NCI hereby represents and warrants as of the date hereof that there is not
currently in effect any designation of any other credit facility as a "Credit
Facility" under any of the Public Note Indentures (other than, for periods
prior to the Effective Date, the Existing Credit Agreement and Existing Vendor
Financing Agreements). NCI further agrees that, until the principal of and
interest on all of the Loans have been paid in full and all of the Commitments
terminated, it will not designate any credit facility (other than the
Commitments and Loans hereunder pursuant to this Section 10.13) as a "Credit
Facility" for purposes of any of the Public Note Indentures.
SECTION 10.14. Obligations Senior. The obligations of the
Restricted Companies hereunder and under the other Loan Documents constitute
"senior Debt" for the purposes of the second paragraph of Section 10.12 of the
January 1994 Indenture.
Credit Agreement
<PAGE> 134
-128-
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
NEXTEL COMMUNICATIONS, INC.,
by /s/ Steven Shindler
--------------------------
Name: Steven Shindler
Title: Vice President
RESTRICTED COMPANIES
--------------------
NEXTEL FINANCE COMPANY
by /s/ Steven Shindler
--------------------------
Name: Steven Shindler
Title: Vice President
Credit Agreement
<PAGE> 135
-129-
A & B ELECTRONICS, INC.
DIAL DISTANCE, INC.
FCI 900, Inc.
NEXTEL COMMUNICATIONS OF
THE MID-ATLANTIC, INC.
NEXTEL OF CALIFORNIA, INC.
NEXTEL LICENSE ACQUISITION
CORP.
NEXTEL LICENSE HOLDINGS
INC.
NEXTEL LICENSE HOLDINGS 2,
INC.
NEXTEL LICENSE HOLDINGS 3,
INC.
NEXTEL LICENSE HOLDINGS 4,
INC.
NEXTEL OF NEW YORK, INC.
NEXTEL OPERATIONS, INC.
NEXTEL SOUTH CORP.
NEXTEL OF TEXAS, INC.
NEXTEL SYSTEMS CORP.
NEXTEL WEST CORP.
PITTENCRIEFF
COMMUNICATIONS, INC.
RADIOCALL SERVICE AND
SYSTEMS, INC.
SAFETY NET, INC.
SMART SMR, INC.
SPECTRUM RESOURCES OF
THE NORTHEAST, INC.
SRI, INC.
By /s/ Steven Shindler
------------------------
Name: Steven Shindler
Title: Vice President
Credit Agreement
<PAGE> 136
-130-
FORT WORTH TRUNKED RADIO
LIMITED PARTNERSHIP
By Nextel of Texas,Inc.,
a General Partner
By /s/ Steven Shindler
------------------------
Name: Steven Shindler
Title: Vice President
Credit Agreement
<PAGE> 137
-131-
LENDERS
<TABLE>
<S> <C>
TORONTO DOMINION (TEXAS) INC., as THE CHASE MANHATTAN BANK
Administrative Agent Individually and as Collateral Agent
By /s/ Tracey A. Navin
-----------------------------------------------
By /s/ Sophia D. Sgarbi Title: Vice President
----------------------------------------------- Name: Tracey A. Navin
Title: Vice President
Name: Sophia D. Sgarbi
BARCLAYS BANK PLC MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By /s/ James K. Downey By /s/ Maria D. Kratsios
----------------------------------------------- -----------------------------------------------
Title: Director Title: Vice President
Name: James K. Downey Name: Maria D. Kratsios
NATIONSBANK OF TEXAS, N.A. THE TORONTO DOMINION BANK
By /s/ Jennifer F. Zydney By /s/ Sophia D. Sgarbi
----------------------------------------------- -----------------------------------------------
Title: Vice President Title: Mgr. Syndications & Credit
Name: Jennifer F. Zydney Name: Sophia D. Sgarbi
</TABLE>
Credit Agreement
<PAGE> 138
-132-
<TABLE>
<S> <C>
ABN AMRO BANK N.V. BANKBOSTON, N.A.
By /s/ Andrew M. Dry
-----------------------------------------------
Title: Senior Vice President
Name: Andrew M. Dry By /s/ Shepard D. Rainie
-----------------------------------------------
Title: Managing Director
Name: Shepard D. Rainie
By /s/ William S. Bennett
-----------------------------------------------
Title: Vice President
Name: William S. Bennett
BANKERS TRUST BANQUE PARIBAS
By /s/ Lynne S. Randall
-----------------------------------------------
Title: Director
By /s/ Gregory P. Shefrin Name: Lynne S. Randall
-----------------------------------------------
Title: Vice President
Name: Gregory P. Shefrin
By /s/ William B. Schink
-----------------------------------------------
Title: Director
Name: William B. Schink
THE BANK OF NEW YORK THE BANK OF NOVA SCOTIA
as Trustee on behalf of Nats Loan Trust 4
and not in its individual capacity
By /s/ Margot C. Bright
-----------------------------------------------
Title: Authorized Signatory
Name: Margot C. Bright
By /s/ Fernando Acebedo
-----------------------------------------------
Title: Assistant Treasurer
Name: Fernando Acebedo
</TABLE>
Credit Agreement
<PAGE> 139
-133-
<TABLE>
<S> <C>
CARILLON HOLDING, LIMITED CIBC INC.
By: Carillon Advisors Inc., its Investment
Advisor
By /s/ Cynthia McCahill
-----------------------------------------------
By /s/ Steven R. Sutermeister Title: Executive Director
----------------------------------------------- CIBC Oppenheimer Corp., AS AGENT
Title: Director Name: Cynthia McCahill
Name: Steven R. Sutermeister
THE CIT GROUP/EQUIPMENT CONTINENTAL CASUALTY COMPANY
FINANCING, INC.
By /s/ J. E. Palmer By /s/ Marilou R. McGirr
----------------------------------------------- -----------------------------------------------
Title: Senior Credit Operations Manager Title: Vice President
Name: J. E. Palmer Name: Marilou R. McGirr
COOPERATIEVE CENTRALE CREDIT SUISSE FIRST BOSTON
RAIFFEISEN-BOERENLEENBANK
B.A., "RABOBANK NEDERLAND",
NEW YORK BRANCH
By /s/ Hans F. Breukhoven By /s/ Judith E. Smith
------------------------------------------------ -----------------------------------------------
Title: Vice President Title: Director
Name: Hans F. Breukhoven Name: Judith E. Smith
By /s/ W. Pieter C. Kodde By /s/ Todd C. Morgan
----------------------------------------------- -----------------------------------------------
Title: Vice President Title: Director
Name: W. Pieter C. Kodde Name: Todd C. Morgan
</TABLE>
Credit Agreement
<PAGE> 140
-134-
<TABLE>
<S> <C>
CREDIT AGRICOLE INDOSUEZ CYPRESSTREE INVESTMENT
MANAGEMENT COMPANY, INC.
By /s/ Francoise Berthelot As: Attorney-in-Fact and on behalf of First
----------------------------------------------- Allmerica Financial Life Insurance Company as
Title: Vice President Portfolio Manager
Name: Francoise Berthelot
By /s/ Murray Kenney By /s/ Philip C. Robbins
----------------------------------------------- -----------------------------------------------
Title: First Vice President Title: Vice President
Name: Murray Kenney Name: Philip C. Robbins
DELANO COMPANY DEUTSCHE BANK AG NEW YORK
and/or CAYMAN ISLANDS BRANCH
By: Pacific Investment Mangement
Company, as its Investment Advisor
By /s/ Steven M. Godeke
-----------------------------------------------
Title: Vice President
Name: Steven M. Godeke
By /s/ Raymond Kennedy
-----------------------------------------------
Title: Vice President
Name: Raymond Kennedy By /s/ A. Richarz
-----------------------------------------------
Title: Associate
Name: Alexander Richarz
DLJ CAPITAL FUNDING, INC. DRESDNER BANK AG NEW YORK and
GRAND CAYMAN BRANCHES.
By /s/ William E. Lambert
-----------------------------------------------
By /s/ Stephen P. Hickey Title: Assistant Vice President
----------------------------------------------- Name: William E. Lambert
Title: Managing Director
Name: Stephen P. Hickey
By /s/ Brian Haughney
-----------------------------------------------
Title: Assistant Treasurer
Name: Brian Haughney
</TABLE>
Credit Agreement
<PAGE> 141
-135-
<TABLE>
<S> <C>
FLEET NATIONAL BANK FRANKLIN FLOATING RATE TRUST
By /s/ Chauncey F. Lufkin
-----------------------------------------------
By /s/ Alexander G. Ivanov Title: Vice President
----------------------------------------------- Name: Chauncey F. Lufkin
Title: Vice President
Name: Alexander G. Ivanov
GENERAL ELECTRIC CAPITAL GOLDMAN SACHS CREDIT PARTNERS
CORPORATION L.P.
By /s/ Molly S. Fergusson By /s/ Stephen J. McGuinness
----------------------------------------------- -----------------------------------------------
Title: Manager, Operations Title: Authorized Signatory
Name: Molly S. Fergusson Name: Stephen J. McGuinness
THE ING CAPITAL SENIOR SECURED ING HIGH INCOME PRICIPAL
HIGH INCOME FUND, L.P. PRESERVATION FUND HOLDINGS,
LDC
By: ING CAPITAL ADVISORS, INC.,
as Investment Advisor
By /s/ Helen Y. Rhee
------------------------------------------------
Title: AVP Portfolio Manager
Name: Helen Y. Rhee By /s/ Helen Y. Rhee
------------------------------------------------
Title: AVP Portfolio Manager
Name: Helen Y. Rhee
</TABLE>
Credit Agreement
<PAGE> 142
-136-
<TABLE>
<S> <C>
JACKSON NATIONAL LIFE INSURANCE KZH-CRECENT-2 CORPORATION
COMPANY
By: PPM America, Inc., as attorney in fact, on
behalf of Jackson National Life Insurance Company
By /s/ Virginia Conway
-----------------------------------------------
Title: Authorized Agent
By /s/ Michael DiRe Name: Virginia Conway
-----------------------------------------------
Title: Managing Director
Name: Michael DiRe
KZH HOLDING CORPORATION III MEESPIERSON CAPITAL CORP.
By /s/ Virginia Conway By /s/ Claudia J. Chifos
----------------------------------------------- -----------------------------------------------
Title: Authorized Agent Title: Managing Director
Name: Virginia Conway Name: Claudia J. Chifos
/s/ John T. Connors
MERRILL LYNCH SENIOR FLOATING MOTOROLA CREDIT CORPORATION
RATE FUND, INC.
By /s/ Lynn Callicott Baranski By /s/ Gary B. Tatje
----------------------------------------------- -----------------------------------------------
Title: Authorized Signatory Title: Vice President
Name: Lynn Callicott Baranski Name: Gary B. Tatje
</TABLE>
Credit Agreement
<PAGE> 143
-137-
<TABLE>
<S> <C>
OAK HILL SECURITIES FUND, L.P., OCTAGON CREDIT INVESTORS LOAN
PORTFOLIO (a unit of The Chase
By: Oak Hill Securities Genpar, L.P., Manhattan Bank)
Its General Partner
By: Oak Hill Securities MGP, Inc.,
Its General Partner By /s/ Andrew D. Gordon
-----------------------------------------------
Title: Managing Director
Name: Andrew D. Gordon
By /s/ Scott D. Krase
-----------------------------------------------
Title: Vice President
Name: Scott D. Krase
OSPREY INVESTMENTS PORTFOLIO PILGRIM AMERICA PRIME RATE
TRUST
By: Citibank, N.A., as Manager
By: Pilgrim America Investments, Inc.
as its Investment Manager
By /s/ Hans L. Christensen By /s/ Thomas C. Hunt
----------------------------------------------- -----------------------------------------------
Title: Vice President Title: Assistant Portfolio Manager
Name: Hans L. Christensen Name: Thomas C. Hunt
PNC BANK, NATIONAL ASSOCIATION ROYAL BANK OF CANADA
By /s/ John T. Wilden By /s/ Thomas Byrne
----------------------------------------------- -----------------------------------------------
Title: Vice President Title: Senior Manager
Name: John T. Wilden Name: Thomas Byrne
</TABLE>
Credit Agreement
<PAGE> 144
-138-
<TABLE>
<S> <C>
SKANDINAVISKA ENSKILDA BANKEN SOCIETE GENERALE
AB (publ.), NEW YORK BRANCH
By /s/ Philip F. Montemurro
-----------------------------------------------
Title: Vice President By /s/ Donna M. Cordner
Name: Philip F. Montemurro -----------------------------------------------
Title: Managing Director
Name: Donna M. Cordner
By /s/ Lars Nybom
-----------------------------------------------
Title: Asst. Vice President
Name: Lars Nybom
THE SUMITOMO TRUST & BANKING VAN KAMPEN AMERICAN CAPITAL
CO., LTD. NEW YORK BRANCH PRIME RATE INCOME TRUST
By /s/ Suraj P. Bhatia By /s/ Jeffrey W. Maillet
----------------------------------------------- -----------------------------------------------
Title: Senior Vice President Title: Sr. Vice Pres. & Director
Manager, Corporate Finance Dept. Name: Jeffrey W. Maillet
Name: Suraj P. Bhatia
</TABLE>
Credit Agreement
<PAGE> 145
EXHIBIT A
[Form of Assignment and Acceptance]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of March
12, 1998 (as amended and in effect on the date hereof, the "Credit Agreement"),
among Nextel Communications, Inc., Nextel Finance Company and the other
Restricted Companies named therein, the Lenders named therein, Toronto Dominion
(Texas) Inc., as Administrative Agent, and The Chase Manhattan Bank, as
Collateral Agent. Terms defined in the Credit Agreement are used herein with the
same meanings.
The Assignor named on the reverse hereof hereby sells and
assigns, without recourse, to the Assignee named on the reverse hereof, and the
Assignee hereby purchases and assumes, without recourse, from the Assignor,
effective as of the Assignment Date set forth on the reverse hereof, the
interests set forth on the reverse hereof (the "Assigned Interest") in the
Assignor's rights and obligations under the Credit Agreement, including, without
limitation, the interests set forth on the reverse hereof in the Assignor's
Revolving Credit Commitments, Tranche A Term Loan Commitments and Tranche B Term
Loan Commitments on the Assignment Date and Revolving Credit Loans, Tranche A
Term Loans and Tranche B Term Loans owing to the Assignor which are outstanding
on the Assignment Date, together with unpaid interest accrued on the assigned
Loans to the Assignment Date, the participations in Letters of Credit and LC
Disbursements held by the Assignor on the Assignment Date, and the amount, if
any, set forth on the reverse hereof of the fees accrued to the Assignment Date
for the account of the Assignor. The Assignee hereby acknowledges receipt of a
copy of the Credit Agreement (including the Schedules and forms of Exhibits
attached thereto).
From and after the Assignment Date (i) the Assignee shall be a
party to and be bound by the provisions of the Credit Agreement and the other
Loan Documents and, to the extent of the interests assigned by this Assignment
and Acceptance, have the rights and obligations of a Lender thereunder and (ii)
the Assignor shall, to the extent of the interests assigned by this Assignment
and Acceptance, relinquish its rights and be released from its obligations under
the Credit Agreement and the other Loan Documents. In that connection, the
Assignee (to the extent not already a party to the Credit Agreement) hereby
appoints each of the Administrative Agent and the Collateral Agent as its agent
and authorizes such Agent to take such actions on its behalf and to exercise
such powers as are delegated to such Agent by the terms of the Credit Agreement
and the other Loan Documents, together with such actions and powers as are
reasonably incidental thereto, all in the manner and to the extent provided in
Article IX of the Credit Agreement.
Assignment and Acceptance
<PAGE> 146
- 2 -
The Assignor represents and warrants that (i) it is the legal
and beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any adverse claim and (ii) it has all right,
power and authority to enter into this Assignment and Acceptance.
This Assignment and Acceptance is being delivered to the
Administrative Agent together with (i) if the Assignee is a Foreign Lender, any
documentation required to be delivered by the Assignee pursuant to Section
2.15(e) of the Credit Agreement, duly completed and executed by the Assignee,
and (ii) if the Assignee is not already a Lender under the Credit Agreement, an
Administrative Questionnaire in the form supplied by the Administrative Agent,
duly completed by the Assignee. The [Assignee/Assignor] shall pay the fee
payable to the Administrative Agent pursuant to Section 10.04(b) of the Credit
Agreement. This Assignment shall be effective upon recording in the Register
pursuant to Section 10.04 of the Credit Agreement.
This Assignment and Acceptance shall be governed by and
construed in accordance with the laws of the State of New York.
Assignment and Acceptance
<PAGE> 147
- 3 -
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment
("Assignment Date")(1):
<TABLE>
<CAPTION>
Percentage Assigned (set forth, to
at least 8 decimals, as a percentage
of the aggregate Loans and the
aggregate Commitments, as applicable
of all Lenders thereunder)
Facility Amount Assigned
- -------- ---------------
<S> <C> <C>
Revolving Credit Commitment: $ %
Revolving Credit Loans:
Tranche A Term Loan Commitment:
Tranche A Term Loans:
Tranche B Term Loan Commitment:
Tranche B Term Loans
Commitment fees in respect of Revolving Credit Commitment (if any):
Commitment fees in respect of Tranche A Term Loan Commitment (if any):
Commitment fees in respect of Tranche B Term Loan Commitment (if any):
</TABLE>
- ----------
(1) Must be at least five Business Days after execution hereof by all required
parties.
Assignment and Acceptance
<PAGE> 148
- 4 -
The terms set forth above and on the reverse side hereof are hereby agreed to:
[NAME OF ASSIGNOR] , as Assignor
By:
----------------------------------
Name:
Title:
[NAME OF ASSIGNEE] , as Assignee
By:
----------------------------------
Name:
Title:
Assignment and Acceptance
<PAGE> 149
- 5 -
The undersigned hereby consent to [or acknowledge receipt of] the within
assignment:(2)
NEXTEL FINANCE COMPANY TORONTO DOMINION (TEXAS) INC.,
as Administrative Agent,
By: By:
--------------------- ------------------------
Name: Name:
Title: Title:
BARCLAYS BANK PLC, THE CHASE MANHATTAN BANK,
as Issuing Bank as Issuing Bank
By: By:
--------------------- ------------------------
Name: Name:
Title: Title:
MORGAN GUARANTY TRUST NATIONSBANK OF TEXAS, N.A.,
COMPANY OF NEW YORK, as Issuing Bank
as Issuing Bank
By: By:
--------------------- ------------------------
Name: Name:
Title: Title:
THE TORONTO-DOMINION BANK,
as Issuing Bank
By:
---------------------
Name:
Title:
- ----------
(2) Consents or acknowledgments to be included to the extent required by
Section 9.04(b) of the Credit Agreement.
Assignment and Acceptance
<PAGE> 150
EXHIBIT B
[Form of Opinion of Special Counsel]
[Effective Date]
To the Lenders and the
Agents Party to the Credit
Agreement Referred to Below
Ladies and Gentlemen:
We have acted as special New York counsel to Barclays Bank
PLC, The Chase Manhattan Bank, J.P. Morgan Securities Inc., NationsBank of
Texas, N.A. and The Toronto-Dominion Bank, as arrangers of the credit facilities
contemplated by the Credit Agreement dated as of March 12, 1998 (the "Credit
Agreement") among Nextel Communications, Inc. ("NCI"), Nextel Finance Company
(the "Borrower") and the other Restricted Companies named therein, the Lenders
named therein, Toronto Dominion (Texas) Inc., as Administrative Agent, and The
Chase Manhattan Bank, as Collateral Agent. Terms defined in the Credit Agreement
are used herein as defined therein. This opinion is being delivered pursuant to
Section 5.01(e) of the Credit Agreement.
In rendering the opinions expressed below, we have examined
the following agreements, instruments and other documents:
(a) the Credit Agreement; and
(b) the Restricted Company Guarantee and Security Agreement.
The agreements, instruments and other documents referred to in the foregoing
lettered clauses are collectively referred to as the "Credit Documents".
In our examination, we have assumed the authenticity of all
documents submitted to us as originals and the conformity with authentic
original documents of all documents submitted to us as copies. When relevant
facts were not independently established, we have relied upon representations
made in or pursuant to the Credit Documents.
In rendering the opinions expressed below, we have assumed,
with respect to all of the documents referred to in this opinion letter, that:
Opinion of Special Counsel
<PAGE> 151
- 2 -
(i) such documents have been duly authorized by, have
been duly executed and delivered by, and (except to
the extent set forth in the opinions below as to the
Credit Parties) constitute legal, valid, binding and
enforceable obligations of, all of the parties to
such documents;
(ii) all signatories to such documents have been duly
authorized; and
(iii) all of the parties to such documents are duly
organized and validly existing and have the power and
authority (corporate or other) to execute, deliver
and perform such documents.
Based upon and subject to the foregoing and subject also to
the comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that:
1. Each of the Credit Documents constitutes the legal, valid
and binding obligation of each Credit Party party thereto, enforceable
against such Credit Party in accordance with its terms, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws relating to or affecting
the rights of creditors generally and except as the enforceability of
the Credit Documents is subject to the application of general
principles of equity (regardless of whether considered in a proceeding
in equity or at law), including, without limitation, (a) the possible
unavailability of specific performance, injunctive relief or any other
equitable remedy and (b) concepts of materiality, reasonableness, good
faith and fair dealing.
2. The Restricted Company Guarantee and Security Agreement is
effective to create, in favor of the Collateral Agent for the benefit
of the Collateral Agent and the Lenders, a valid security interest
under the Uniform Commercial Code as in effect in the State of New York
(the "UCC") in all of the right, title and interest of the Restricted
Companies in, to and under the Collateral (as defined in the Restricted
Company Guarantee and Security Agreement) as collateral security for
the payment when due of the Secured Obligations (as so defined), except
that:
(a) such security interest will continue in
Collateral after its sale, exchange or other disposition only
to the extent provided in Sections 9-306, 9-307 and 9-308 of
the UCC;
(b) such security interest in any portion of the
Collateral in which a Restricted Company acquires rights after
the commencement of a case under the Federal Bankruptcy Code
of 1978, as amended (the "Bankruptcy Code"), in
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respect of such Restricted Company may be limited by Section
552 of the Bankruptcy Code;
(c) the creation of a security interest in any
portion of the Collateral constituting a right to receive
proceeds of a letter of credit requires that the letter of
credit be delivered to and retained by the Collateral Agent in
the State of New York; and
(d) the security interest in that portion of the
Collateral consisting of the Pledged Equity represented by a
certificate in bearer form or in registered form indorsed (as
provided in Section 8-102(a)(11) of the Uniform Commercial
Code) to the Administrative Agent or in blank by an effective
indorsement (as so provided) or registered in the name of the
Administrative Agent, or in a letter or credit, will, upon the
creation of such security interest, be perfected by the
Administrative Agent taking possession thereof in the State of
New York, and such perfected security interest will remain
perfected thereafter so long as such certificates or letter of
credit is retained by the Administrative Agent in its
possession in the State of New York.
4. With respect to any portion of the Pledged Equity
represented by a certificate, if such security interest therein is
perfected by the Collateral Agent in the manner specified in paragraph
3 above for value without notice (within the meaning of Section 8-105
of the Uniform Commercial Code) of any adverse claim (within the
meaning of Section 8-102(a)(1) of the Uniform Commercial Code) to the
Pledged Equity so evidenced by certificates, then the Administrative
Agent will acquire such security interest free of any adverse claim (as
so defined).
The foregoing opinions are subject to the following comments
and qualifications:
(A) The enforceability of Section 10.03 of the Credit
Agreement (and any similar provisions in any of the other Credit
Documents) may be limited by (i) laws rendering unenforceable
indemnification contrary to Federal or state securities laws and the
public policy underlying such laws and (ii) laws limiting the
enforceability of provisions exculpating or exempting a party, or
requiring indemnification of a party for, liability for its own action
or inaction, to the extent the action or inaction involves gross
negligence, recklessness, willful misconduct or unlawful conduct.
(B) Clause (iii) of the second sentence of Section 3.02 of the
Credit Agreement, and clause (iii) of the second sentence of Section
2.02 of the Restricted Company Guarantee and Security Agreement, may
not be enforceable to the extent that the
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Guaranteed Obligations (as defined in the Credit Agreement and the
Restricted Company Guarantee and Security Agreement, respectively) are
materially modified.
(C) The enforceability of provisions in the Credit Documents
to the effect that terms may not be waived or modified except in
writing may be limited under certain circumstances.
(D) We express no opinion as to (i) the effect of the laws of
any jurisdiction in which any Lender is located (other than the State
of New York) that limit the interest, fees or other charges such Lender
may impose for the loan or use of money or other credit, (ii) the next
to the last sentence of Section 2.16(d) of the Credit Agreement, (iii)
the first sentence of Section 10.09 of the Credit Agreement (and any
similar provisions in any of the other Credit Documents), insofar as
such sentence relates to the subject matter jurisdiction of the United
States District Court for the Southern District of New York to
adjudicate any controversy related to the Loan Documents, (iv) Section
3.06 of the Credit Agreement and Section 2.06 of the Restricted Company
Guarantee and Security Agreement and (v) Section 2.09 of the Restricted
Company Guarantee and Security Agreement.
(E) We express no opinion as to the applicability to the
obligations of any Restricted Company (or the enforceability of such
obligations) of Section 548 of the Bankruptcy Code, Article 10 of the
New York Debtor and Creditor Law or any other provision of law relating
to fraudulent conveyances, transfers or obligations or of the
provisions of the law of the jurisdiction of incorporation of any
Restricted Company restricting dividends, loans or other distributions
by a corporation for the benefit of its stockholders.
(F) We wish to point out that the obligations of the
Restricted Companies, and the rights and remedies of the Collateral
Agent, under Sections 6.05 through 6.10 (inclusive) of the Restricted
Company Guarantee and Security Agreement may be subject to possible
limitations upon the exercise of remedial or procedural provisions
contained in the Restricted Company Guarantee and Security Agreement,
provided that such limitations do not, in our opinion (but subject to
the other comments and qualifications set forth in this opinion
letter), make the remedies and procedures that will be afforded to the
Collateral Agent and the Lenders inadequate for the practical
realization of the substantive benefits purported to be provided to the
Collateral Agent and the Lenders by the Restricted Company Guarantee
and Security Agreement.
(G) With respect to our opinion in paragraphs 7, 8 or 9 above,
we express no opinion as to the creation, perfection or priority of any
security interest in (or other lien on) any Collateral (as defined in
the Restricted Company Guarantee and Security
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Agreement) (i) to the extent that, pursuant to Section 9-104 of the
UCC, Article 9 of the UCC does not apply thereto, (ii) consisting of
uncertificated securities (as defined in Section 8-102(b) of the UCC),
(iii) consisting of fixtures, timber to be cut or minerals (including
oil and gas) or (iv) covered by a certificate of title.
(H) We wish to point out that the acquisition by an Obligor
after the initial extension of credit under the Credit Agreement of an
interest in Property that becomes subject to the Lien of the Guarantee
and Security Agreement may constitute a voidable preference under
Section 547 of the Bankruptcy Code.
(I) We express no opinion as to the existence of, or the
right, title or interest of any Restricted Company in, to or under, any
of the Collateral.
(J) Except as expressly provided in paragraphs 7, 8 and 9
above, we express no opinion as to the creation, perfection or priority
of any security interest in, or other lien on, the Collateral.
The foregoing opinions are limited to matters involving the
Federal laws of the United States and the law of the State of New York, and we
do not express any opinion as to the laws of any other jurisdiction. We express
no opinion herein as to the applicability to, or effect upon, the transactions
contemplated by the Credit Document with respect to matters governed by (i) the
Federal Communications Act of 1934, as amended, and the rules and regulations
promulgated thereunder by the FCC or (ii) any PUC which on the date hereof is
entitled to exercise jurisdiction over the Credit Parties.
At the request of our clients, this opinion is rendered solely
to you in connection with the above matter. This opinion may not be relied upon
by you for any other purpose or relied upon by any other Person (other than your
successors and assigns as Lenders and Persons that acquire participations in
your extensions of credit under the Credit Agreement) without our prior written
consent.
Very truly yours,
RJW/CDP, Jr.
Opinion of Special Counsel
<PAGE> 155
EXHIBIT C
GUARANTEE AND SECURITY AGREEMENT
GUARANTEE AND SECURITY AGREEMENT dated as of March 12, 1998,
between NEXTEL FINANCE COMPANY, a corporation duly organized and validly
existing under the laws of the State of Delaware (the "Borrower"); each of the
subsidiaries of Nextel Communications, Inc. listed on the signature pages hereto
under the caption "INITIAL GUARANTORS" (the "Initial Guarantors"); each of the
additional entities, if any, that becomes a "Guarantor" hereunder as
contemplated by Section 7.12 (each an "Additional Guarantor" and together with
the Initial Guarantors, the "Guarantors"; the Guarantors together with the
Borrower, being herein called the "Restricted Companies"); and The Chase
Manhattan Bank, as collateral agent for the Lenders party to the Credit
Agreement referred to below (in such capacity, together with its successors in
such capacity, the "Collateral Agent").
Nextel Communications, Inc. and the Restricted Companies are
parties to a Credit Agreement dated as of March 12, 1998 (as modified and
supplemented and in effect from time to time, the "Credit Agreement"), which
Credit Agreement provides, subject to the terms and conditions thereof, for
extensions of credit (by means of loans and letters of credit) to be made by the
Lenders named therein (collectively, together with any entity that becomes a
"Lender" party to the Credit Agreement after the date hereof as provided
therein, the "Lenders") to the Borrower in an aggregate principal or face amount
not exceeding $3,000,000,000 (which, in the circumstances contemplated by
Section 7.01(e) thereof, may be increased to $3,500,000,000). In addition, the
Borrower may from time to time be obligated to one or more of the Lenders under
the Credit Agreement in respect of Hedging Agreements under and as defined in
the Credit Agreement (collectively, the "Hedging Agreements").
To induce the Lenders to enter into the Credit Agreement and
to extend credit thereunder, and to induce the Lenders to extend credit to the
Borrower under Hedging Agreements, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Guarantors have agreed to guarantee the Guaranteed Obligations (as hereinafter
defined), and the Restricted Companies have agreed to pledge and grant a
security interest in the Collateral (as so defined) as security for the Secured
Obligations (as so defined). Accordingly, the parties hereto agree as follows:
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ARTICLE I
Definitions
SECTION 1.01. Defined Terms. Terms defined in the Credit
Agreement and used herein are used herein as defined therein. In addition, the
following terms have the meanings specified below:
"Accounts" has the meaning assigned to such term in paragraph
(d) of Article IV.
"Casualty Event" means, with respect to any property of any
Restricted Company, any loss of or damage to, or any condemnation or other
taking of, such property for which such Restricted Company or any of its
subsidiaries receives insurance proceeds, or proceeds of a condemnation award or
other compensation.
"Casualty Event Proceeds Account" has the meaning assigned to
such term in Section 5.01.
"Collateral" has the meaning assigned to such term in Article
IV.
"Collateral Accounts" has the meaning assigned to such term in
Section 5.01.
"Concentration Account" has the meaning assigned to such term
in Section 5.01.
"Equipment" has the meaning assigned to such term in paragraph
(h) of Article IV.
"Equity Collateral" means, collectively, the Collateral
described in clauses (a) through (c) of Article IV and the proceeds of and to
any such property and, to the extent related to any such property or such
proceeds, all books, correspondence, credit files, records, invoices and other
papers.
"Guaranteed Obligations" has the meaning assigned to such term
in Section 2.01.
"Instruments" has the meaning assigned to such term in
paragraph (e) of Article IV.
"Inventory" has the meaning assigned to such term in paragraph
(g) of Article IV.
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"Issuers" means, collectively, (a) the respective corporations
identified beneath the names of the Restricted Companies on Annex 1 under the
caption "Issuer" and (b) any other entity that shall at any time be a subsidiary
of any of the Restricted Companies.
"Letter of Credit Account" has the meaning assigned to such
term in Section 5.01.
"Pledged Equity" has the meaning assigned to such term in
paragraph (a) of Article IV.
"Sale Proceeds Reinvestment Account" has the meaning assigned
to such term in Section 5.01.
"Secured Obligations" means, collectively, (a) in the case of
the Borrower, the principal of and interest on the Loans made by the Lenders to
the Borrower, all LC Disbursements and all other amounts from time to time owing
to the Lenders or the Agents by the Borrower under the Loan Documents or any
Hedging Agreement, (b) in the case of each Guarantor, all obligations of such
Guarantor in respect of its Guarantee under Article II and (c) in the case of
each Restricted Company, all other obligations of such Restricted Company to the
Lenders and the Agents hereunder.
"Tax Proceeds Account" has the meaning assigned to such term
in Section 5.01.
"Trademark Collateral" means all Trademarks, whether now owned
or hereafter acquired by any Restricted Company, including each Trademark
identified in Annex 2. Notwithstanding the foregoing, the Trademark Collateral
does not and shall not include any Trademark that would be rendered invalid,
abandoned, void or unenforceable by reason of its being included as part of the
Trademark Collateral.
"Trademarks" means all trade names, trademarks and service
marks, logos, trademark and service mark registrations, and applications for
trademark and service mark registrations, including all renewals of trademark
and service mark registrations, all rights corresponding thereto throughout the
world, the right to recover for all past, present and future infringements
thereof, all other rights of any kind whatsoever accruing thereunder or
pertaining thereto, together, in each case, with the product lines and goodwill
of the business connected with the use of, and symbolized by, each such trade
name, trademark and service mark.
"Uniform Commercial Code" means the Uniform Commercial Code as
in effect from time to time in the State of New York.
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SECTION 1.02. Terms Generally. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
The word "will" shall be construed to have the same meaning and effect as the
word "shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections and Exhibits shall be construed to refer
to Articles and Sections of, and Exhibits to, this Agreement and (e) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights.
ARTICLE II
The Guarantee
SECTION 2.01. The Guarantee. The Guarantors hereby jointly and
severally guarantee to each Lender and the Agents and their respective
successors and assigns the prompt payment in full when due (whether at stated
maturity, by acceleration or otherwise) of the principal of and interest on the
Loans made by the Lenders to the Borrower, all LC Disbursements and all other
amounts from time to time owing to the Lenders or either Agent by the Borrower
under the Credit Agreement or any other Loan Document, and all obligations of
the Borrower to any Lender (or any affiliate thereof) under any Hedging
Agreement, in each case strictly in accordance with the terms thereof (such
principal, interest, other amounts and obligations being herein collectively
called the "Guaranteed Obligations"). The Guarantors hereby further jointly and
severally agree that if the Borrower shall fail to pay in full when due (whether
at stated maturity, by acceleration or otherwise) any of the Guaranteed
Obligations, the Guarantors will promptly pay the same, without any demand or
notice whatsoever, and that in the case of any extension of time of payment or
renewal of any of the Guaranteed Obligations, the same will be promptly paid in
full when due (whether at extended maturity, by acceleration or otherwise) in
accordance with the terms of such extension or renewal.
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SECTION 2.02. Obligations Unconditional. The obligations of
the Guarantors under Section 2.01 are absolute and unconditional, joint and
several, irrespective of the value, genuineness, validity, regularity or
enforceability of the obligations of the Borrower under the Credit Agreement or
any other agreement or instrument referred to herein or therein, or any
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 2.02 that the obligations of the
Guarantors hereunder shall be absolute and unconditional, joint and several,
under any and all circumstances. Without limiting the generality of the
foregoing, it is agreed that the occurrence of any one or more of the following
shall not alter or impair the liability of the Guarantors hereunder which shall
remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to
the Guarantors, the time for any performance of or compliance with any
of the Guaranteed Obligations shall be extended, or such performance or
compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions
of the Credit Agreement or any other agreement or instrument referred
to herein or therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations
shall be accelerated, or any of the Guaranteed Obligations shall be
modified, supplemented or amended in any respect, or any right under
the Credit Agreement or any other agreement or instrument referred to
herein or therein shall be waived or any other guarantee of any of the
Guaranteed Obligations or any security therefor shall be released or
exchanged in whole or in part or otherwise dealt with; or
(iv) any lien or security interest granted to, or in
favor of, either Agent or any Lender as security for any of the
Guaranteed Obligations shall fail to be perfected.
The Guarantors hereby expressly waive diligence, presentment, demand of payment,
protest and all notices whatsoever, and any requirement that either Agent or any
Lender exhaust any right, power or remedy or proceed against the Borrower under
the Credit Agreement or any other agreement or instrument referred to herein or
therein, or against any other Person under any other guarantee of, or security
for, any of the Guaranteed Obligations.
SECTION 2.03. Reinstatement. The obligations of the Guarantors
under this Article shall be automatically reinstated if and to the extent that
for any reason any payment by or on behalf of the Borrower in respect of the
Guaranteed Obligations is rescinded or must be otherwise restored by any holder
of any of the Guaranteed Obligations, whether as a result of any
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proceedings in bankruptcy or reorganization or otherwise and the Guarantors
jointly and severally agree that they will indemnify each Agent and Lender on
demand for all reasonable costs and expenses (including fees of counsel)
incurred by such Agent or Lender in connection with such rescission or
restoration, including any such costs and expenses incurred in defending against
any claim alleging that such payment constituted a preference, fraudulent
transfer or similar payment under any bankruptcy, insolvency or similar law.
SECTION 2.04. Subrogation. Each Guarantor hereby waives all
rights of subrogation or contribution, whether arising by contract or operation
of law (including any such right arising under the Federal Bankruptcy Code of
1978, as amended) or otherwise by reason of any payment by it pursuant to the
provisions of this Article II and further agrees with the Borrower for the
benefit of each of its creditors (including each Agent and Lender) that any such
payment by it shall constitute a contribution of capital by such Guarantor to
the Borrower (or an investment by such Guarantor in the equity capital of the
Borrower).
SECTION 2.05. Remedies. The Guarantors jointly and severally
agree that, as between the Guarantors and the Lenders, the obligations of the
Borrower under the Credit Agreement may be declared to be forthwith due and
payable as provided in Article VIII of the Credit Agreement (and shall be deemed
to have become automatically due and payable in the circumstances provided in
said Article VIII) for purposes of Section 2.01 notwithstanding any stay,
injunction or other prohibition preventing such declaration (or such obligations
from becoming automatically due and payable) as against the Borrower and that,
in the event of such declaration (or such obligations being deemed to have
become automatically due and payable), such obligations (whether or not due and
payable by the Borrower) shall forthwith become due and payable by the
Guarantors for purposes of said Section 2.01.
SECTION 2.06. Instrument for the Payment of Money. Each
Guarantor hereby acknowledges that the guarantee in this Article constitutes an
instrument for the payment of money, and consents and agrees that any Agent or
Lender, at its sole option, in the event of a dispute by such Guarantor in the
payment of any moneys due hereunder, shall have the right to bring motion-action
under New York CPLR Section 3213.
SECTION 2.07. Continuing Guarantee. The guarantee in this
Article is a continuing guarantee, and shall apply to all Guaranteed Obligations
whenever arising.
SECTION 2.08. Rights of Contribution. The Guarantors hereby
agree, as between themselves, that if any Guarantor shall become an Excess
Funding Guarantor (as defined below) by reason of the payment by such Guarantor
of any Guaranteed Obligations, each other Guarantor shall, on demand of such
Excess Funding Guarantor (but subject to the next sentence), pay to such Excess
Funding Guarantor an amount equal to such Guarantor's Pro Rata
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Share (as defined below and determined, for this purpose, without reference to
the properties, debts and liabilities of such Excess Funding Guarantor) of the
Excess Payment (as defined below) in respect of such Guaranteed Obligations. The
payment obligation of a Guarantor to any Excess Funding Guarantor under this
Section 2.08 shall be subordinate and subject in right of payment to the prior
payment in full of the obligations of such Guarantor under the other provisions
of this Article and such Excess Funding Guarantor shall not exercise any right
or remedy with respect to such excess until payment and satisfaction in full of
all of such obligations.
For purposes of this Section 2.08, (a) "Excess Funding
Guarantor" means, in respect of any Guaranteed Obligations, a Guarantor that has
paid an amount in excess of its Pro Rata Share of such Guaranteed Obligations,
(b) "Excess Payment" means, in respect of any Guaranteed Obligations, the amount
paid by an Excess Funding Guarantor in excess of its Pro Rata Share of such
Guaranteed Obligations and (c) "Pro Rata Share" means, for any Guarantor, the
ratio (expressed as a percentage) of (i) the amount by which the aggregate
present fair saleable value of all properties of such Guarantor (excluding any
shares of stock of any other Guarantor) exceeds the amount of all the debts and
liabilities of such Guarantor (including contingent, subordinated, unmatured and
unliquidated liabilities, but excluding the obligations of such Guarantor
hereunder and any obligations of any other Guarantor that have been Guaranteed
by such Guarantor) to (ii) the amount by which the aggregate fair saleable value
of all properties of all of the Restricted Companies exceeds the amount of all
the debts and liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities, but excluding the obligations of the Restricted
Companies hereunder and under the other Loan Documents) of all of the Restricted
Companies, determined (A) with respect to any Guarantor that is a party hereto
on the Effective Date, as of the Effective Date, and (B) with respect to any
other Guarantor, as of the date such Guarantor becomes a Guarantor hereunder.
SECTION 2.09. General Limitation on Guarantee Obligations. In
any action or proceeding involving any state corporate law, or any state or
Federal bankruptcy, insolvency, reorganization or other law affecting the rights
of creditors generally, if the obligations of any Guarantor under Section 2.01
would otherwise, taking into account the provisions of Section 2.08, be held or
determined to be void, invalid or unenforceable, or subordinated to the claims
of any other creditors, on account of the amount of its liability under said
Section 2.01, then, notwithstanding any other provision hereof to the contrary,
the amount of such liability shall, without any further action by such
Guarantor, any Agent or Lender or any other Person, be automatically limited and
reduced to the highest amount that is valid and enforceable and not subordinated
to the claims of other creditors as determined in such action or proceeding.
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ARTICLE III
Representations and Warranties
Each Restricted Company represents and warrants to each Agent
and Lender that:
(a) Such Restricted Company is the sole beneficial owner of
the Collateral in which it purports to grant a security interest pursuant to
Article IV and no Lien exists or will exist upon such Collateral at any time
(and no right or option to acquire the same exists in favor of any other
Person), except for Liens permitted under Section 7.02 of the Credit Agreement
and except for the pledge and security interest in favor of the Collateral Agent
for the benefit of the Lenders created or provided for herein and in the other
Security Documents, which pledge and security interest will, upon perfection
under the applicable provisions of the Uniform Commercial Code (but subject in
any event to such Liens permitted under said Section 7.02) constitute a first
priority perfected pledge and security interest in and to all of such
Collateral, to the extent such pledge and security interest can be perfected
under the Uniform Commercial Code.
(b) The Pledged Equity identified under the name of such
Restricted Company in Annex 1 is, and all other Pledged Equity in which such
Restricted Company shall hereafter grant a security interest pursuant to Article
IV will be, duly authorized, validly existing, fully paid and non-assessable (in
the case of any equity interest in a corporation) and duly issued and
outstanding (in the case of any equity interest in any other entity), and none
of such Pledged Equity is or will be subject to any contractual restriction, or
any restriction under the charter, by-laws, partnership agreement or other
organizational document of the respective Issuer of such Pledged Equity, upon
the transfer of such Pledged Equity (except for any such restriction contained
herein or identified in Annex 1).
(c) The Pledged Equity identified under the name of such
Restricted Company in Annex 1 constitutes all of the issued and outstanding
shares of capital stock, partnership or other ownership interest of any class or
character of the Issuers beneficially owned by such Restricted Company on the
date hereof (whether or not registered in the name of the such Restricted
Company) and Annex 1 correctly identifies, as at the date hereof, the respective
Issuers of such Pledged Equity and (in the case of any corporate Issuer) the
respective class and par value of the shares comprising such Pledged Equity and
the respective number of shares (and registered owners thereof) represented by
each such certificate.
(d) Annex 2 sets forth under the name of such Restricted
Company a complete and correct list of all Trademarks owned by such Restricted
Company on the date hereof.
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ARTICLE IV
Collateral
As collateral security for the prompt payment in full when due
(whether at stated maturity, by acceleration or otherwise) of the Secured
Obligations, each Restricted Company hereby pledges and grants to the Collateral
Agent, for the benefit of the Lenders as hereinafter provided a security
interest in all of such Restricted Company's right, title and interest in the
following property, whether now owned by such Restricted Company or hereafter
acquired and whether now existing or hereafter coming into existence (all being
collectively referred to herein as "Collateral"):
(a) the shares of common and preferred stock of, or
partnership and other ownership interest in, the Issuers identified in
Annex 1 under the name of such Restricted Company (as the same shall be
supplemented from time to time under a Joinder Agreement executed
pursuant to Section 7.12) and all other shares of capital stock, or
partnership or other ownership interest, of whatever class or character
of the Issuers, now or hereafter owned by such Restricted Company, in
each case together with the certificates evidencing the same
(collectively, the "Pledged Equity");
(b) all shares, securities, moneys or property representing a
dividend on any of the Pledged Equity, or representing a distribution
or return of capital upon or in respect of the Pledged Equity, or
resulting from a split-up, revision, reclassification or other like
change of the Pledged Equity or otherwise received in exchange
therefor, and any subscription warrants, rights or options issued to
the holders of, or otherwise in respect of, the Pledged Equity;
(c) without affecting the obligations of such Restricted
Company under any provision prohibiting such action hereunder or under
the Credit Agreement, in the event of any consolidation or merger in
which an Issuer is not the surviving entity, all ownership interests of
any class or character of the successor entity (unless such successor
entity is such Restricted Company itself) formed by or resulting from
such consolidation or merger (the Pledged Equity, together with all
other certificates, shares, securities, properties or moneys as may
from time to time be pledged hereunder pursuant to clause (a) or (b)
above and this clause (c) being herein collectively called the "Equity
Collateral");
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(d) all accounts and general intangibles (each as defined in
the Uniform Commercial Code) of such Restricted Company constituting
any right to the payment of money, including all moneys due and to
become due to such Restricted Company in respect of any loans or
advances or for Inventory or Equipment or other goods sold or leased or
for services rendered, all moneys due and to become due to such
Restricted Company under any guarantee (including a letter of credit)
of the purchase price of Inventory or Equipment sold by such Restricted
Company and all tax refunds (such accounts, general intangibles and
moneys due and to become due being herein called collectively
"Accounts");
(e) all instruments, chattel paper or letters of credit (each
as defined in the Uniform Commercial Code) of such Restricted Company
evidencing, representing, arising from or existing in respect of,
relating to, securing or otherwise supporting the payment of, any of
the Accounts, including promissory notes, drafts, bills of exchange and
trade acceptances (herein collectively called "Instruments");
(f) all Trademark Collateral of such Restricted Company and
all other accounts or general intangibles of such Restricted Company
not constituting Trademark Collateral or Accounts;
(g) all inventory (as defined in the Uniform Commercial Code)
of such Restricted Company (including all handsets, telephones and
other similar equipment held by such Restricted Company for sale or
lease to customers), all goods obtained by such Restricted Company in
exchange for such inventory, and any products made or processed from
any inventory including all substances, if any, commingled therewith or
added thereto (herein collectively called "Inventory");
(h) all equipment (as defined in the Uniform Commercial Code)
of such Restricted Company, including all transmitter, switch and
related equipment (herein collectively called "Equipment");
(i) each contract and other agreement of such Restricted
Company relating to the sale or other disposition of Inventory or
Equipment; all documents of title (as defined in the Uniform Commercial
Code) or other receipts of such Restricted Company covering, evidencing
or representing Inventory or Equipment; and all rights, claims and
benefits of such Restricted Company against any Person arising out of,
relating to or in connection with Inventory or Equipment purchased by
such Restricted Company, including any such rights, claims or benefits
against any Person storing or transporting Inventory or Equipment;
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(j) all customer lists, customer contracts and sales agent
agreements with respect to the operation of the Mobile Communications
Business by such Restricted Company;
(k) to the maximum extent permitted under the applicable
instrument pursuant to which such easements, rights of way and leases
arise, all easements and rights of way, and all right, title and
interest of such Restricted Company in, to and under any leases entered
into by such Restricted Company for transmitter sites, switching
stations and other locations in connection with the operation of the
Mobile Communications Business by such Restricted Company; and
(l) all rights of such Restricted Company under or relating to
FCC Licenses and PUC Authorizations and the proceeds from the sale of
any FCC Licenses or PUC Authorizations or any goodwill or other
intangible rights or benefits associated therewith, provided that such
security interest does not include at any time any FCC Licenses to the
extent (but only to the extent) that at such time the Collateral Agent
may not validly possess a security interest therein pursuant to the
Communications Act of 1934, as amended, and the regulations promulgated
thereunder, as in effect at such time, but such security interest does
include, to the maximum extent permitted by law, all rights incident or
appurtenant to FCC Licenses and the right to receive all proceeds
derived from or in connection with the sale, assignment or transfer of
the FCC Licenses;
(m) the balance from time to time in the Collateral Accounts;
and
(n) all other tangible and intangible personal property and
fixtures of such Restricted Company, including all proceeds, products,
offspring, accessions, rents, profits, income, benefits, substitutions
and replacements of and to any of the property of such Restricted
Company described in the preceding clauses of this Article IV
(including any proceeds of insurance thereon and all causes of action,
claims and warranties now or hereafter held by such Restricted Company
in respect of any of the items listed above) and, to the extent related
to any property described in said clauses or such proceeds, products
and accessions, all books, correspondence, credit files, records,
invoices and other papers, including all tapes, cards, computer runs
and other papers and documents in the possession or under the control
of such Restricted Company or any computer bureau or service company
from time to time acting for such Restricted Company,
provided that in the case of any of the foregoing that consists of general or
limited partnership interests in a general or limited partnership, the security
interest hereunder shall be deemed to be created only to the maximum extent
permitted under the applicable organizational instrument pursuant to which such
partnership is formed.
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ARTICLE V
Collateral Accounts
SECTION 5.01. Collateral Account. The Collateral Agent will
cause to be established with The Chase Manhattan Bank five "securities accounts"
(as defined in Section 8-501 of the Uniform Commercial Code (respectively, the
"Sale Proceeds Reinvestment Account", the "Casualty Event Proceeds Account", the
"Tax Proceeds Account", the "Letter of Credit Account" and the "Concentration
Account"; collectively, the "Collateral Accounts"), in respect of which the
Collateral Agent is the "entitlement holder" (as defined in Section 8-102(a)(7)
of the Uniform Commercial Code), into which there shall be deposited cash
generated by the Restricted Companies (whether or not in the ordinary course of
business) to the extent provided below:
(a) the Restricted Companies shall deposit into the Sale
Proceeds Reinvestment Account, the Net Cash Payments of any Disposition
(as each of such capitalized terms is defined in the Credit Agreement
on the date hereof) that, pursuant to clause (y) of Section 2.09(b)(ii)
of the Credit Agreement, the Restricted Companies elect to deliver to
the Collateral Agent pending reinvestment of such Net Cash Payments
into replacement assets;
(b) the Restricted Companies shall deposit into the Casualty
Event Proceeds Account, if such proceeds exceed $5,000,000, the
proceeds (inclusive of such $5,000,000) of any insurance, condemnation
award or other compensation received as a result of any Casualty Event
in respect Collateral hereunder;
(c) the Restricted Companies shall deposit into the Tax
Proceeds Account, that portion of the cash payment received by the
Restricted Companies directly or indirectly in connection with any
Disposition (as such term in defined in the Credit Agreement) that
represents the income or other taxes estimated to be payable by the
Restricted Companies as a result of such Disposition and that are
deducted in determining the amount of "Net Cash Payments" (as so
defined) with respect to such Disposition;
(d) the Restricted Companies shall deposit into the Letter of
Credit Account monies required to be deposited therein from time to
time pursuant to Section 2.04(i) of the Credit Agreement; and
(e) prior to the August 1993 Indenture Termination Date, the
Restricted Companies shall deposit into the Concentration Account all
other cash generated or
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received by the Restricted Companies (whether or not in the ordinary
course of business), including the cash proceeds of all sales or other
dispositions of Collateral, the proceeds of all service charges, fees
and lease payments received from customers in the ordinary course of
business and any proceeds of any insurance, condemnation award or other
compensation received as a result of any Casualty Event in respect
Collateral hereunder that is not deposited into the Casualty Event
Proceeds Account (it being understood that, after the 1993 Indenture
Termination Date, the Collateral Agent is authorized to transfer the
Concentration Account into the name of the Restricted Companies and
shall no longer be required to maintain such account in the name of the
Collateral Agent).
To implement the provisions of the foregoing clause (e), for all periods prior
to the August 1993 Indenture Termination Date, each Restricted Company shall
instruct all account debtors and other Persons obligated in respect of all
Accounts of such Restricted Company to make all payments in respect of such
Accounts either (i) directly to the Collateral Agent by instructing that such
payments be remitted to a post office box which shall be in the name and under
the control of the Collateral Agent (and the Collateral Agent agrees, upon
receipt of any such payments, to immediately deposit the same into the
Concentration Account) or (ii) to one or more other banks in the United States
of America (by instructing that such payments be remitted to a post office box
which shall be in the name and under the control of the Collateral Agent) under
arrangements, in form and substance satisfactory to the Collateral Agent
pursuant to which such Restricted Company shall have irrevocably instructed such
other bank (and such other bank shall have agreed) to remit all proceeds of such
payments directly to the Collateral Agent for deposit into the Concentration
Account.
In addition to the foregoing, each Restricted Company agrees
that if the proceeds of any Collateral hereunder (including any payments made in
respect of Accounts) shall be received by it, such Restricted Company shall as
promptly as possible deposit such proceeds into the appropriate Collateral
Account to the extent provided above. Until so deposited, all such proceeds
shall be held in trust by such Restricted Company for and as the property of the
Collateral Agent and shall not be commingled with any other funds or property of
such Restricted Company.
SECTION 5.02. Application of Monies in Collateral Accounts.
The balance from time to time in the Collateral Accounts shall constitute part
of the Collateral hereunder, shall not constitute payment of the Secured
Obligations until applied to the Secured Obligations as hereinafter provided and
shall be released to the Restricted Companies (or otherwise be subject to
withdrawal) only as follows:
(a) monies and investments in the Sale Proceeds Reinvestment
Account may be withdrawn only in connection with a reinvestment
transaction permitted under Section
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2.09(b)(ii) of the Credit Agreement, or for application to the
prepayment of Loans (or cover for Letters of Credit) as contemplated by
said Section 2.09(b)(ii), provided that (without the consent of the
Required Lenders) the Collateral Agent shall not be obligated to
release such monies for application to a reinvestment transaction at
any time after the occurrence and during the continuance of any Event
of Default;
(b) monies and investments in the Casualty Event Proceeds
Account may be withdrawn only in connection with the replacement,
restoration and repair of the property affected by such Casualty Event
(the "Damaged Property"), or for application to the prepayment of Loans
(or cover for Letters of Credit) pursuant to Section 2.09(a) of the
Credit Agreement (in such manner as the Borrower shall elect), and if
the respective Restricted Company elects to so replace or restore and
repair Damaged Property, any such monies shall be advanced to such
Restricted Company by the Collateral Agent in periodic installments
upon compliance by such Restricted Company with such reasonable
conditions to disbursement as may be imposed by the Collateral Agent,
including, but not limited to, reasonable retention amounts and receipt
of lien releases, provided that (without the consent of the Required
Lenders) the Collateral Agent shall not be obligated to release such
monies for application to any such replacement, restoration, repair or
prepayment at any time after the occurrence and during the continuance
of any Event of Default;
(c) monies and investments in the Tax Proceeds Account may be
withdrawn only in connection with the payment of taxes as contemplated
by the definition of "Net Cash Payments" in the Credit Agreement, or
for application to the prepayment of Loans (or cover for Letters of
Credit) as contemplated by said Section 2.09(b)(ii), provided that
(without the consent of the Required Lenders) the Collateral Agent
shall not be obligated to release such monies for application to the
payment of taxes at any time after the occurrence and during the
continuance of any Event of Default;
(d) monies and investments in the Letter of Credit Account may
be applied only to the payment of LC Disbursements for which the
respective Issuing Banks have not been reimbursed by the Borrower or,
but only with the consent of the Required Revolving Credit Lenders, to
the payment of other Secured Obligations and, after the payment in full
of all LC Disbursements and the expiration or termination of all
Letters of Credit, to the payment of any other Secured Obligations as
shall at the time be payable hereunder; and
(e) monies and investments in the Concentration Account may be
withdrawn only in connection with remitting the same to bank deposit
accounts (such as payroll and other accounts) maintained by the
Restricted Companies for use in the ordinary course of
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business, to make Capital Expenditures, to make acquisitions and
investments permitted under Section 7.04 of the Credit Agreement, to
make Restricted Payments permitted under Section 7.05 of the Credit
Agreement, or to make payments or prepayments of principal, interest or
other amounts in respect of Indebtedness (including Loans) or Hedging
Agreements permitted under the Credit Agreement.
In connection with any release of monies in any of the Collateral Accounts
described above, the Collateral Agent shall be entitled to rely upon a
certificate of a Financial Officer (and upon such other evidence, if any, as the
Collateral Agent shall deem appropriate). At any time following the occurrence
and during the continuance of an Event of Default, the Collateral Agent may
(and, if instructed by the Required Lenders shall) in its (or their) discretion
apply or cause to be applied (subject to collection) the balance from time to
time outstanding to the credit of any of the Collateral Accounts to the payment
of the Secured Obligations in the manner specified in Section 6.09.
SECTION 5.03. Investment of Balances in Collateral Accounts.
Amounts on deposit in the Collateral Accounts shall be invested from time to
time in such Permitted Investments as the Borrower (or, after the occurrence and
during the continuance of a Default, the Collateral Agent) shall determine,
which Permitted Investments shall be held in the name and be under the control
of the Collateral Agent, provided that at any time after the occurrence and
during the continuance of an Event of Default, the Collateral Agent may (and, if
instructed by the Required Lenders shall) in its (or their) discretion at any
time and from time to time elect to liquidate any such Permitted Investments and
to apply or cause to be applied the proceeds thereof to the payment of the
Secured Obligations in the manner specified in Section 6.09.
ARTICLE VI
Further Assurances; Remedies
In furtherance of the grant of the pledge and security
interest pursuant to Article IV, each Restricted Company hereby agrees with each
Agent and Lender as follows:
SECTION 6.01. Delivery and Other Perfection. Without limiting
the generality of Section 6.13 (but subject in any event to the provisions of
the last paragraph thereof), such Restricted Company shall:
(a) if any of the shares, securities, moneys or property
required to be pledged by such Restricted Company under clauses (a),
(b) and (c) of Article IV are received by such Restricted Company,
forthwith either (x) transfer and deliver to the Collateral Agent such
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shares or securities so received by such Restricted Company (together
with the certificates for any such shares and securities duly endorsed
in blank or accompanied by undated stock powers duly executed in
blank), all of which thereafter shall be held by the collateral Agent,
pursuant to the terms of this Agreement, as part of the Collateral or
(y) take such other action as the Collateral Agent reasonably shall
deem necessary or appropriate to duly record the Lien created hereunder
in such shares, securities, moneys or property in said clauses (a), (b)
and (c);
(b) deliver and pledge to the Collateral Agent any and all
Instruments, endorsed and/or accompanied by such instruments of
assignment and transfer in such form and substance as the Collateral
Agent may reasonably request; provided, that so long as no Event of
Default shall have occurred and be continuing, such Restricted Company
may retain for collection in the ordinary course any Instruments
received by such Restricted Company in the ordinary course of business
and the Collateral Agent shall, promptly upon request of such
Restricted Company, make appropriate arrangements for making any
Instrument pledged by such Restricted Company available to such
Restricted Company for purposes of presentation, collection or renewal
(any such arrangement to be effected, to the extent deemed appropriate
by the Collateral Agent, against trust receipt or like document);
(c) give, execute, deliver, file and/or record any financing
statement, notice, instrument, document, agreement or other papers that
may be necessary or desirable (in the reasonable judgment of the
Collateral Agent) to create, preserve, perfect or validate the security
interest granted pursuant hereto or to enable the Collateral Agent to
exercise and enforce its rights hereunder with respect to such pledge
and security interest, including causing any or all of the Equity
Collateral to be transferred of record into the name of the Collateral
Agent or its nominee (and the Collateral Agent agrees that if any
Equity Collateral is transferred into its name or the name of its
nominee, the Collateral Agent will thereafter promptly give to such
Restricted Company copies of any notices and communications received by
it with respect to the Equity Collateral), provided that notices to
account debtors in respect of any Accounts or Instruments shall be
subject to the provisions of clause (f) below;
(d) keep full and accurate books and records relating to the
Collateral, and stamp or otherwise mark such books and records in such
manner as the Collateral Agent may reasonably require in order to
reflect the security interests granted by this Agreement;
(e) permit representatives of the Collateral Agent, upon
reasonable notice, at any time during normal business hours to inspect
and make abstracts from its books and records pertaining to the
Collateral, and permit representatives of the Collateral Agent to
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be present at such Restricted Company's place of business to receive
copies of all communications and remittances relating to the
Collateral, and forward copies of any notices or communications
received by such Restricted Company with respect to the Collateral, all
in such manner as the Collateral Agent may reasonably require; and
(f) upon the occurrence and during the continuance of any
Event of Default, upon request of the Collateral Agent, promptly notify
(and such Restricted Company hereby authorizes the Collateral Agent so
to notify) each account debtor in respect of any Accounts or
Instruments of such Restricted Company that such Collateral has been
assigned to the Collateral Agent hereunder, and that any payments due
or to become due in respect of such Collateral are to be made directly
to the Collateral Agent.
SECTION 6.02. Other Financing Statements and Liens. Except as
otherwise permitted under Section 7.02 of the Credit Agreement, without the
prior written consent of the Collateral Agent (granted with the authorization of
the Required Lenders), no Restricted Company shall file or suffer to be on file,
or authorize or permit to be filed or to be on file, in any jurisdiction, any
financing statement or like instrument with respect to the Collateral in which
the Collateral Agent is not named as the sole secured party for the benefit of
the Lenders.
SECTION 6.03. Preservation of Rights. The Collateral Agent
shall not be required to take steps necessary to preserve any rights against
prior parties to any of the Collateral.
SECTION 6.04. Special Provisions Relating to Equity
Collateral.
(a) So long as no Event of Default shall have occurred and be
continuing, each Restricted Company shall have the right to exercise all voting,
consensual and other powers of ownership pertaining to the Equity Collateral for
all purposes not inconsistent with the terms of this Agreement, the Credit
Agreement, the other Loan Documents or any other instrument or agreement
referred to herein or therein, provided that such Restricted Company agrees that
it will not vote the Equity Collateral in any manner that is inconsistent with
the terms of this Agreement, the Credit Agreement, the other Loan Documents or
any such other instrument or agreement; and the Collateral Agent shall execute
and deliver to such Restricted Company or cause to be executed and delivered to
such Restricted Company all such proxies, powers of attorney, dividend and other
orders, and all such instruments, without recourse, as such Restricted Company
may reasonably request for the purpose of enabling such Restricted Company to
exercise the rights and powers that it is entitled to exercise pursuant to this
Section 6.04(a).
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(b) Unless and until an Event of Default has occurred and is
continuing, such Restricted Company shall, subject to Article V, be entitled to
receive and retain any dividends or distributions in respect of the Equity
Collateral.
SECTION 6.05. Events of Default, Etc. During the period during
which an Event of Default shall have occurred and be continuing:
(a) each Restricted Company shall, at the request of the
Collateral Agent, assemble the Collateral owned by it at such place or
places, reasonably convenient to both the Collateral Agent and such
Restricted Company, designated in its request;
(b) the Collateral Agent may make any reasonable compromise or
settlement deemed desirable with respect to any of the Collateral and
may extend the time of payment, arrange for payment in installments, or
otherwise modify the terms of, any of the Collateral;
(c) the Collateral Agent shall have all of the rights and
remedies with respect to the Collateral of a secured party under the
Uniform Commercial Code (whether or not said Code is in effect in the
jurisdiction where the rights and remedies are asserted) and such
additional rights and remedies to which a secured party is entitled
under the laws in effect in any jurisdiction where any rights and
remedies hereunder may be asserted, including the right, to the maximum
extent permitted by law, to exercise all voting, consensual and other
powers of ownership pertaining to the Collateral as if the Collateral
Agent were the sole and absolute owner thereof (and each Restricted
Company agrees to take all such action as may be appropriate to give
effect to such right);
(d) the Collateral Agent in its discretion may, in its name or
in the name of the Restricted Companies or otherwise, demand, sue for,
collect or receive any money or property at any time payable or
receivable on account of or in exchange for any of the Collateral, but
shall be under no obligation to do so; and
(e) the Collateral Agent may, upon ten business days' prior
written notice to the Restricted Companies of the time and place, with
respect to the Collateral or any part thereof that shall then be or
shall thereafter come into the possession, custody or control of the
Collateral Agent, the Lenders or any of their respective agents, sell,
lease, assign or otherwise dispose of all or any part of such
Collateral, at such place or places as the Collateral Agent deems best,
and for cash or for credit or for future delivery (without thereby
assuming any credit risk), at public or private sale, without demand of
performance or notice of intention to effect any such disposition or of
the time or place thereof (except such notice as is required above or
by applicable statute and cannot be
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waived), and the Collateral Agent or any Lender or anyone else may be
the purchaser, lessee, assignee or recipient of any or all of the
Collateral so disposed of at any public sale (or, to the extent
permitted by law, at any private sale) and thereafter hold the same
absolutely, free from any claim or right of whatsoever kind, including
any right or equity of redemption (statutory or otherwise), of the
Restricted Companies, any such demand, notice and right or equity being
hereby expressly waived and released. The Collateral Agent may, without
notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at the time and
place fixed for the sale, and such sale may be made at any time or
place to which the sale may be so adjourned.
The proceeds of each collection, sale or other disposition under this Section
6.05 shall be applied in accordance with Section 6.09.
The Restricted Companies recognize that, by reason of certain
prohibitions contained in the Securities Act of 1933, as amended, and applicable
state securities laws, the Collateral Agent may be compelled, with respect to
any sale of all or any part of the Collateral, to limit purchasers to those who
will agree, among other things, to acquire the Collateral for their own account,
for investment and not with a view to the distribution or resale thereof. The
Restricted Companies acknowledge that any such private sales may be at prices
and on terms less favorable to the Collateral Agent than those obtainable
through a public sale without such restrictions, and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner and that the Collateral Agent shall
have no obligation to engage in public sales and no obligation to delay the sale
of any Collateral for the period of time necessary to permit the respective
Issuer or issuer thereof to register it for public sale.
SECTION 6.06. Deficiency. If the proceeds of sale, collection
or other realization of or upon the Collateral pursuant to Section 6.05 are
insufficient to cover the costs and expenses of such realization and the payment
in full of the Secured Obligations, the Restricted Companies shall remain liable
for any deficiency.
SECTION 6.07. Removals, Etc. Without at least 30 days' prior
written notice to the Collateral Agent, no Restricted Company shall (i) maintain
any of its books and records with respect to the Collateral at any office or
maintain its principal place of business other than at the address for notices
to the Borrower specified in Section 10.01 of the Credit Agreement or at one of
the locations identified in Annex 3 or in transit from one of such locations to
another or (ii) change its name, or the name under which it does business, from
the name shown on the signature pages hereto.
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SECTION 6.08. Private Sale. Neither Agent nor any Lender shall
incur any liability as a result of the sale of the Collateral, or any part
thereof, at any private sale pursuant to Section 6.05 conducted in a
commercially reasonable manner. So long as such sale is conducted in a
commercially reasonable manner, each Restricted Company hereby waives any claims
against the Agents and the Lenders arising by reason of the fact that the price
at which the Collateral may have been sold at such a private sale was less than
the price that might have been obtained at a public sale or was less than the
aggregate amount of the Secured Obligations, even if the Collateral Agent
accepts the first offer received and does not offer the Collateral to more than
one offeree.
SECTION 6.09. Application of Proceeds. Except as otherwise
herein expressly provided, the proceeds of any collection, sale or other
realization of all or any part of the Collateral pursuant hereto, and any other
cash at the time held by the Collateral Agent under Article V or this Article
VI, shall be applied by the Collateral Agent:
First, to the payment of the costs and expenses of such
collection, sale or other realization, including reasonable
out-of-pocket costs and expenses of the Collateral Agent and the fees
and expenses of its agents and counsel, and all expenses incurred and
advances made by the Collateral Agent in connection therewith;
Next, to the payment in full of the Secured Obligations, in
each case equally and ratably in accordance with the respective amounts
thereof then due and owing or as the Lenders (or affiliates thereof)
holding the same may otherwise agree; and
Finally, to the payment to the respective Restricted Company,
or their respective successors or assigns, or as a court of competent
jurisdiction may direct, of any surplus then remaining.
As used in this Article VI, "proceeds" of Collateral shall
mean cash, securities and other property realized in respect of, and
distributions in kind of, Collateral, including any thereof received under any
reorganization, liquidation or adjustment of debt of the Restricted Companies or
any issuer of or obligor on any of the Collateral.
SECTION 6.10. Attorney-in-Fact. Without limiting any rights or
powers granted by this Agreement to the Collateral Agent while no Event of
Default has occurred and is continuing, upon the occurrence and during the
continuance of any Event of Default the Collateral Agent is hereby appointed the
attorney-in-fact of the Restricted Companies for the purpose of carrying out the
provisions of this Article and taking any action and executing any instruments
that the Collateral Agent may deem necessary or advisable to accomplish the
purposes hereof, which appointment as attorney-in-fact is irrevocable and
coupled with an
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interest. Without limiting the generality of the foregoing, so long as the
Collateral Agent shall be entitled under this Article to make collections in
respect of the Collateral, the Collateral Agent shall have the right and power
to receive, endorse and collect all checks made payable to the order of any
Restricted Company representing any dividend, payment or other distribution in
respect of the Collateral or any part thereof and to give full discharge for the
same.
SECTION 6.11. Perfection. Prior to or concurrently with the
execution and delivery of this Agreement, each Restricted Company shall (i) file
such financing statements and other documents in such offices as the Collateral
Agent may request to perfect the security interests granted by Article IV and
(ii) deliver to the Collateral Agent all certificates identified in Annex 1
hereto, accompanied by undated stock powers duly executed in blank.
SECTION 6.12. Termination. When all Secured Obligations shall
have been paid in full and the Commitments of the Lenders under the Credit
Agreement shall have expired or been terminated, this Agreement shall terminate,
and the Collateral Agent shall forthwith cause to be assigned, transferred and
delivered, against receipt but without any recourse, warranty or representation
whatsoever, any remaining Collateral and money received in respect thereof, to
or on the order of the respective Restricted Company. The Collateral Agent shall
also execute and deliver to respective Restricted Company upon such termination
such Uniform Commercial Code termination statements and such other documentation
as shall be reasonably requested by the respective Restricted Company to effect
the termination and release of the Liens on the Collateral.
SECTION 6.13. Further Assurances. Each Restricted Company
agrees that, from time to time upon the written request of the Collateral Agent,
such Restricted Company will execute and deliver such further documents and do
such other acts and things as the Collateral Agent may reasonably request in
order fully to effect the purposes of this Agreement. Without limiting the
generality of the foregoing, prior to the August 1993 Indenture Termination
Date, the Restricted Companies will take such action from time to time as shall
be necessary so that all leasehold and other real property interests of the
Restricted Companies are subjected to Liens in favor of the Collateral Agent as
collateral security for the Secured Obligations. In that connection, the
Restricted Companies will:
(a) obtain appropriate consents of landlords, in form and
substance satisfactory to the Collateral Agent, with respect to (i)
100% of all leasehold interests arising after the date hereof and used
by any Restricted Company as a main switching site and (ii) 95% of all
leasehold interests in properties used by the Restricted Companies as
radio transmitter sites arising after the date hereof in each Market
(as defined in Annex 4) in which a Restricted Company operates a Mobile
Communications Business (but excluding, in the case of this clause
(ii), (w) Analog Site Leases acquired in connection with an acquisition
Restricted Company
Guarantee and Security Agreement
<PAGE> 176
- 22 -
of a Mobile Communications Business consummated after the date hereof,
(x) renewals and expansions of Analog Site Leases (as defined below)
existing on the date hereof or acquired in connection with an
acquisition of a Mobile Communications Business consummated after the
date hereof and (y) new Analog Site Leases entered into after the date
hereof with respect to real property subject to an Analog Site Lease
existing on the date hereof or acquired in connection with an
acquisition of a Mobile Communications Business consummated after the
date hereof); and
(b) use its best efforts to obtain such consents with respect
to all such leasehold interests existing on the date hereof and all
such leasehold interests arising after the date hereof as to which
consents are not required pursuant to the foregoing clause (a).
In addition, prior to the August 1993 Indenture Termination Date, each
Restricted Company agrees (i) to use its reasonable best efforts, when entering
into any new leases or acquiring any new leasehold interests after the date
hereof, to cause such lease or leasehold interest (or a memorandum thereof) to
be recorded prior to the time at which any Restricted Company places equipment
on such leasehold interest and (ii) otherwise to comply with its obligations
under any Collateral Assignment of Leasehold Interests executed by the
Restricted Companies parties thereto in favor of the Collateral Agent.
As used in this Section 6.13, "Analog Site Lease" means any
leasehold interest that is used by any Restricted Company as a radio transmitter
site that employs solely analog technology.
Anything in this Section 6.13 to the contrary notwithstanding,
to the extent any of the actions set forth above in this Section 6.13 has not
already been taken pursuant to the Existing Credit Agreement, the Restricted
Companies shall have a grace period ending 90 days after the date hereof in
which to complete such actions to the satisfaction of the Collateral Agent.
ARTICLE VII
Miscellaneous
SECTION 7.01. Notices. All notices and other communications
provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed by certified or registered mail or sent by
telecopy, as follows:
Restricted Company
Guarantee and Security Agreement
<PAGE> 177
- 23 -
(a) if to the Borrower, to it at 1505 Farm Credit Drive, Suite
100, McLean, Virginia 22102, Attention Steven Shindler, Senior Vice
President and Chief Financial Officer (Telecopy No. 703-394-3011);
(b) if to any Restricted Company other than the Borrower, to
such Restricted Company care of the Borrower at the address for notices
indicated in clause (a) above; and
(c) if to the Collateral Agent, to it at 270 Park Avenue, 37th
Floor, New York, New York 10017, Attention Tracey Navin (Telecopy No.
212-270-4164).
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 7.02. Waivers; Amendments.
(a) No failure or delay by either Agent or any Lender in
exercising any right or power hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Agents and the Lenders hereunder
are cumulative and are not exclusive of any rights or remedies that they would
otherwise have. No waiver of any provision of this Agreement or consent to any
departure by the Restricted Companies therefrom shall in any event be effective
unless the same shall be permitted by paragraph (b) of this Section 7.02, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given.
(b) Neither this Agreement nor any other Security Document nor
any provision hereof or thereof may be waived, amended or modified except
pursuant to an agreement or agreements in writing entered into by the Restricted
Companies party thereto, and by the Collateral Agent with the consent of the
appropriate Lenders as more particularly provided in Section 10.02(c) of the
Credit Agreement.
SECTION 7.03. Expenses.
(a) The Restricted Companies shall pay, or reimburse the
Agents or the Lenders for paying, (i) all amounts that the Collateral Agent is
required to make under any indemnity issued to any bank with which lock box or
segregated deposit arrangements are entered into
Restricted Company
Guarantee and Security Agreement
<PAGE> 178
- 24 -
pursuant to Section 5.01((i) of the Credit Agreement or this Agreement and (ii)
all out-of-pocket expenses incurred by either Agent or any Lender, including the
fees, charges and disbursements of any counsel for either Agent or any Lender,
in connection with the enforcement or protection of its rights in connection
with this Agreement, including its rights under this Section 7.03, including in
connection with any workout, restructuring or negotiations in respect thereof.
(b) All amounts due under this Section 7.03 shall be payable
promptly after written demand therefor.
SECTION 7.04. Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the respective
successors and assigns of the Restricted Companies, the Agents, the Lenders and
each holder of the Secured Obligations, except that no Restricted Company may
assign or otherwise transfer any of its rights or obligations hereunder without
the prior written consent of the Collateral Agent (and any attempted assignment
or transfer by any Restricted Company without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, the Lenders and the
respective successors and assigns of the Restricted Companies, the Agents, the
Lenders and each holder of the Secured Obligations) any legal or equitable
right, remedy or claim under or by reason of this Agreement.
SECTION 7.06. Counterparts. This Agreement may be executed in
counterparts (and by the parties hereto on different counterparts), each of
which shall constitute an original, but all of which when taken together shall
constitute a single contract.
SECTION 7.07. Severability. Any provision of this Agreement
held to be invalid, illegal or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such invalidity, illegality
or unenforceability without affecting the validity, legality and enforceability
of the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 7.08. Governing Law. This Agreement shall be construed
in accordance with and governed by the law of the State of New York.
SECTION 7.09. Headings. Article and Section headings used
herein are for convenience of reference only, are not part of this Agreement and
shall not affect the construction of, or be taken into consideration in
interpreting, this Agreement.
SECTION 7.10. Agents and Attorneys-in-Fact. The Collateral
Agent may employ agents and attorneys-in-fact in connection herewith and shall
not be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith.
Restricted Company
Guarantee and Security Agreement
<PAGE> 179
- 25 -
SECTION 7.11. Certain Regulatory Requirements.
(a) Each Restricted Company shall take all action that the
Collateral Agent may reasonably request in the exercise of its rights and
remedies hereunder, which include the right to require such Restricted Company
to transfer or assign the FCC Licenses or the PUC Authorizations to any party or
parties. In furtherance of this right, each Restricted Company shall (i)
cooperate fully with the Collateral Agent in obtaining all approvals and
consents from the FCC and each other Governmental Authority that the Collateral
Agent may deem necessary or advisable to accomplish any such transfer or
assignment of the FCC Licenses or the PUC Authorizations and (ii) prepare,
execute and file with the FCC and any other Governmental Authority any
application, request for consent, certificate or instrument that the Collateral
Agent may deem necessary or advisable to accomplish any such transfer or
assignment of the FCC Licenses or the PUC Authorizations. If any Restricted
Company fails to execute such applications, requests for consent, certificates
or instruments, the clerk of any court that has jurisdiction over the Loan
Documents may, upon an ex parte request by the Collateral Agent, execute and
file the same on behalf of such Restricted Company.
(b) To enforce the provisions of Section 6.05, the Collateral
Agent is authorized to request the consent or approval of the FCC or any other
Governmental Authority to a voluntary or an involuntary transfer of control of
any Restricted Company or the voluntary or involuntary assignment of any FCC
Licenses or PUC Authorizations held by any Restricted Company. In connection
with the exercise of its remedies under this Agreement, the Collateral Agent may
obtain the appointment of a trustee or receiver to assume, control of any
Restricted Company, subject to any required prior approval of the FCC or any
other Governmental Authority. Such trustee or receiver shall have all rights and
powers provided to it by law or by court order or provided to the Collateral
Agent under this Agreement.
(c) Notwithstanding anything to the contrary contained in this
Agreement,
(i) the Collateral Agent will not take any action hereunder
that would constitute or result in any transfer of control or
assignment of the FCC Licenses or any Restricted Company without
obtaining all necessary FCC and other Governmental Authority approvals.
The Collateral Agent, the Administrative Agent and the Lenders shall be
entitled to rely on the advice of FCC counsel selected by the
Collateral Agent to determine whether FCC approval or other
Governmental Authority approvals are required, and
(ii) the Collateral Agent shall not foreclose on, sell,
assign, transfer or otherwise dispose of, or exercise any right to
control the FCC Licenses as provided herein or take
Restricted Company
Guarantee and Security Agreement
<PAGE> 180
- 26 -
any other action that would affect the operational, voting, or other
control of any Restricted Company, unless such action is taken in
accordance with the provisions of the Communications Act of 1934, as
from time to time amended, and the rules, regulations and policies of
the FCC and any other Governmental Authority.
(d) Each Restricted Company acknowledges that the approval of
the FCC and of each other appropriate Governmental Authority to the assignment
of the FCC Licenses or the transfer of control of such Restricted Company is
integral to the Collateral Agent's realization of the value of the Collateral,
including the FCC Licenses, that there is no adequate remedy at law for failure
by such Restricted Company to comply with the provisions of this Section 7.11
and that such failure could not be adequately compensable in damages. Therefore,
each Restricted Company agrees that the provisions of this Section 7.11 may be
specifically enforced.
SECTION 7.12. Additional Guarantors. As contemplated by
Section 6.11(a) of the Credit Agreement, in the event that any Restricted
Company shall form or acquire any new subsidiary after the date hereof, such
Restricted Company will cause such new subsidiary to execute and deliver to the
Collateral Agent a Joinder Agreement in the form of Exhibit D to the Credit
Agreement (and, thereby, to become a party to the Credit Agreement as a
"Restricted Company" thereunder, and to this Agreement as a "Guarantor"
hereunder, and to pledge and grant a security interest in its property pursuant
to this Agreement to the Collateral Agent for the benefit of the Lenders).
Accordingly, upon the execution and delivery of any such Joinder Agreement by
any such new subsidiary, such new subsidiary shall automatically and
immediately, and without any further action on the part of any Person, become a
"Guarantor" under and for all purposes of this Agreement, and Annexes 1, 2 and 3
hereto shall be deemed to be supplemented in the manner specified in said
Joinder Agreement.
Restricted Company
Guarantee and Security Agreement
<PAGE> 181
- 27 -
IN WITNESS WHEREOF, the parties hereto have caused this
Guarantee and Security Agreement to be duly executed by their respective
authorized officers as of the day and year first above written.
NEXTEL FINANCE COMPANY,
by
--------------------------------
Name: Steven Shindler
Title: Senior Vice President
Restricted Company
Guarantee and Security Agreement
<PAGE> 182
- 28 -
INITIAL GUARANTORS
A & B ELECTRONICS, INC.
DIAL DISTANCE, INC.
FCI 900, Inc.
NEXTEL COMMUNICATIONS OF
THE MID-ATLANTIC, INC.
NEXTEL OF CALIFORNIA, INC.
NEXTEL LICENSE ACQUISITION CORP.
NEXTEL LICENSE HOLDINGS 1, INC.
NEXTEL LICENSE HOLDINGS 2, INC.
NEXTEL LICENSE HOLDINGS 3, INC.
NEXTEL LICENSE HOLDINGS 4, INC.
NEXTEL OF NEW YORK, INC.
NEXTEL OPERATIONS, INC.
NEXTEL SOUTH CORP.
NEXTEL OF TEXAS, INC.
NEXTEL SYSTEMS CORP.
NEXTEL WEST CORP.
PITTENCRIEFF COMMUNICATIONS, INC.
RADIOCALL SERVICE AND SYSTEMS, INC.
SAFETY NET, INC.
SMART SMR, INC.
SPECTRUM RESOURCES OF THE
NORTHEAST, INC.
SRI, INC.
By
--------------------------------
Name:
Title:
Restricted Company
Guarantee and Security Agreement
<PAGE> 183
- 29 -
FORT WORTH TRUNKED RADIO
LIMITED PARTNERSHIP
By Nextel of Texas,Inc.,
a General Partner
By
-------------------------------
Name:
Title:
COLLATERAL AGENT
----------------
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by
-------------------------------
Name: Tracey A. Navin
Title: Vice President
Restricted Company
Guarantee and Security Agreement
<PAGE> 184
EXHIBIT D
[Form of Joinder Agreement]
JOINDER AGREEMENT
JOINDER AGREEMENT dated as of ____________, 19__ by
____________, a ___________ corporation (the "Additional Guarantor"), in favor
of The Chase Manhattan Bank, as collateral agent for the Lenders party to the
Credit Agreement referred to below (in such capacity, together with its
successors in such capacity, the "Collateral Agent").
Nextel Communications, Inc. and Nextel Finance Company, a
Delaware corporation (the "Borrower"), and certain subsidiaries and affiliates
of the Borrower (collectively, the "Existing Guarantors") are parties to a
Credit Agreement dated as of March 12, 1998 (as amended and in effect on the
date hereof, the "Credit Agreement"), providing, subject to the terms and
conditions thereof, for extensions of credit (by means of loans and letters of
credit) to be made by the Lenders named therein (collectively, together with any
entity that becomes a "Lender" party to the Credit Agreement after the date
hereof as provided therein, the "Lenders") to the Borrower in an aggregate
principal or face amount not exceeding $3,000,000,000 (which, in the
circumstances contemplated by Section 7.01(e) thereof, may be increased to
$3,500,000,000). In addition, the Borrower may from time to time be obligated to
one or more of the Lenders under the Credit Agreement in respect of Hedging
Agreements under and as defined in the Credit Agreement (collectively, the
"Hedging Agreements").
In connection with the Credit Agreement, the Borrower, the
Existing Guarantors and the Collateral Agent are parties to a Guarantee and
Security Agreement dated as of March 12, 1998 (the "Restricted Company Guarantee
and Security Agreement") pursuant to which the Existing Guarantors have, inter
alia, guaranteed the Guaranteed Obligations (as defined in the Restricted
Company Guarantee and Security Agreement) and granted a security interest in the
Collateral (as so defined) as collateral security for the Secured Obligations
(as so defined). Terms defined in the Restricted Company Guarantee and Security
Agreement are used herein as defined therein.
To induce the Lenders to enter into the Credit Agreement to
which they are party, and to extend credit thereunder and to extend credit to
the Borrower under Hedging Agreements, and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
Additional Guarantor has agreed to become a party to each Credit Agreement as a
"Restricted Company" thereunder, and to the Restricted Company Guarantee and
Security
Annex 3 to Restricted Company
Guarantee and Security Agreement
<PAGE> 185
- 2 -
Agreement as a "Guarantor" thereunder, and to pledge and grant a security
interest in the Collateral (as defined in the Restricted Company Guarantee and
Security Agreement).
Accordingly, the parties hereto agree as follows:
Section 1. Definitions. Terms defined in the Restricted
Company Guarantee and Security Agreement are used herein as defined therein.
Section 2. Joinder to Agreements. Effective upon the execution
and delivery hereof, the Additional Guarantor hereby agrees that it shall become
a "Restricted Company" under and for all purposes of the Credit Agreement with
all the rights and obligations of a Restricted Company thereunder, and a
"Guarantor" under the Restricted Company Guarantee and Security Agreement with
all of the rights and obligations of a Guarantor thereunder. Without limiting
the generality of the foregoing, the Additional Guarantor hereby:
(i) jointly and severally with the other Guarantors party to
the Restricted Company Guarantee and Security Agreement guarantees to
each Agent and Lender and their respective successors and assigns the
prompt payment in full when due (whether at stated maturity, by
acceleration or otherwise) of all Guaranteed Obligations in the same
manner and to the same extent as is provided in Article II of the
Restricted Company Guarantee and Security Agreement;
(ii) pledges and grants the security interests in all right,
title and interest of the Additional Guarantor in all Collateral now
owned or hereafter acquired by the Additional Guarantor and whether now
existing or hereafter coming into existence provided for by Article IV
of the Restricted Company Guarantee and Security Agreement as
collateral security for the Secured Obligations and agrees that Annexes
1, 2 and 3 thereof shall be supplemented as provided in Appendix A
hereto;
(iii) makes the representations and warranties set forth in
Article III of each Credit Agreement and the Restricted Company
Guarantee and Security Agreement, to the extent relating to the
Additional Guarantor or to the Pledged Equity evidenced by the
certificates, if any, identified in Appendix A hereto; and
(iv) submits to the jurisdiction of the courts, and waives
jury trial, as provided in Sections 10.09 and 10.10 of the Credit
Agreement
Joinder Agreement
<PAGE> 186
- 3 -
The Additional Guarantor hereby instructs its counsel to
deliver the opinions referred to in Section 6.11(a)(iii) of the Credit Agreement
to the Agents and the Lenders.
IN WITNESS WHEREOF, the Additional Guarantor has caused this
Joinder Agreement to be duly executed and delivered as of the day and year first
above written.
[ADDITIONAL GUARANTOR]
By
-------------------------
Title:
Accepted and agreed:
THE CHASE MANHATTAN BANK,
as Collateral Agent
By
-------------------------
Title:
Joinder Agreement
<PAGE> 1
EXHIBIT 10.20.2
[LOGO] Nextel Communications, Inc.
1505 Farm Credit Dr.
McLean, VA 22102
703-394-3000
March 24, 1998
Mr. Daniel F. Akerson
1100 Mill Ridge
McLean, Virginia 22102
Re: Employment Agreement
Dear Mr. Akerson:
This letter is intended to memorialize the basic terms of certain
agreed amendments to the terms of the Employment Agreement, effective on and as
of March 5, 1996 ("Employment Agreement"), currently in place between you and
Nextel Communications, Inc. ("Nextel").
Specifically, we have agreed that Paragraph 3 of the Employment
Agreement shall be changed to read in its entirety as follows:
"3. Term. The term of this Employment Agreement shall
commence on the date hereof (the "Commencement Date") and, unless
terminated earlier pursuant to paragraph 10 hereof, shall continue
through March 5, 1999 (the "Initial Term"), and thereafter shall
continue unless and until such time as (i) either party hereto
notifies the other, upon 60 days prior written notice, that this
Employment Agreement will be terminated at the end of the Initial Term
or the later expiration of such 60 day notice period, or (ii)
Executive's employment is otherwise terminated pursuant to paragraph
10 hereof (the "Extended Term") (the Initial Term, together with the
Extended Term, if any, being referred to herein as the "Employment
Term")."
The amendments to the Employment Agreement set forth above shall take
effect immediately upon your execution of the enclosed duplicate copy of this
letter, and thereafter all references in the Employment Agreement shall be
deemed a reference to the Employment Agreement, as amended by this letter.
Except as specifically set forth herein, the Employment Agreement is not
modified or changed in any respect, and is confirmed by each of us to continue
in full force and effect as amended hereby.
<PAGE> 2
2
To signify your agreement with the foregoing, please sign and return
the enclosed duplicate copy of this letter, keeping a fully executed original
copy for your files.
Very truly yours,
NEXTEL COMMUNICATIONS, INC.
/s/Thomas J. Sidman
-------------------
Thomas J. Sidman
Vice President
Agreed:
/s/Daniel F. Akerson
--------------------
Daniel F. Akerson
<PAGE> 1
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into by and between Thomas J.
Sidman ("Executive") and Nextel Communications, Inc., a Delaware corporation
("Employer"), to be effective on and as of October 17, 1994.
WITNESSETH:
WHEREAS, Employer is engaged in the business of acquiring and
operating 800-900 MHz business including trunked and conventional specialized
Mobile Radio ("SMR") licenses and facilities, community repeater facilities,
enhanced digital mobile SMR communications systems, and related assets (the "SMR
Business");
WHEREAS, Executive has skills and experience in the SMR Business and
in providing legal services and advice to Employer; and
WHEREAS, Employer desires to obtain Executive's services for the
conduct of its SMR Business, and Executive desires to be employed in such SMR
Business of Employer;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein set forth, the parties hereto agree as follows:
1. EMPLOYMENT. Employer hereby employs Executive as an executive
officer and Executive hereby accepts such employment upon the terms and
conditions hereinafter set forth.
2. DUTIES.
a. Executive shall perform his services, initially as Vice
President and General Counsel, under the supervision of the Chairman, the
President, the Chief Executive Officer and the Operations Committee of the Board
of Directors (the "Operations Committee") of Employer and within the framework
of the policies and objectives of Employer. Executive shall act as the chief
legal officer of Employer and in such capacity shall exercise general
supervisory responsibility and management authority over the provision of legal
services and administration of legal compliance programs for Employer and all of
its controlled affiliates by internal legal department personnel and by outside
counsel (other than the executive, administrative and technical duties required
for the conduct of the Government Affairs of the SMR Business), shall provide
legal advice and input to members of Employer's Board of Directors and the
Operations Committee and shall attend all meetings of such Board for that
purpose, and shall perform such other duties as may be assigned to him from time
to time by the Board of Directors or by the Chairman, the President, the Chief
Executive Officer or the Operations Committee of Employer, but at all times
during the term of his employment hereunder, Executive shall hold a position of
responsibility, importance and scope, with duties, functions and
1
<PAGE> 2
responsibilities, at least equal to those intended at the commencement of this
Employment Agreement.
b. Executive shall devote his entire business time, attention and
energies to the performance of his duties and functions under this Employment
Agreement and shall not during the terms of his employment hereunder be engaged
in any other substantial business activity for gain, profit or other pecuniary
advantage. Executive shall faithfully, loyally and diligently perform his
assigned duties and functions and shall not engage in any activities whatsoever
which conflict with the objectives of Employer's SMR Business during the term of
his employment hereunder.
c. Employer shall furnish Executive with such facilities at
Employer's corporate headquarters location and services as are suitable to his
position and adequate for the performance of his duties and functions hereunder.
It is understood that Executive's "home base" location shall be at Employer's
principal executive offices, which currently are located in Rutherford, New
Jersey but which are to be relocated to the Washington, D.C. area.
3. TERM. The term of this Employment Agreement shall commence
on the date hereof and shall continue until January 2, 1998 (the "Initial
Term"), and thereafter shall automatically be extended for successive one-year
periods (each, a "Successive Term") unless either party hereto, not later than
(i) January 2, 1997 (with respect to the Initial Term) or (ii) the first day of
any Successive Term, notifies the other that this Employment Agreement will
expire at the end of the Initial Term or such Successive Term, respectively.
Notwithstanding the foregoing, this Employment Agreement also may be terminated
by Employer or by Executive as provided in paragraph 11 herein.
4. COMPENSATION. Employer shall pay to Executive, as compensation
for the services agreed to be rendered by Executive hereunder:
a. A salary of $250,0000 per annum. Such salary shall be
payable in accordance with Employer's normal payroll schedule, less appropriate
deductions for federal, state and city income taxes, FICA contributions and any
other deductions required by law or authorized by Executive.
b. Employer in its sole discretion may, from time to time,
determine that Executive's salary shall exceed $250,000 per annum as it deems
best in the light of conditions then existing and the services then being
rendered by Executive, in which case Executive's salary shall be such higher
amount as is so determined by Employer. Executive shall be entitled to such
annual bonuses (up to 50% of Executive's then current annual salary) based on
performance and such other incentives and/or awards as determined by Employer's
Board of Directors.
c. Grants of option(s) to purchase 200,000 shares of Employer's
Class A voting common stock at fair market value on the date(s) of the relevant
grant(s), all of which options shall be granted and shall have terms and
conditions as summarized in
2
<PAGE> 3
Annex A hereto; together with an award of 3,000 deferred shares, all of which
deferred shares shall be awarded and shall have the terms and conditions
summarized in Annex A hereto. All such options and deferred shares automatically
become vested and exercisable in full upon a filing pursuant to any federal or
state law in connection with any tender offer, on the execution of any agreement
relating to a merger, consolidation or reorganization of the Employer, or the
sale of substantially all the assets of the Employer to another person,
corporation or other entity if, in the opinion of a majority of those persons
who were serving on the Board of Directors of the Employer immediately prior to
such action, such action would result in the creation of a single person,
corporation or other entity, or group of persons, corporations and/or other
entities (formed for such purpose) that would possess a majority controlling
interest in Employer or would be the effective owner of or successor to the SMR
Business theretofore conducted by Employer (such a circumstance being referred
to herein as a "Change of Control"); provided that it is expressly acknowledged
that consummation of any or all of the currently announced proposed or pending
transactions involving the effective acquisition by Employer of certain
entities, businesses and assets from each of Motorola, Inc., OneComm Corporation
and Dial Page, Inc. shall not constitute such a Change of Control. The options
granted and the deferred shares awarded as contemplated in this paragraph 4(c)
are intended to be an inducement to Executive to enter into this Employment
Agreement and to offset the loss of potential future benefits associated with
Executive's prior employment position, and none of such options or deferred
shares shall be taken into account to reduce any option, stock appreciation
right, restricted stock or other equity incentive grants that Executive, as a
member of Employer's senior management, may be entitled to be provided in the
future as is appropriately commensurate with the equity incentive treatment
extended to other members of Employer's senior management.
d. As reimbursement for, or to partially defray the costs
anticipated to be incurred by Executive in his assumed relocation from the
Cleveland, Ohio area to the relocated corporate headquarters location in the
Washington, D.C. area (including, without limitation, any losses on the sale
and/or carrying costs incurred on Executive's current home, "house hunting" trip
expenses, moving expenses, mortgage financing and closing costs), Executive will
be paid the same amount as is to be paid to other senior executives who are
homeowners and who are relocating to the Washington, D.C. area, as such amount,
and the timing of the payment thereof, is determined either pursuant to the
Employer's special transition relocation policy or any other written or verbal
agreement (subject to appropriate withholding). Payments of amounts to Executive
in accordance with this Section 4(d) are expressly intended and acknowledged to
be in lieu of, and not in addition to, any standard relocation benefits to which
Executive might otherwise be entitled under Employer's normal relocation
policies for employees.
3
<PAGE> 4
5. FRINGE BENEFITS.
a. During the term of his employment hereunder, Executive shall
be entitled to participate in all fringe benefit programs and shall receive all
perquisites that Employer establishes and makes available to management
generally, including, but not limited to, Employer-paid Long-term Disability
Insurance and Life Insurance coverage.
b. During the term of his employment hereunder, Executive shall
be entitled to participate in group health, major medical, pension and profit
sharing, 401(k) and all other employee benefit plans maintained by Employer on
the same terms as apply to participation therein by management generally. As to
any of Employer's plans and benefits that are based in whole or in part on
length of service, Executive shall receive past service credit retroactive to
January 1, 1989 (or, if later, the earliest date specified for purposes of the
particular plan or benefit involved as of which service generally is permitted
to be credited); provided that if the terms of any plan or benefit, or of
applicable law, prohibit Executive's receipt of such past service credit, then
Executive shall be entitled to receive, in lieu thereof, economic treatment
(taking into consideration all relevant factors, including the associated tax
effects) as nearly as possible equivalent to that which Executive would have
received had such intended past service credit been permitted.
c. During the term of his employment hereunder, Executive shall
be entitled to participate in such activities (such as attendance at seminars,
bar association functions and like matters) as may be reasonably determined by
Executive to be necessary or advantageous to further develop and/or maintain his
legal practice skills and/or to satisfy continuing legal education requirements
or similar criteria relating to Executive's qualification for admission to
practice law (or to maintain any such qualification) in such jurisdictions where
Executive may be or may seek to become so qualified. Executive's reasonable
costs and expenses incurred by reason of participation in such activities shall
be reimbursed by Employer in accordance with paragraph 6 hereof; provided that
if such activities take place beyond a reasonable commuting distance to
Employer's principal executive offices or otherwise result in Executive being
unavailable to perform his duties and functions hereunder for substantially all
of any normal working day, then, unless Employer otherwise agrees, such normal
working days during which Executive is unavailable by reason of attendance at
activities of the type described in this paragraph 5(c) shall be deemed to be
vacation days for purposes of paragraph 8 hereof.
6. EXPENSES. Employer shall reimburse Executive for all reasonable
travel, entertainment and other business expenses incurred or paid by Executive
in performing his duties and functions hereunder upon presentation by Executive
of expense statements or vouchers and such other supporting information as
Employer may from time to time request.
7. DEATH. In the event of Executive's death during the term of his
employment hereunder, Executive's salary as established pursuant to the
applicable
4
<PAGE> 5
provisions of paragraph 4 hereunder until the last day of the month
of his death, and any amount due hereunder for accrued but unused vacation time
as of his death, will be payable to Executive's estate.
8. VACATIONS. In addition to such holidays, sick leave and
personal time off as is allowed under the policies of Employer to management
generally, Executive shall be entitled each year to a reasonable vacation with
full pay. The duration of such vacation and the time or times when it shall be
taken will be determined by Executive in consultation with Employer and with due
regard for the reasonable needs of Employer, but in no event will Executive's
vacation be less than four weeks during each twelve month period during the term
of Executive's employment hereunder. Such vacation time shall be accrued at a
uniform rate during each such twelve-month period and shall, to the extent
unused during any such twelve-moth period, be carried over to succeeding
twelve-month periods; provided, however, that the maximum amount of vacation
that Executive can accrue in any twelve-month period is twelve weeks vacation
time. Executive shall receive, within thirty days after his employment hereunder
terminates (whether such termination is voluntary or involuntary) a payment
(based on Executive's base salary, as established pursuant to the applicable
provisions of paragraph 4 hereof, in effect at the time of such termination of
employment) for all of Executive's then accrued but unused vacation time.
9. NON-COMPETITION. During the term of Executive's employment
hereunder and (except as provided in paragraph 11 herein) for a period of two
years thereafter, Executive shall not enter into or participate in any business
competitive to the SMR Business carried on by Employer; provided that this
paragraph 9 shall not prohibit Executive, following the term of his employment
hereunder, from engaging (whether alone or as a member of or in association with
a law firm) in the private practice of law, or otherwise providing legal
services to any person, entity, group or organization in any manner not
involving a breach of Executive's obligations pursuant to paragraph 10 herein.
The provisions of this paragraph 9 shall survive the expiration and/or
termination of this Employment Agreement.
10. CONFIDENTIAL INFORMATION. During the term of Executive's
employment hereunder and for a period of two years thereafter, Executive will
not use for his own advantage or disclose any proprietary or confidential
information relating to the business operations or properties of Employer, any
affiliate of Employer or any of their respective customers, suppliers,
landlords, licensors or licensees. Upon expiration or any termination of
Executive's employment hereunder, Executive will surrender and deliver to
Employer all documents and information of every kind relating to or connected
with Employer and its affiliates and their respective businesses, customers,
suppliers, landlords, licensors and licensees. The foregoing confidential
information provisions shall not apply to information which: (i) is or becomes
publicly known through no wrongful act of the Executive; (ii) is rightfully
received from any third party without restriction and without breach by
Executive of this Employment Agreement; or (iii) is independently developed by
Executive after the term of his employment hereunder or is independently
5
<PAGE> 6
developed by a competitor of Employer at any time. The provisions of this
paragraph 10 shall survive the expiration and/or termination of this Employment
Agreement.
11. TERMINATION.
a. The Employer shall have the right to terminate this
Employment Agreement and Executive's employment hereunder by written notice to
that effect given to Executive after the occurrence of any of the following
circumstances (except that such termination shall be deemed automatically
effected, and no separate notice need be given, in case of Executive's death):
(i) the death of Executive; (ii) the Disability of Executive; or (iii) the
establishment of Cause for Dismissal.
For purposes of this paragraph 11(a), the term "Disability"
means: (i) Executive's failure to devote full normal working time as required
herein to his employment hereunder for a period of at least 30 consecutive
normal business days (or for at least a majority of the normal business days in
any consecutive ninety-day period); and (ii) the existence of an illness or
incapacity (either physical or mental) affecting Executive which, in the
reasonable opinion of a Qualified Physician, is likely to be of such character
or severity that Executive would be unable to resume devoting his full normal
working time as required herein to his employment hereunder for a period of at
least six consecutive months; the term "Qualified Physician" means an impartial
physician competent to diagnose and treat the illness or condition which
Executive is believed to be suffering, selected by Employer and reasonably
acceptable to Executive (or if Executive is then incapable of acting for
himself, Executive's personal representative), who shall have personally
examined Executive and shall have personally reviewed Executive's relevant
medical records; provided Employer shall bear the costs of such Qualified
Physician's services and Executive agrees to submit to an examination by such
Qualified Physician and to the disclosure of Executive's relevant medical
records to such Qualified Physician; and the term "Cause for Dismissal" means
either (1) Executive's willful failure to substantially perform his duties and
functions as contemplated hereunder (other than any such failure which is due to
Executive's death or physical or mental illness or incapacity) which continues
for a period of at least 30 days after Executive's receipt of written notice
from Employer which specifically identifies the manner in which the Employer
believes that Executive has not substantially performed such duties and
functions; (2) Executive's committing fraud or embezzlement or otherwise
engaging in conduct that results in Executive being convicted of a felony; (3)
Executive's acting in a manner which he intends, believes or reasonably could
foresee to be materially detrimental or damaging to Employer's reputation,
business operations or relations with its employees, suppliers or customers; or
(4) Executive's committing any material breach of this Employment Agreement
(other than any such breach which is due to Executive's death or physical or
mental illness or incapacity) without taking reasonable steps to cease or remedy
such breach within 30 days after Executive's receipt of written notice from
Employer specifically identifying the nature of and circumstances relevant to
any such claimed material breach by Executive; provided that, establishment of
Cause for Dismissal under any of the foregoing clauses (1), (3) or (4) shall
require the
6
<PAGE> 7
concurrence, in writing, of each of (i) Morgan O'Brien, (ii) Brian McAuley and
(iii) a majority of the members of the Nextel Operations Committee at such time.
b. Executive shall have the right to terminate this Employment
Agreement and his employment hereunder at any time by written notice to
that effect given to Employer.
c. In the event of an automatic termination pursuant to
subparagraph 11(a)(i) above, the payments contemplated by paragraph 7 hereof
shall be made and neither Employer nor Executive shall have any further
obligations hereunder (subject to the final sentence of this paragraph 11(c)).
In the event of any other termination by Employer pursuant to subparagraph 11(a)
or otherwise, or by Executive pursuant to subparagraph 11(b): (1) other than a
termination by Employer pursuant to subparagraph 11(a)(iii), which shall take
effect immediately, such termination shall take effect on the later of (A) the
final day of the month following the month in which the notifying party gives
written notice of termination to the other party; and (B) if either party
disputes the propriety of such termination, the date on which such dispute is
finally resolved, whether by agreement of the parties or award of an arbitrator
as contemplated herein, in favor of the propriety of such termination (the date
on which such termination takes effect being referred to as the "Termination
Date"); (2) in the case of any termination effected pursuant to subparagraph
11(a)(ii), 11(a)(iii) or 11(b), all amounts required to be paid and benefits
required to be made available to Executive hereunder with respect to any period
ending on or prior to the Termination Date shall be paid or made available in
accordance with the terms hereof; (3) in the case of any termination effected by
Employer in circumstances other than those described in subparagraphs 11(a)(i),
11(a)(ii) or 11(a)(iii), or by Executive in circumstances constituting "Good
Reason" (as defined below), Executive shall not be bound by the non-compete
provisions set forth in paragraph 9 herein after the Termination Date; and (4)
in the case of any termination effected by Employer pursuant to subparagraph
11(a)(iii) or a termination by Executive in a circumstance other than those
constituting Good Reason, notwithstanding any of the provisions of Employer's
Incentive Equity Plan or of any option agreement with respect thereto to the
contrary, any and all options granted to Executive pursuant to paragraph 4
hereof that theretofore have vested may be exercised at any time on or before
the thirtieth day following such Termination Date and, if not so exercised,
thereupon shall be canceled (it being acknowledged and understood that in all
other termination circumstances not specifically referenced in this clause (4),
the vesting and exercise provisions set forth in Employer's Incentive Option
Plan and/or any option agreement with respect thereto shall continue to apply).
For purposes hereof the term "Good Reason" means either (1) any
material change in the terms and conditions of Executive's employment effected
or attempted to be effected without Executive's written consent (including, by
way of illustration and not of limitation, a relocation of Employer's principal
executive offices any more than 25 miles from any location to which Executive
shall have agreed to relocate, or any requirement that Executive be based (or
spend, on a regular or recurring basis, in excess of two-fifths of his normal
business days) at a location other than Employer's principal
7
<PAGE> 8
executive offices, or any change in the nature or extent of Executive's duties
or responsibilities that is either inconsistent with Executive's intended
position and status or would entail onerous or significantly undesirable or
inconvenient working arrangements); (2) any failure by Employer to pay or make
available to Executive any amount or benefit to which he is entitled under the
terms hereof, which failure continues for fourteen days after Employer's receipt
of a written request from Executive specifically identifying such payment or
benefit claimed to be due; (3) Employer's committing any material breach of its
other obligations hereunder without taking reasonable actions to cease or remedy
such breach within 30 days after Employer's receipt of written notice from
Executive specifically identifying the nature of and circumstances relevant to
any such claimed material breach by Employer; (4) any attempt by Employer to
terminate Executive's employment hereunder which is not effected in
compliance with the applicable provisions hereof.
d. In the event of any termination by Executive pursuant to
subparagraph 11(b) in circumstances constituting Good Reason, conduct of the
Employer shall be deemed to have caused such termination in breach of this
Employment Agreement and, in addition to the consequences provided elsewhere
herein, Executive shall be entitled to receive damages therefor. In the absence
of clear and convincing reasons shown by either party that another measure of
such damages would be appropriate, such damages shall be determined to be the
compensation (including bonuses), benefits, and other treatment (including,
without limitation, vesting and exercise terms for option grants and other
equity awards) which Executive reasonably would have expected to receive in the
period from the date of such termination to the expiration date of the then
current term of Executive's employment hereunder (assuming no termination of
such term prior to the normal expiration thereof).
e. In the event that Employer treats any portion of Executive's
payments or benefits hereunder (including, without limitation, under the
foregoing paragraph 11(d)) as an "excess parachute payment" within the meaning
of Section 280G of the Internal Revenue Code ("Code") or any comparable
provision of state or local tax law, or it is otherwise asserted (including on
an audit of either Employer or Executive) that any portion of such payments or
benefits is such an "excess parachute payment," Employer shall prior to the date
on which any amount of excise tax (or penalty or interest) must be paid in
respect thereof, promptly make an additional lump sum payment in cash to
Executive in an amount sufficient, after giving effect to all federal, state and
other taxes and charges (including interest and penalties, if any) with respect
to such payment to make Executive whole for all taxes (including withholding and
social security taxes) imposed under Section 4999 of the Code, or any comparable
provision of state or local tax law, with respect to the "excess parachute
payment" and all associated interest and penalty amounts.
f. In the event of any termination or attempted termination
hereof: (1) if multiple event, occurrences or circumstances are asserted as
bases for such termination or attempted termination, the event, occurrence or
circumstance that is earliest in time, and any termination or attempted
termination found to be proper hereunder based thereon,
8
<PAGE> 9
shall take precedence over the others; (2) no termination of this Employment
Agreement shall relieve or release either party from liability hereunder based
on any breach of the terms hereof by such party occurring prior to the
Termination Date; and (3) the terms of this Employment Agreement relevant to
performance or satisfaction of any obligation hereunder remaining to be
performed or satisfied in whole or in part at the Termination Date shall
continue in force until such full performance or satisfaction has been
accomplished.
g. There shall be no right of setoff or counterclaim, in
respect of any actual or alleged claim, debt or obligation, against any payments
or benefits required to be made or provided to Executive hereunder (including,
without limitation, pursuant to paragraph 11(d) above). In the event of any
termination of this Employment Agreement, Executive shall have no duty or
obligation to seek or accept other employment or to take other action in the
nature of mitigation, and no compensation or benefits received by or available
to Executive from any other source shall be taken into account to reduce or
avoid, in whole or in part, any amount or benefit due to Executive hereunder.
12. INJUNCTIVE RELIEF. It is agreed that the services of Executive
are unique and that any breach by Executive of any provision of this Employment
Agreement cannot be remedied solely by damages. Accordingly, in the event of a
breach by Executive of his obligations under this Employment Agreement, Employer
shall be entitled to seek and obtain interim restraints and permanent injunctive
relief without providing the inadequacy of damages as a remedy, restraining
Executive and any business, firm, partnership, individual, corporation or entity
participating in such breach or attempted breach. Nothing herein, however, shall
be construed as prohibiting Employer from pursuing any other remedies available
at law or in equity for such breach or threatened breach, including the recovery
of damages and the termination of the services of Executive.
13. ARBITRATION. Any dispute or controversy arising out of or
relating to this Employment Agreement or any claimed breach hereof shall be
settled, at the request of ether party, by an arbitration proceeding conducted
in accordance with the rules of the American Arbitration Association ("AAA"),
with the award determined to be appropriate by the arbitrator therein to be
final, non-appealable and binding on the parties hereto, and with judgment upon
such award as is rendered in any such arbitration proceeding available for entry
and enforcement in any court having jurisdiction of the parties hereto. The
arbitrator shall be an impartial arbitrator qualified to serve in accordance
with the rules of the AAA and shall be reasonably acceptable to each of the
Employer and the Executive. If no such acceptable arbitrator is so appointed
within 15 days after the initial request for arbitration of such disputed
matter, each of the parties promptly shall designate a person qualified to serve
as an arbitrator in accordance with the rules of the AAA, and the two persons so
designated promptly shall select the arbitrator from among those persons
qualified to serve in accordance with the rules of the AAA. The arbitration
shall be held in the city in which Employer's corporate headquarters are located
at the time of the initiation of any such proceeding, or in such other place as
may be agreed upon at the time by the parties. The expenses of the
9
<PAGE> 10
arbitration proceeding shall be borne by Employer, but the arbitrator's award
may provide that Executive shall reimburse Employer for an equitable share of
such expenses if Executive is not the prevailing party on any of the issues
involved in such arbitration. The Employer shall pay for and bear the cost of
its own and Executive's experts, evidence and counsel in such arbitration
proceeding, but the arbitrator's award may provide that, in addition to any
other amounts or relief due to Employer, Executive shall reimburse Employer on
demand for all of such costs of Executive's experts, evidence and counsel
initially incurred by Employer, to the extent the award finds such costs
properly allocable to any issue(s) in dispute as to which the award indicates
the Employer to be the prevailing party.
14. INDEMNIFICATION.
a. Employer shall indemnify Executive to the fullest extent
permitted by Delaware law as in effect on the date hereof against all costs,
expenses, liabilities and losses (including, without limitation, attorney's
fees, judgments, penalties and amounts paid in settlement) reasonably incurred
by Executive in connection with any action, suit or proceeding, whether civil,
criminal, administrative or investigative in which Executive is made, or is
threatened to be made, a party to or a witness in such action, suit or
proceeding by reason of the fact that he is or was an officer, director,
consultant, agent or employee of the Employer or any of Employer's controlled
affiliates or is or was serving as an officer, consultant director, member,
employee, trustee, agent or fiduciary of any other entity at the request of the
Employer (a "Proceeding").
b. Employer shall advance to Executive all reasonable costs and
expenses incurred by him in connection with a proceeding within 20 days
after receipt by Employer of a written request for such advance, accompanied by
an itemized list of the costs and expenses and Executive's written undertaking
to repay to Employer on demand the amount of such advance if it shall ultimately
be determined that Executive is not entitled to be indemnified against such
costs and expenses.
c. The indemnification provided to Executive hereunder is in
addition to, and not in lieu of, any additional indemnification to which he may
be entitled pursuant to Employer's Certificate of Incorporation or Bylaws, any
insurance maintained by Employer from time to time providing coverage to
Executive and other officers and directors of Employer, or any separate written
agreement with Executive. The provisions of this paragraph 14 shall survive any
termination of this Employment Agreement.
15. AMENDMENT AND MODIFICATION. This Employment Agreement and Annex
A hereto (and any option agreement entered into in connection therewith)
contains the entire agreement between the parties with respect to the subject
matter hereof. Subject to applicable law and upon the consent of the Board of
Directors of Employer, this Employment Agreement may be amended, modified and
supplemented by written agreement of Employer and Executive with respect to any
of the terms contained herein.
10
<PAGE> 11
16. WAIVER OF COMPLIANCE. Any failure of either party to comply
with any obligation, covenant, agreement or condition on its part contained
herein may be expressly waived in writing by the other party, but such waiver or
failure to insist upon strict compliance shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure. Whenever this
Employment Agreement requires or permits consent by or on behalf of any party,
such consent shall be given in writing.
17. NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered by hand, overnight courier or five
days after having been mailed, certified or registered mail with postage
prepaid:
If to Employer: If to Executive:
Nextel Communications, Inc. Thomas J. Sidman
201 Route 17 North 12070 Fowlers Mill Road
Rutherford, NJ 07070 Chardon, OH 44024
Attention: Chief Executive Officer
or, in the case of either such party, to such substitute address as such party
may designate from time to time for purposes of notices to be given to such
party hereunder, which substitute address shall be designated as such in a
written notice given to the other party addressed as aforesaid.
18. ASSIGNMENT. This Employment Agreement shall inure to the
benefit of Executive and Employer and be binding upon the successors and
general assigns of Employer. This Employment Agreement shall not be assignable,
except that Employer may assign it to a successor to its business, subject to
Executive's rights set forth herein with respect to a Change in Control.
19. ENFORCEABILITY. In the event it is determined that this
Employment Agreement is unenforceable in any respect, it is the mutual intent of
the parties that it be construed to apply and be enforceable to the maximum
extent permitted by applicable law.
20. APPLICABLE LAW. This Employment Agreement shall be construed in
accordance with the laws applicable to contracts executed, delivered and fully
to be performed in the state in which Employer's corporate headquarters are
located at the time of such construction or enforcement.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the day and year first above written.
NEXTEL COMMUNICATIONS, INC.
By: /s/Morgan E. O'Brien
----------------------------------
Name: Morgan E. O'Brien
Title: Chairman of the Board
/s/Thomas J. Sidman
-------------------------------------
Thomas J. Sidman
12
<PAGE> 1
EXHIBIT 21
Subsidiaries of NEXTEL COMMUNICATIONS, INC. at December 31, 1997
<TABLE>
<S> <C>
A & B Electronics, Inc. (6) NEW MEXICO
Airfone Holdings, Inc. (10) DELAWARE
Corporation Mobilcom S.A. de C.V. (13) MEXICO
Dial Call Midwest, Inc. DELAWARE
Dial Distance, Inc. DELAWARE
FCI 900, Inc. DELAWARE
Fort Worth Trunked Radio Limited Partnership (2) TEXAS
McCaw International (Brazil), Ltd. (12) VIRGINIA
Nextel Argentina S.R.L. (15) ARGENTINA
Nextel Aviation, Inc. (7) DELAWARE
Nextel Communications of the Mid-Atlantic, Inc. (1) DELAWARE
Nextel Finance Company DELAWARE
Nextel International, Inc. (7) WASHINGTON
Nextel International (Argentina), Ltd. (14) CAYMAN ISLANDS
Nextel International (CanMex), Ltd. (9) DELAWARE
Nextel International (Delaware), Ltd. (8) DELAWARE
Nextel International (Holdings), Ltd. (9) CAYMAN ISLANDS
Nextel International (Indonesia), LLC (16) CAYMAN ISLANDS
Nextel International Investment Company (9) DELAWARE
Nextel International (Peru), LLC (16) CAYMAN ISLANDS
Nextel International (Philippines), LLC (16) CAYMAN ISLANDS
Nextel International (Services), Ltd. (8) DELAWARE
Nextel License Acquisition Corp. (1) DELAWARE
Nextel License Holdings 1, Inc. (4) DELAWARE
Nextel License Holdings 2, Inc. (5) DELAWARE
Nextel License Holdings 3, Inc. (4) DELAWARE
Nextel License Holdings 4, Inc. (5) DELAWARE
Nextel of New York, Inc. (1) DELAWARE
Nextel of California, Inc. (1) DELAWARE
Nextel of Texas, Inc. (1) TEXAS
Nextel S.A. (11) BRAZIL
Nextel South Corp. (1) GEORGIA
Nextel West Corp. (1) DELAWARE
Pittencrieff Communications, Inc. (1) DELAWARE
Radiocall Service and Systems, Inc. (3) CALIFORNIA
SRI, Inc. (1) VIRGINIA
Safety Net, Inc. DELAWARE
Smart SMR, Inc. (1) DELAWARE
Spectrum Resources of the Northeast, Inc. (1) DELAWARE
Top Mega Enterprises Ltd. (18) HONG KONG
Unrestricted Subsidiary Funding Company DELAWARE
Valorcom S.A. (17) PERU
</TABLE>
(1) 100% owned by Nextel Finance Company
(2) 75% owned by Nextel of Texas, Inc.
(3) 100% owned by Nextel of California, Inc.
(4) 100% owned by Nextel South Corp.
(5) 100% owned by Nextel West Corp.
(6) 100% owned by Pittencrieff Communications, Inc.
(7) 100% owned by Unrestricted Subsidiary Funding Company
(8) 100% owned by Nextel International, Inc.
(9) 100% owned by Nextel International (Delaware), Ltd.
(10) 100% owned by McCaw International (Brazil), Ltd.
(11) 77% owned by Airfone Holdings, Inc.
(12) 81% owned by Nextel International, Inc.
(13) 76.5% owned by Nextel International (CanMex), Ltd.
(14) 100% owned by Nextel International (Holdings), Ltd.
(15) 100% owned by Nextel International (Argentina), Ltd.
(16) 99% owned by Nextel International (Holdings), Ltd. and 1% owned by Nextel
International (Delaware), Ltd.
(17) 70.05% owned by Nextel International (Peru) LLC
(18) 100% owned by Nextel International (Philippines) LLC
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment
No. 1 to Registration Statement No. 333-1290 of Nextel Communications, Inc. on
Form S-4, Post-Effective Amendment No. 3 on Form S-3 to Registration Statement
No. 33-80021 of Nextel Communications, Inc. on Form S-4, Registration Statement
No. 333-06521 of Nextel Communications, Inc. on Form S-8 and Registration
Statement No. 333-06523 of Nextel Communications, Inc. on Form S-8, of our
report dated March 13, 1998, appearing in this Annual Report on Form 10-K of
Nextel Communications, Inc. for the year ended December 31, 1997.
DELOITTE & TOUCHE LLP
McLean, Virginia
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1997 and the Consolidated Statement
of Operations for the Year Ended December 31, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-30-1997
<CASH> 301,601
<SECURITIES> 131,404
<RECEIVABLES> 240,637
<ALLOWANCES> 0
<INVENTORY> 101,338
<CURRENT-ASSETS> 839,597
<PP&E> 3,225,603
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,227,801
<CURRENT-LIABILITIES> 768,891
<BONDS> 5,038,250
529,119
290,545
<COMMON> 271
<OTHER-SE> 1,621,604
<TOTAL-LIABILITY-AND-EQUITY> 9,227,801
<SALES> 0
<TOTAL-REVENUES> 738,897
<CGS> 0
<TOTAL-COSTS> 284,549
<OTHER-EXPENSES> 526,337
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 407,805
<INCOME-PRETAX> (1,309,341)
<INCOME-TAX> 258,726
<INCOME-CONTINUING> (1,568,067)
<DISCONTINUED> 0
<EXTRAORDINARY> (45,787)
<CHANGES> 0
<NET-INCOME> (1,613,854)
<EPS-PRIMARY> (6.59)
<EPS-DILUTED> (6.59)
</TABLE>
